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India's ‘green channel’ not for M&A deals with insolvency component, overlapping issues 02 October 2019 | 13:37 IST

October 02, 2019

 M&A deals involving distressed assets not granted automatic fast-track access
CCI official says parties can still request consultations for green channel
Carve out of IBC cases not possible as it goes against ‘natural justice’ - CCI official
The Competition Commission of India (CCI) will not grant access to fast-track approvals for parties to M&A deals that involve insolvencies which have overlapping issues, according to Manish Mohan Govil, CCI adviser and head of the combination division.
Last month, the Competition Law Review Committee (CLRC) proposed to the government that cases under the Insolvency and Bankruptcy Code (IBC) could access the so-called “green channel" when seeking CCI approval.
To enhance the ease of doing business, the CLRC proposed an array of regulatory changes, many of which require amendments to the Competition Act, 2002, including IBC cases that use the green channel.
Govil said a “carve out” for IBC cases is not possible, as it would go against the principles of natural justice that require equal treatment for all business combinations, irrespective of whether they arise out of bankruptcy.
Therefore, IBC cases may only access the green channel if there are no overlaps, meaning deals in which there are no horizontal, vertical or complimentary activities, products or services being offered by parties to the deal.
Acquisition of distressed companies are therefore not automatically granted access to fast-track approvals, said Govil.
For example, Tata Steel's takeover of Bhushan Steel, and Ultratech Cement’s acquisition of Binani Cement, would not qualify for automatic approvals.
India has seen a spate of M&A in the last four to five years.
Since insolvent companies are taken over for largely strategic reasons, there is a greater chance of overlapping issues, limiting applicability of the green channel, said Rajat Prakash, managing partner of Athena Legal.
While the green channel can potentially save time and money, its success depends on pre-filing consultations with the regulator and an assessment of how many approved cases subsequently came under review, he said.
CCI's Govil said applicants “can easily avail themselves of consultations with the regulator to mitigate any risk of contravening the law.” There have been no green channel clearances to-date because no entities have applied for the fast-track process, Govil said, adding he was optimistic that deals would come through soon.
Mumbai-based competition lawyer Somasekhar Sundaresan said much will depend on CCI's approach to enforcement. “If every green channel case is seen with suspicion, things won’t work,” he said.
Sundaresan said that the green channel “gives greater legitimacy to the argument that IBC cases should be fast tracked” as well as a signal that “India wants to present an ‘ease of doing business’ environment.”
K.K. Sharma, a former director general of CCI and chairman of K.K.Sharma law offices, said the onus was on parties filing for combinations to see whether they qualify for the green channel process or not.” He does not see the need for any separate treatment for IBC cases under the green channel.
Parties to a deal will need more guidance from the regulator for M&A transactions, including those under the IBC “to make the best possible use of green channel,” said Anu Monga, a partner at Induslaw. Until then, pre-filing consultations may be the only way forward, she added.
Highlighting that the government has always favored an expeditious approach to IBC transactions, Amitabh Kumar, a senior competition lawyer, said that bidders for an insolvent company have been allowed to approach the CCI in advance once a resolution plan was passed, which shortened the CCI's clearance time to usually less than a month.
Kumar said there are obvious attractions to the green channel. He gave the example of an importer at the customs clearance house who is given a choice between passing through a green queue that does not require paperwork, and a red channel that requires the importer to take several minutes to fill out a form. “Which would you prefer?” he quipped.
by Biman Mukherji