1. INTRODUCTION
1.1. The Indian merger control regime is mandatory and suspensory; therefore, if a combination (or a part thereof) is notifiable to the
1.2. After almost 2 years of a pandemic induced hiatus, the CCI has recently taken cognizance of gun-jumping and imposed penalties of INR 5 lakhs (approximately
2. Acquisition by AGEL5
2.1 On
2.2 During its review of the Combination, the CCI observed that the SPA contained a clause that: (i) allowed AGEL and
2.3 AGEL submitted that the primary consideration for such exchange of information pursuant to the Impugned Clause is: (i) to monitor and preserve the economic value of SBEHL between signing and closing; and (ii) to take stock of any material developments that have affected the business of SBEHL. Further, AGEL had put in place safeguards in the SPA such as: (a) the information exchange would take place by way of a 'clean team'; and (b) ensuring that the inputs provided by AGEL were non-binding in nature.
2.4 As such, the CCI recognised the importance and inherence of information exchange between the parties at various stages of a transaction6 and reiterated that a balance should be maintained between legitimate exchange of information and the concerns of gun jumping. The CCI clarified that while undertaking gunjumping assessment, it considers the likelihood of the conduct or arrangement: (i) to infringe with ordinary course activities of the parties; or (ii) to lead to a reduction in the competition intensity; or (iii) to have the potential of causing competition distortions inter-alia by way of: (a) the acquirer gaining a strategic advantage over the target enterprise; (b) reducing the incentive and will of the target enterprise to compete with the acquirer; and (c) creating situations similar to tacit collusion. Such likelihood is weighed in terms of the inherence-proportionality test and the efficacy of the safeguards put in place to avoid any adverse effect on competition.
2.5 In the present case, the CCI observed that the Impugned Clause cannot be considered to be inherent or proportional to the objective of preserving the economic value of SBEHL as it explicitly brings discussion on 'business and operations' in its scope. 7 Further, the safeguards contained in the SPA were insufficient to ensure that the standstill obligation was adhered to in letter and spirit as: (i) the clean team of AGEL could not have provided 'inputs' to SBEHL on their own; and (ii) such inputs would have necessarily being shared with the management of SBEHL. Additionally, the CCI observed that the SPA already contained clauses that aimed to preserve the economic value of SBEHL. Hence, the CCI concluded that the Impugned Clause cannot be considered a legitimate exchange of information to preserve the economic value of SBEHL.
2.6 In view of the above, the CCI held that that the Impugned Clause, by itself, amounts to part consummation of the Combination prior to receiving the CCI's approval and hence, violates the standstill obligation under the Competition Act. Given the various aspects surrounding issue of information exchange during the course of a transaction, the CCI deemed it more important to raise awareness amongst the stakeholders regarding standstill obligations in general and information exchanges in particular. Accordingly, the CCI imposed a nominal penalty of INR 5 lakhs (approximately
3. Acquisitions by TPCL9
3.1 On
3.2 During its review of the combinations, the CCI observed that in the financial years 2016-17 and 2020-21, the
3.3 TPCL inter-alia submitted that: (i) the present acquisitions were different from a typical commercial transaction as they are entirely regulated by the OERC under the provisions of Section 20 of the Electricity Act; 11 (ii) the OERC had the exclusive jurisdiction to regulate 'combinations' in the electricity sector; and (iii) a special law (i.e., the Electricity Act) will prevail over the general law (i.e., the Competition Act) in case of any apparent conflict between the two.
3.4 The CCI based on its decisional practice12 held that the OERC did not have exclusive jurisdiction over the acquisition of the Targets under the Electricity Act and that TPCL was obliged to notify such acquisitions to the CCI, after the issuance of the LOI but before consummation. Additionally, the CCI observed that the OERC (by way of a letter sent to TPCL), expressly recognized the CCI's jurisdiction regarding regulating combinations in the electricity sector and directed TPCL to comply with the provisions of the Competition Act. Thus, the CCI concluded that TPCL failed to notify its acquisition of the Targets in a timely manner. However, given the mitigating factors, such as, cooperation extended by TPCL and the obligations imposed by the OERC, the CCI imposed a nominal penalty of INR 5 lakhs (approximately
4. INDUSLAW VIEW
4.1 In the recent years not only is
4.2 The AGEL penalty order is of particular importance as it provides an insight into the evaluation process of the CCI, which will enable the parties to undertake a self-assessment of their proposed interim conduct or arrangements and examine if they may amount to violation of the standstill obligations. This order also gains prominence as it elaborates the permissible scope of information that can be exchanged between the parties during a combination.
Footnotes
1 Section 6(2A) of the Competition Act.
2 Converted at
3 Converted at
4 Standstill obligations essentially require that the parties carry on with their ordinary course activities completely independent of each other till the time the transaction is reviewed for any appreciable adverse effect on competition and approved by the CCI.
5 Order available at: https://www.cci.gov.in/sites/default/files/Notice_order_document/Order837_43A.pdf.
6 During the due diligence stage, the focus of information exchange is on information which facilitates the assessment of the suitability of the target enterprise for the acquirer (i.e., whether the target enterprise fits in the business strategy of the acquirer and for the purpose of valuation of the target enterprise). On the other hand, the focus of the information exchange after execution of transaction documents shifts more towards ensuring the preservation of economic value of the target enterprise and to undertake integration planning.
7 Such discussions and consequent inputs by AGEL may lead to the parties ceasing to act independently or ceasing to compete as the parties were competing before the combination and result in a situation of tacit collusion with a competitor.
8 Converted at
9 (i) TPCL acquisition of
10 Pursuant to the issuance of LOI, TPCL was required to: (i) make payment of guarantee; (ii) deposit the consideration amount; and (iii) execute the transaction documents, within 30 days from the issuance of the LOI.
11 Section 20 of the Electricity Act empower the
12 Case No. 39 of 2019,
13 Converted at
14 Converted at
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr Avimukt Dar
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