Merger Control 2021

Last Updated July 07, 2021

India

Law and Practice

Authors



Shardul Amarchand Mangaldas & Co (SAM & Co) is one of India’s leading law firms recognised by international organisations, law directories and professional journals. It is a full-service law firm which delivers solutions in the field of mergers and acquisitions, tax, competition law, dispute resolution and arbitration, regulatory litigation, capital markets and private equity practices. It has over 668 lawyers, including over 129 partners, with offices in New Delhi, Mumbai, Gurugram, Ahmedabad, Kolkata, Bengaluru and Chennai. The competition law team of SAM & Co has a proven track record of successfully steering clients through some of the largest transactions, complex investigations and high-stakes litigations. It has the largest competition law practice in India, with close to 40 dedicated lawyers, including ten partners.

The merger control regime in India is primarily governed by the Competition Act, 2002 (Competition Act) read with the Competition Commission of India (Procedure in regard to the transaction of business relating to Combinations) Regulations, 2011 (Regulations). There are various other regulations and government notifications issued from time to time which also impact the merger control framework in India.

The Competition Commission of India (CCI) (which is the relevant enforcement authority) has also provided additional guidance in the form of:

  • "guidance notes" on the preparation of notification forms;
  • frequently asked questions (FAQs) on merger control, which are updated from time to time;
  • a compliance manual for enterprises; and
  • a "do-it-yourself" online toolkit to assist with examining whether or not the authorities must be notified of a transaction. 

Under Indian competition laws, there are no separate provisions that deal with merger control for foreign transactions/investments or transactions relating to specific sectors. However, there are exemptions for particular transactions in the banking, oil and gas and financial institutions sectors. These are discussed further in 2.1 Notification.

For the sake of completeness, it should be noted that there are other Indian laws and statutory authorities that deal with foreign investments and investments in particular sectors.

The CCI is the central enforcement authority for merger control (and all other competition law issues) in India. Certain orders of the CCI can be appealed before the National Company Law Appellate Tribunal (NCLAT), and orders of the NCLAT can be appealed before the Supreme Court of India (Supreme Court).

The notification requirement is mandatory in nature. All transactions which meet the prescribed jurisdictional thresholds, and are not otherwise exempt, are required to be pre-notified to the CCI.

However, there are various exemptions available to the notification requirement, as discussed below.

Exemptions under Schedule I of the Regulations

Schedule I of the Regulations identifies various categories of transactions that are ordinarily not likely to cause an appreciable adverse effect on competition (Appreciable Adverse Effect on Competition (AAEC)) in the relevant market in India and are therefore not normally required to be notified to the CCI. These categories of transactions are: 

  • an acquisition of shares/voting rights entitling the acquirer to hold less than 25% of the shares/voting rights of a target, "solely for investment purposes" or "in the ordinary course of business", provided that this does not lead to the acquisition of "control".

Acquisitions of less than 10% of shares/voting rights will be treated as being "solely for investment purposes" if the acquirer:

  • has the ability to exercise only the rights of ordinary shareholders exercisable to the extent of their respective shareholding;
  • is not a member of the board of directors of the target nor has the right or intention to nominate such members in future; and
  • does not intend to participate in the management or affairs of the target. 

In its decisional practice, the CCI has interpreted this exemption narrowly, and has held that it does not apply to transactions where the acquirer and target operate either in the same horizontal market or vertically related markets. The definition and scope of "control" (which is also critical, while examining the applicability of this exemption) is discussed separately in 2.4 Definition of "Control".

  • An acquisition of additional shares/voting rights by the acquirer/its group where, prior to the acquisition, the acquirer/its group already holds 25% or more shares/voting rights of the target, but does not hold 50% or more of the shares/voting rights of the target either prior to or after that acquisition. This exemption is unavailable if the transaction results in the acquisition of sole or joint control of the target by the acquirer/its group.
  • An acquisition of shares or voting rights where the acquirer/its group already holds 50% or more of the shares/voting rights in the target enterprise, except where the transaction results in a transfer from joint to sole control.
  • An acquisition of assets not directly related to the business of the acquirer, or made solely as an investment, or in the ordinary course of business, not leading to control over the target enterprise. This exemption does not apply to transactions where the acquired assets represent substantial business operations in a particular location or for a particular product/service of the target, irrespective of whether or not those assets are organised as a separate legal entity.
  • Intra-group reorganisations, which include:

a) an acquisition of shares/voting rights or assets by an enterprise of another enterprise within the same group, except in cases where the acquired enterprise is jointly controlled by enterprises that are not part of the same group (for definition of group, see 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds); and

b) a merger or amalgamation of two enterprises where one of the enterprises has more than 50% of the shares/voting rights of the other enterprise, or merger/amalgamation of enterprises in which more than 50% of the shares/voting rights in each merging enterprise is held by enterprises within the same group (this exemption is not available if the transaction results in a transfer from joint to sole control).

