The Monopoly Control Authority (MCA) has made it mandatory for the companies to obtain No-Objection Certificate (NOC) from the authority before acquisition of shares or merger of companies. In this connection, the authority has issued Monopoly Control Authority (Acquisition of Shares and Merger Notices) Rules 2007 here on Monday.
Official sources told Business Recorder that the companies have to submit notice prior to initiating merger process or acquisition of shares. This would be called pre-acquisition of shares or pre-merger notice. However, companies would obtain the NOC only in certain conditions pertaining to annual turnover or value of assets etc as specified in the Rules 2007.
The authority has framed and subsequently notified the new rules from June 23, 2007. The rules have been issued to ensure that any company going for merger or acquiring shares of other undertaking would not create monopoly of one entity in a specific sector. The authority would analyse the company's data from monopolistic point of view and would not issue NOC in cases where monopoly is being created after merger or shares' acquisition. Without the authority's permission, no company could initiate merger process.
The new rules would also help in safeguarding the consumer interest. If merger would create healthy business environment, the authority would give clearance within 30 days of the submission of notice by the company. Contrary to this, if the impact of market assessment is negative and there is possibility of dominant market position of one company, the NOC would not be issued in such cases.
Similarly, the authority is empowered to call for further information in cases where consumer interest is likely to hurt due to merger and acquisition of shares. The merger of companies should be in the best interest of the general public, as one company should not control the entire market.
Sources said that if the competition is affected due to merger, the authority would not issue NOC under these rules. Prior to issuance of rules, sources said the companies did not provide this information to the authority. The study of annual reports of companies or reported news is the only source of information pertaining to merger or acquisition of shares. It was not possible for the authority to disintegrate companies after completion of merger process for which prior information is necessary for analysis purposes.
The companies would have to submit information in cases of acquisition including take over of management control, purchase of assets or common stock of an undertaking by another undertaking. Similarly, merger would cover combination, amalgamation, consolidation or joint venture or merger of an undertaking with another undertaking.
Under the new rules, a detailed procedure has been specified for the pre-acquisition of shares or pre-merger notice. An undertaking, which is a party to the acquisition of shares or merger with another undertaking shall, within seven days of the date of the decision taken by its management or the date of resolution passed by its board of directors, give notice of its intention to do so to the authority for seeking NOC.
The company would approach the MCA for obtaining NOC if the value of gross assets of the undertaking, excluding value of goodwill, is not less than Rs 300 million and/or the combined value of both the undertaking and the undertaking the shares of which are proposed to be acquired or the undertaking being merged, is not less than one billion rupees.
Secondly, annual turnover of the undertaking in the preceding year is not less than Rs 500 million and/or the combined turnover of both the undertaking and the undertaking the shares of which are proposed to be acquired or the undertaking being merged is not less than one billion rupees.
Thirdly, the undertaking (including an individual) holds not less than thirty percent shares in the equity of an undertaking intending to acquire or purchase not less than thirty percent shares in the equity of another undertaking.
In the case of merger, along with notice, the agreed scheme of arrangement and a complete statement of the case shall also be-submitted to the authority.
After receipt of the notice, along with the documents, the authority would be empowered to demand any information or evidence from undertaking and conduct hearings.
The rules have specified that the authority shall give its verdict or issue NOC within 30 days of receipt of the Notice or ask for further information within this period in which case the authority will have 90 days from the receipt of the notice to give its verdict. If the verdict or NOC is not issued by the authority, the acquisition/merger shall be deemed approved by the MCA at the end of 30 days or 90 days, as the case may be.
Every notice filed by the company shall be accompanied by a fee of one hundred thousand rupees in cases involving acquisition of shares and two hundred thousand rupees in case of merger, rules added.
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