RBI in its monitory policy as regards Foreign Direct Investment (FDI), has been decided to withdraw all the existing guidelines relating to valuation in case of any acquisition/sale of shares and accordingly, such transactions will henceforth be based on acceptable market practices. Operating guidelines will be notified separately.

The operating guidelines until a few years back were based on pricing details as arrived at by chartered accountants which then moved to competition commission of India based pricing, that was later changed to a Discounted Free Cash Flow (DFCF) method in 2010. However, since then there has been controversy regarding the issue of ‘call’ and ‘put’ options and for such options, the exit pricing was supposed to be linked to return on equity.

The new rules would see an attempt to provide more flexibility to investors involved in the deal and focused towards commercial aspect of transactions. It is interesting to see how new rules would be framed. In our view valuation approach and method should be kept open to suit the market, company and transaction.

1. Sub-regulation 5 has been added to Regulation 9 that seeks to cover combination transactions that are structured in such a manner so as to avoid the requirement of notice under Regulation 5 in respect of the whole or a part of the combination. It has been clarified that the filing of notice under Regulation 5 shall therefore be determined with respect to the substance of the transaction.
2. Amendment in regulation 11 has been made which has increased the statutory fee of filing notice in Form I from Rs. 10,00,000 to Rs. 15,00,000 and of Form II from Rs. 40,00,000 to Rs. 50,00,000.
3. Regulation 14(3) has been amended to clarify the power of CCI to ask the applicant to amend the information provided in the notice and any response filed pursuant to Combination Regulations. Although the CCI has practically been following the practice of requiring amendment to any responses filed pursuant to Regulation 14(3), the amendment only clarifies such power of CCI.
4. Regulation 29 has been omitted. Regulation 29 appeared to qualify the right to file appeal to the Competition Appellate Tribunal (COMPAT) and restrict such right only to the parties to the combination. However, Regulation 29 was always subject to the provisions of section 53B of the Competition Act, 2002 which allows any person aggrieved by any direction, decision or order of the CCI to file appeal to COMPAT. Therefore, Regulation 29 was although redundant, it only left scope for potential hindrance to the right of a person under section 53B.
5. Category 10 in Schedule I has been omitted, which was an exception to filing of notice if a combination took entirely outside India and had insignificant local nexus and effect on the markets in India. Therefore the parties to the combination are falling under the threshold limits of assets or turnover as prescribed under Section 5 of the Act, the notice has to be now mandatorily filed with CCI, even if the Combination is taking place entirely outside India.
6. Certain changes in Form I and Form II to require certain additional information have been made.