By Toshit Shandilya and Rishabh Jain
The Competition Commission of India (CCI) recently published its annual report for FY 2023-24. As with other things this season, it is time for reflection, looking back and learning for the future. We reflect on how the CCI’s automatic approval route for select mergers and combinations, i.e., the Green Channel route, hasn’t made the kind of impact it should have. Businesses are reluctant to pursue this route due to increasing conservatism and an overly formalistic interpretation of rules. We suggest some steps the Government should consider to make this channel more accessible.
Prior approval from the CCI is a necessary requirement for businesses considering mergers and acquisitions above a certain financial threshold. This important milestone is not a formalistic compliance requirement but a culmination of the substantive assessment that the regulator conducts before approving a transaction. For businesses, the compliance cost, in terms of sharing crucial business and personal information and the impact on timelines, is critical.
To foster ease of doing business and filter out non-problematic transactions, the green channel route was introduced in 2019. It is a fast-track process to seek the CCI’s clearance where transactions are automatically approved without any waiting period. This business-friendly step came as a relief for transactions where the acquirer group and the target were neither competitors nor had any vertical or complementary linkages. This is because the chances of competitive harm in these cases are minimal.
The industry hailed and embraced this welcome move, and in the first 12 months of its introduction, 17 filings were made under the green channel route. However, the percentage of green channel filings before the CCI reduced from approximately 28.5% of the total notification filings in 2021 to around 18% in 2024. Clearly, businesses are wary of even assessing the eligibility for this route in their transactions.
Purposive reading of beneficial provisions, so long as they adhere to the intended goals could have been a better business-friendly approach. However, the CCI has gone with strict interpretation and rejected the applicability of the green channel route in non-problematic transactions where the parties had minimal or technical overlaps (see IBEF-IV and Platinum Owl).
A purposive reading of beneficial provisions, as long as they adhere to the intended goals, could have been a better, business-friendly approach. However, the CCI has opted for a strict interpretation and rejected the applicability of the green channel route in non-problematic transactions where the parties had minimal or technical overlaps (see IBEF-IV and Platinum Owl).
Updated Green Channel Rules
The changes introduced to the green channel rules in September 2024 make the requirements more cumbersome and will potentially further reduce green channel filings. While the old rules required the parties to map overlaps considering the ultimate controlling entity of the acquirer group, the new rules now pierce the corporate veil of the ultimate controlling entity and consider the ultimate controlling persons (UCP) of the acquirer group for mapping overlaps with the target(s) to qualify for a green channel filing.
Practically, this requires parties to now consider the personal de minimis investments of the UCP in their individual capacity where they directly or indirectly have (a) 10% or more shareholding; or (b) the right to nominate a director or observer on the board of directors of an investee company; or (c) the right or ability to access its commercially sensitive information. Illustratively, if Tesla were to invest in India, a green channel filing would only be allowed if Elon Musk’s personal investments were not in competing businesses or vertical/complementary linkages with the target. This will not only disincentivise parties from filing transactions under the green channel regime but also raise questions about the well-settled principle of a company being a separate legal entity, independent and distinct from its members and shareholders. The new rules transgress the fixed boundaries of lifting the corporate veil doctrine delineated by the courts.
These rules place a highly burdensome requirement on businesses, high-net-worth individuals, and sovereign government heads to disclose their personal investments. This may lead to a return to the routine, time-consuming route of filing and obtaining approvals for transactions, even those with no anti-competitive effects.
In essence, the green channel route has become a risky, inefficient, and unviable proposition, undermining its original purpose of facilitating quick approvals for non-problematic deals. Unless the green channel approach is revised to a more flexible, predictable, and business-friendly system, it risks losing its intended purpose as a tool for promoting timely and efficient M&A approvals.
The CCI should also adopt a purposive approach to interpreting the green channel rules so that businesses can actually make use of it. Reverting to the simpler ultimate parent entity criteria for mapping control structures, while keeping the personal investments of the UCPs out of the assessment, will go a long way in maintaining momentum for an investment-friendly regulatory atmosphere.
Toshit Shandilya is a partner, and Rishabh Jain is an associate in the AZB & Partners’ competition law team. The views expressed are personal and should not be attributed to the firm.
Views are personal and do not represent the stand of this publication.
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