This article has been written by Manan Sabharwal pursuing the Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho. This article has been edited by Amitabh Ranjan (Associate, Lawsikho) and Dipshi Swara (Senior Associate, Lawsikho).
Table of Contents
Introduction
The Competition Commission of India is an expert body with the official jurisdiction for Merger control and Antitrust activities which is governed by the principal legislation of the Competition Act, 2002 and subsequent rules and notifications under it. Its main objective is to make sure that the balance in a business environment is maintained and no corporate entity has an undue advantage which it carries out by engaging in detailed investigations. The Competition Commission in an endeavour to better facilitate mergers and acquisitions established an initiative called ‘Green Channel clearance’ on 19th August, 2019 as per the press release dated.
Mergers or Amalgamations when discussed in reference to the Competition Act are referred to as ‘Combinations’. Therefore, every combination over and above a certain threshold as per the act has to pass through the scanner vision of the CCI. The commission characterises the ‘Green Channel’ as an automatic system of approval for combinations wherein the combination is deemed to be approved upon filing the notice in format prescribed.
The Competition Commission of India celebrated its anniversary for Green Channel as per its Twitter post and gave statistics of Total Notices and Green Channel approvals, one of which was given to a deal between Synergy Metals Investment Holding Limited (acquirer) and JSW Cement (target). This article is a detailed analysis of the deemed approval given to the deal and provisions of Green Channel.
Background of Synergy Metals and JSW Steel
As per the official website of Synergy, it states that it is a Private Equity fund and Strategic Advisory firm present in Dubai, London, Mumbai and Singapore and focuses on Industrials, Metals and Power sectors globally and targets special situations globally where it can drive through active management and operational transformation. Synergy focuses on structured investments with a typical investment bracket of USD 20 million dollars to 50 million dollars with a global mandate of geographically diversified portfolios across developed E.U and emerging Indian and South Asian markets. Synergy Fund states that it has 670 million U.S dollars capital deployed. Synergy Metals Investment Holding Limited incorporated on 10th April, 2019 is the investment firm of Synergy Metals and Mining Fund I LP, Dubai.
JSW Cement, founded in 2009, is an unlisted company part of the 13 billion dollars JSW Group. JSW Cement headquartered in Mumbai with Sajjan Jindal and Parth Jindal in key-managerial positions is India’s leading Green Cement company with a current capacity of claimed 14 million tonnes per annum (MTPA). The company primarily produces and trades in Cement, Clinker and Construction Material and is claimed to be converting industrial waste into cement and other building materials. JSW cement has many famous awards and accolades under its belt such as: Iconic Brands of India 2021, Best Infrastructure Brands, 2021 and Apex India Environment Excellence Award 2018 among others.
Intricate details of the transactions
As per Synergy Metals press release, it is Synergy’s largest investment to date and is fully aligned with their ESG and Economic impact values. The total structured equity investment of totalling up to INR 750 crores (100 million USD) in JSW Cement, one of India’s leading and fastest-growing sustainable building products company is being looked at by experts as a strategic move focused towards sustainable building and constructions initiatives. The main factor drawing Synergy to JSW was its unique focus on green building materials, an example of which is: JSWC’s ground granulated blast furnace slag (GGBS) with approximately 90% lower carbon footprint than traditional Portland Cement.
As per a 2020 report by Mckinsey Global Institute titled: India’s turning point, housing and infrastructure are critical areas for rapid economic development. This report also provides a list of actionable reforms and opportunities to create 90 million new jobs by 2030. Considering this it would be safe to assume that Synergy’s investment in JSW Cement which received a deemed approval by CCI under Green Channel paves path to a new future with others to follow suit in a sector which is already heavily regulated and not without its fair share of controversies especially with regard to CCI imposing heavy penalties on Cement Companies in the past.
Meaning of Green Channel and its significance in relation to deemed approval
The Competition Law Review Committee which submitted its report on 26th July, 2019 was set up by the central government on 1st October 2018 to review the Competition Act and rules and regulations framed thereunder. One of the recommendations based on the report was adopted and implemented by the CCI by amending the Competition Commission of India (Procedure in regard to transaction of business relating to combinations) Regulations, 2011 [Amended Combination Regulations] by a gazette Notification dated: 13th August 2019 this initiative expressly termed the “Green Channel” was a first of its kind which provides for an automatic approval of certain combinations under the Competition Act by filing of Notice in Form-1 in regulation 5(2) with CCI. It is stated that upon filing of such a notice and its acknowledgement the proposed combination “shall be deemed to have been approved” by the commission under sub-section (1) of section 31 of the Act.
