The Competition Commission of India recently penalised Abu Dhabi Investment Authority and TPG Group for wrongful disclosures while seeking approval under the green channel route of mergers.
A penalty of Rs 55 lakh was levied on them for making wrongful disclosures for the acquisition of stakes in UPL Sustainable Agri Solutions Ltd. This is probably the first time an acquirer has been penalised for faulty disclosures in a green channel notice, say experts.
Introduced in 2019, the green channel route has emerged as one of the most successful mechanisms under the merger control regime. With more than 80 deemed approvals under the green channel route to date, various merger and acquisition deals have benefited from it, said Aparna Mehra, a partner at Shardul Amarchand Mangaldas and Co.
Interestingly, this is the first instance where the CCI has imposed a penalty due to non-adherence to the conditions of the green channel route.Aparna Mehra, Partner, Shardul Amarchand Mangaldas and Co.
Under the green channel route, a combination that meets a certain criteria can get automatic approval upon filing a form, without having to get formal approval from the commission.
The combination is deemed to be approved the day the form is filed. However, only those combinations whose parties are not conflicted by any horizontal, vertical or complementary overlaps, either directly or indirectly through holding or subsidiary companies, are eligible to move through the route.
The two parties are said to be in a vertical overlap when they are on different levels of the same production chain. Similarly, a horizontal overlap occurs when the parties are engaged in the production of the same or similar goods. Complementary overlaps, on the other hand, occur when the parties are involved in the production, supply, and distribution of any good that's complementary to each other.
In this case, Upswing Trust, an entity that TPG and ADIA jointly own, filed a green channel form to acquire 5% stake in crop protection company UPL SAS. It also provided the legal disclosures that there are no overlaps and the combination received approval in December 2022. However, the CCI later discovered that Upswing already holds 22.2% stake in UPl Co., whose subsidiary Arysta LifeScience India Ltd. is already involved in the same business, showing a horizontal overlap.
On being asked why they shouldn't nullify the combination and be penalised, the parties submitted that they (UPL and UPL SAS) are all part of the same corporate group and, therefore, should be exempted as it's an intragroup transaction.
The commission, however, refused to accept this argument. According to it, approval under the green channel route is based on an objective criteria and is not left to the discretion of the parties. As Arysta and UPL SAS are engaged in the same business, the acquisition is not eligible for green channel acquisition, the commission said.
The parties must be absolutely sure about any overlap before choosing the route, said KK Sharma, a partner at Singhania and Co.
The commission has only bestowed the facility for ease of business; it has not parted with its authority and judgment to examine the transaction, he said.
Therefore, if there is even an iota of doubt, even a minor chance of overlap, they should disclose so in their notice or prefer the normal route of approval.KK Sharma, Partner, Singhania and Co.
According to Mehra, the order underscores two critical aspects.
firstly, the importance of rigorous due diligence, ensuring all criteria are met before opting for the green channel route as there is no room for subjective interpretation; and secondly, the importance of complete alignment with the CCI before formally filing under the green channel route.Aparna Mehra, Partner, Shardul Amarchand Mangaldas and Co.
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