Earlier, companies could be penalised if they did not get CCI approval before making such secondary market stock purchases, explained a former official of the regulator who requested anonymity.
“Seeking BOI’s permission for incremental stock market trading was not feasible as incremental stock market trading is dynamic in nature. The government has corrected this anomaly which is a step towards improving the ease of doing business,” the person said.
Any company acquiring 25% stake in a listed company must make an open offer to public shareholders as per the rules of market regulator Securities and Exchange Board of India (Sebi).
Rahul Rai, partner and co-founder of law firm Axiom 5 Law Chambers, said such secondary market transactions need to be notified to the CCI within 30 days of the initial listing acquisition. “This is very important in case of certain unsolicited investments in listed companies and their acquisition (hostile takeovers) as it helps in maintaining the strategic nature of the transaction and plugging legal loopholes,” he said.
However, Rai pointed out that the rider states that while investors can get dividends, they can exercise voting rights in management only after obtaining CCI approval.
Shweta Shroff Chopra, partner at Shardul Amarchand Mangaldas & Co, explained that most exemptions relate to the absence of a transfer of control, which the Competition Amendment Act defines as the ability to exercise significant influence over management or affairs or strategic business decisions. This is a lower standard of decisive influence than in other laws and jurisdictions. Therefore, if the nature of control changes, the exemption may no longer apply, Chopra said.
Global Trading
Among other changes announced by the Indian council last week, experts noted that global transactions involving companies with significant operations in India will require approval from the Indian council, which could have an impact on the funding cycle for startups.
Under this norm, if an Indian company is acquired, ₹20,000 crore and meet the local connection criteria, then CCI approval is required. Rai of Axiom 5 Law Chambers said this threshold is not low and few venture capital funds can reach it. ₹2000 crore mark.
“However, CCI requires investors to look back at their investments in a company over the past two years,” Rai pointed out, adding that venture capital funds continue to make additional investments in companies that are performing well, which may violate ₹At some point in time the threshold of Rs 20,000 crore was reached.
“As a result, the funding cycle of some young companies may be affected,” Rai said, adding that the speed and size of funding raised by startups is crucial.
The new merger review norms based on deal value do not have a grandfather clause. It covers deals signed before September 10 but not yet completed. As a result, the timeline for completing these deals may be derailed. “This is a headache for M&A lawyers, investment bankers and everyone involved in the deal,” Rai said.
The addition of a grandfather clause to the legislative changes serves as a transitional arrangement, protecting individuals and businesses that followed the old regime from any difficulties that may arise from the change in regime. Businesses expect legislative changes to be forward-looking, not retroactive.
However, a merger review regime based on deal value thresholds has been publicly debated for a long time and was only introduced into law more than a year ago.
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