Parties that are desirous of availing this deemed approval route are required to self-assess the transactions internally without any prior filing to ascertain if they qualify for Green Channel route or not. The key change Green Channel route brings for automatic approval is the elimination of statutory limit of 210 days prescribed for ex-ante examinations of combinations by CCI to ascertain if they may cause appreciable adverse effect on competition in their relevant markets before granting them an approval by CCI this automatic approval enables the parties to implement their transactions smoothly and rapidly without waiting for an approval by CCI.
Such self-assessment and guidance as mentioned above is provided to the parties by referring to the newly amended Schedule-III of Amended Combination Regulations to check if such combination is eligible for Green Channel route. It is important to note that the Green Channel route while providing for an automatic approval and granting an opportunity to parties for self-assessment does create an embargo on certain approvals for combinations between transacting parties as they should not have any:
- Horizontal Overlaps or in other words they should not be producing any similar, identical or substitutable products or services.
- Vertical Overlaps or they should not be engaged in activities at different stages or levels of the production chain.
- Complementary Overlaps which simply put, are products/services when combined and used together contribute to enhancing the value of combined goods/services.
This embargo and overlaps are not limited to just the transacting parties to the combination and their group entities but also to any and every entity in which they hold shares/stake and/or exercise control through direct or indirect shareholding of 10% or more, it also includes the ability to exercise any right or ability unavailable to an ordinary shareholder and the right or capacity to nominate a director or observer in another enterprise.
This Green Channel notification as mentioned above has to be filed in Form-I Along with a self-declaration as given under Schedule-IV. As per filing under Form-I the filing fee of INR 20,00,000 (Twenty Lakh only) shall be applicable as prescribed by Regulation 11 of the Combination Regulations,2011.
Risks in availing the Green Channel route
The parties are required to conduct a self-assessment with regard to concerning overlaps and if at all the combination creates any adverse effect on the competition, it is pertinent to note that if there is any default in the declaration (as mentioned previously) or in case wrong information is furnished the CCI can hold the automatic approval granted to the combination to be void-ab-initio but with sufficient opportunity given to transacting parties for hearing before such revocation.
Post such revocation the parties can also be held liable for penalties under Section 44 of the Act which gives discretion to the commission for determination and shall not be less than INR Fifty Lakhs but which can extend up to INR One Crore. Even further if parties consummate the transaction, they can be made liable for proceedings under Section 43A of the Act which states that if parties consummate a combination without prior approval of the commission, they shall be made liable for a penalty which can extend to one percent of such total turnover or the assets of such a combination, whichever is higher.
In essence the parties to the combination stand at the risk of exposing their transaction/combination to be void ab-initio if defaults are made in the declaration and/or overlaps, supplementarily if the combination doesn’t satisfy CCI in furtherance penalties can be imposed under relevant sections.
Conclusion
The Green Channel is an important and pioneering initiative by the CCI that aids and facilitates smooth and rapid approvals to Merger and Acquisition transactions by incorporating automatically deemed approval status, it simultaneously emerges as a glaring champion for pro-business development and an important step in the right direction to avoid any unnecessary regulatory delays especially at a time when the office of CCI is closed due to the global pandemic, but still the Green Channel route is open for approvals as per this press release.
One of the combinations given that deemed approval under Green Channel by the CCI during the pandemic was the acquisition of equity stake by Synergy Metals (acquirer) in JSW Cement (target) on 14th July, 2021 as per the official press release by CCI. It is claimed that one out of five cases is opting green channel route for approval which is sufficiently aligned with central governments ease of doing business and encourages unwrinkled Mergers and Acquisitions by removing dispensable regulatory delays by shifting onus on the transacting parties and reducing the burden on the regulatory body. In all probability, more combinations will opt for the Green Channel route in future as Synergy and JSW Cement did.
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