  • An acquisition of stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business.
  • An acquisition of shares/voting rights by a person acting as a securities underwriter or registered stockbroker on behalf of their clients, in the ordinary course of its business and in the process of underwriting or stockbroking.
  • An acquisition of shares/voting rights pursuant to a buy-back or a bonus issue or a stock split or consolidation of face value of shares or subscription to rights issue, not leading to an acquisition of control. Care will need to be taken in the case of an acquisition of control through a renunciation of rights.
  • An amended/renewed tender offer where a notice to the CCI has already been filed by the party making such an offer.
  • An acquisition of shares/control/voting rights/assets by a purchaser approved by the CCI (in the case of a divestiture in a remedies package).

Additional Exemptions by Way of Government Notifications

The Government of India has also introduced the following exemptions by way of notifications.

  • Target Exemption – a de minimis target-based exemption has been introduced for a period of five years (until 27 March 2022), pursuant to which transactions where the value of Indian assets being acquired, taken control of, merged or amalgamated is less than INR350 crores (approximately USD48 million), or Indian turnover attributable to those assets is less than INR1,000 crores (approximately USD136 million), do not need to be notified to the CCI (Target Exemption).
  • Banking Exemptions – for a period of five years (until 10 August 2022), transactions involving certain regional rural banks are not required to be notified to the CCI. Separately, for a period of ten years (until 30 August 2027), transactions involving reconstitution, amalgamations or transfer of whole/part of nationalised banks under specific banking laws do not have to be notified to the CCI (Banking Exemptions).
  • Oil and Gas Exemption – for a period of five years (until 22 November 2022), all transactions involving central public sector enterprises operating in the oil and gas sectors (under specific legislations in this sector), do not have to be notified to the CCI.

Exemptions for Certain Financial Institutions

It is not necessary to pre-notify the CCI of any acquisitions, share subscriptions or financing facilities entered into by public financial institutions, registered foreign institutional investors, banks or registered venture capital funds, pursuant to any covenant of a loan agreement or an investment agreement. Rather, these transactions need to be notified to the CCI within seven calendar days of the completion of such a transaction. It is pertinent to note that a failure to notify such transactions post-closing does not attract penalties from the CCI.

Previously, parties were required to notify reportable transactions to the CCI within 30 calendar days of the "trigger event". However, in June 2017, the Government introduced an exemption removing the 30-day filing deadline for a period of five years (until 29 June 2022). Therefore, parties can now notify reportable transactions at any time after the trigger event, but before consummating any step of such a transaction (Trigger Exemption).

However, if parties fail to notify a reportable transaction prior to closing (or at all), the CCI may levy a penalty of up to 1% of the combined turnover or assets of the transaction, whichever is higher. The CCI additionally has the power to "unscramble" a reportable transaction which was not notified to it and which was subsequently found to cause an AAEC in India, although it has not done so to date.

The CCI has levied fines for a failure/delay in notifying a transaction in approximately 19 transactions to date, with fines ranging between INR100,000 (approximately USD1,360) and INR50 million (approximately USD682,000). The CCI has also levied fines for “gun-jumping” in approximately 21 cases (discussed separately in 2.13 Penalties for the Implementation of a Transaction before Clearance).

Trends for the Last Three Years

In its most recent penalty order (November 2019) arising from failure to notify, the CCI has imposed a fine of INR5 million (approximately USD68,000) on the Canada Pension Plan Investment Board (CPPIB)/ReNew (C-2017/11/536). The CPPIB was penalised for (i) not notifying and closing a subsequent transaction which was "inter-connected" to the transaction filed and approved by the CCI, and (ii) suppressing the material disclosure of that "inter-connected" transaction from the CCI while notifying the other transaction.

There have been no penalty orders in 2020 or 2021 (to date).

The CCI frequently monitors news and other public sources for non-notified transactions, and issues letters of inquiries for transactions it believes may have been notifiable.

Penalty Orders Available Publicly

The CCI’s (and the NCLAT/Supreme Court’s) penalty orders are public and are uploaded on their website.

