Green Channel Route Under The Competition Act, 2002

Author - Khyati Dhuparr

The Competition Act, 2002

Before exploring the Green Channel Route we need to understand what the Competition Act  and green channel competition law is. The earlier laws dealing with the monopoly of the market become obsolete in today’s competitive world. The Monopolies And Restrictive Trade Practices (MRTP) Act was dealing with the monopolistic, restrictive and unfair trade practices, however, the Competitive Act was introduced in 2002 due to its limitations.The main objective of the Competitive Act was to promote green channel competition instead of dealing with monopolies. The provisions of the Act intended to provide a healthy economic development environment in the market. It also provides to set-up Competition Commission of India (CCI), a commission which not only avoids the adverse effects on the competition but also intends to promote and sustain competition in the market.

What is the Green Channel route?

The Green Channel Route is an amendment in the Competition Act which is effective from August 15, 2019, to improve merger regulations.

It is aimed:

1. to sustain and promote a fast, transparent and liable review of combination cases

2. establish a balance between facilitation and enforcement functions

3. create a culture of compliance and promote economic growth

The CCI has introduced a green channel route for speedier approval of clearing certain categories of Merger and Acquisitions (M&A). It allows qualifying transactions to be approved immediately upon filing the notification with the CCI, which means, the qualifying or the eligible transaction will no longer wait for a CCI approval and can avoid the waiting period.

Eligibility Criteria

The eligibility criteria to apply through the green channel route is that the parties to a combination which may be the acquirer and the target company or their respective group companies should not be engaged in any activities which demonstrate any sort of horizontal, vertical or complementary overlaps.

Process

The parties require filing notification which should be in a prescribed format along with the declaration as per the amended norms. The summary of the combination would include details such as name, nature & purpose, products, services & business of the parties along with other details. In the declaration, it requires declaring the nature of the combination which is being entered into is within the scope of Schedule-III and does not cause any adverse effect on competition. It is also necessary to mention that all the statements declared in the declaration are true.

Later, the concerned transaction would be deemed automatically approved once the acknowledgement receipt from the CCI for such notification.

Roadblocks

Along with benefits, the newly amended Green Channel Route green channel competition law has found several roadblocks which are efficient to reduce the flow of M&A transactions.

1. Overlaps - This is the major roadblock to the green channel route. In the eligibility criteria, it makes it mandatory that the parties must not overlap any of vertical, horizontal or complementary overlaps under Schedule-III. Parties are also obliged to consider all possible relevant market definitions of these overlaps. Addition to this, they require consideration of these overlaps from the aspect of their own operations, group entities operations, direct or indirect shareholding, direct or indirect control of transacting parties etc. This eligibility criterion raised certain concerns. It may be easy to meet their criteria for a small or medium group of companies. But when we consider large companies such as global financial investors, private equity funds, etc. to match the criteria is very troublesome for them. By considering all types of precautions the chances of 1% are always there which makes them ineligible for the green channel route.

2. Ambiguous Terms - In Schedule-III, it is also mentioned that the green channel route is not available for M&A transactions if the parties are involved in any other complementary business. Here the term “complementary” is ambiguous. There are no guidelines available to interpret “complementary”. The concept and definition of “Complementary overlapping” are not yet clear. CCI has not provided any guidelines.

3. Serious Penalty - According to act, if the CCI finds that the information provided in the notification is not correct then the transaction becomes void. Therefore, the parties require filing new notification for the eligibility of the green channel route. In cases where the parties completed the transaction and then found information incorrect, they would have penalised with the huge amount under the green channel competition law by considering them guilty for gun-jumping.

What "overlap" refers to

Horizontal Overlapping - The horizontal overlapping is when parties are engaged in the activities which are similar or substitutable to each other which mean that they are competing entities.

E.g. Biscuit manufacturers are demonstrating horizontal overlaps.

Vertical Overlapping - The vertical overlapping is when the activities of the parties don't really directly overlap but fall within the same supply chain but at different levels.

E.g. Manufacturer of the product and the distributor of the product are vertically overlapping.

Complementary Overlap - Complementary overlap is a very vague sort of concept which is introduced by green channel notifications itself. It is unclear what it is really entitled to. But if looking from an economic perspective, two products seem to be complementary if the price of one product goes up and the demand of the other goes down. But till now there is no exact guideline.

Conclusion

The Green Channel Route has been introduced by the CCI or the green channel CCI for the ease of business and facilitates M&A transactions. A significant step has been taken to increase the inflow of investments in India. However, there are some roadblocks which reduced the effect of this act. The major roadblocks are eligibility criteria and onerous penalties.