The Competition Act covers all acquisitions (of shares, voting rights, assets or control), mergers and amalgamations which meet the prescribed jurisdictional thresholds, and are not otherwise exempt. Therefore, apart from transfers of shares and assets, transactions involving the transfer of voting rights and/or control (for instance, through a shareholders' agreement or changes to articles of association) may also trigger a notification requirement.

Further, as discussed in 2.1 Notification, whilst certain internal restructurings/reorganisations are exempt, other internal restructurings may trigger a notification requirement. Further, certain joint ventures may also be notifiable, as discussed in 2.10 Joint Ventures

As explained in 2.3 Types of Transactions, transactions giving rise to a change in control may be notifiable (in addition to various other forms of notifiable transactions) if the prescribed jurisdictional thresholds are met.

The CCI, in its previous decisional practice, has interpreted control to mean "the ability to exercise decisive influence over the management or affairs and strategic commercial decisions" of a target enterprise, whether that decisive influence is being exercised by way of a majority shareholding, veto rights (attached to a minority shareholding) or contractual covenants (Independent Media Trust/Network 18- C-2012/03/47). However, more recently, it has also adopted a lower standard of "material influence" instead of "decisive influence", which has blurred the lines to some extent (Ultratech/Century- C-2015/02/246) (ChrysCapital/Intas- C/2020/04/741).

The CCI has considered the ability to veto (or cause a deadlock in respect of) strategic commercial decisions (such as the annual business plan, budget, recruitment and remuneration of senior management, and the opening of new lines of businesses) as sufficient to confer at least joint control. Given the lack of clear guidance from the CCI (and the recent change in standards from "decisive influence" to "material influence"), a case-by-case approach needs to be adopted when assessing control. Parties are often required to "make a call" on whether or not their acquisition will be viewed by the CCI as an acquisition of control.

As discussed in 2.1 Notification, the interpretation of control is also critical from the perspective of examining whether a transaction may benefit from the relevant exemptions. For instance, Item 1 of Schedule I to the Regulations ordinarily exempts transactions that involve the acquisition of less than a 25% shareholding, solely as an investment or in the ordinary course of business, provided they do not result in an acquisition of control. As already discussed in 2.1 Notification, an acquisition of less than 10% of total shares/voting rights will be treated as being "solely as an investment" if certain prescribed conditions are satisfied.

Accordingly, acquisitions of minority shareholdings may be notifiable if:

  • there is an acquisition of any rights amounting to "control"; or
  • it is determined that the acquisition is not made solely as an investment or in the ordinary course of business (ie, strategic acquisitions).

As a result, several private equity deals (such as Claymore Investments-C-2018/12/623, General Atlantic Singapore Fund-C-2018/07/582 and Metlife International Holdings-C-2018/06/576) have been notified to the CCI, although it is not evident what "control" would result from the investments. Further, the CCI, through its decisional practice, has held that minority acquisitions (even without any control rights) between enterprises operating in the same horizontal market or vertically related markets, would not be able to avail of the Item I exemption (Amazon/Shoppers’ Stop-C-2017/12/538, Alibaba/Snapdeal-C-2015/08/301, and Mylan/New Moon-C-2014/08/202).

The Competition Act (read with relevant government notifications) provides jurisdictional thresholds on a parties’ basis and a group basis. If either the parties test or the group test (based on either assets or turnover) is met, and there is no applicable exemption, the transaction must be notified to the CCI. The jurisdictional thresholds are set out as follows.

Parties Test

Either:

  • the parties have combined assets in India of INR2,000 crores (approximately USD272 million) or a combined turnover in India of INR6,000 crores (approximately USD817 million); or
  • the parties have combined worldwide assets of USD1,000 million, including combined assets in India of INR1,000 crores (approximately USD136 million) or a combined worldwide turnover of USD3,000 million, including a combined turnover in India of INR3,000 crores (approximately USD408 million).

Group Test

Either:

  • the acquirer’s group has assets in India of INR8,000 crores (approximately USD1,089 million), or turnover in India of INR24,000 crores (approximately USD3,268 million), or
  • the acquirer’s group has worldwide assets of USD4,000 million including assets in India of INR1,000 crores (approximately USD136 million) or a worldwide turnover of USD12,000 million, including turnover in India of INR3,000 crores (approximately USD408 million).

The relevant entities to be considered while examining these tests are discussed in 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds.

There are no special jurisdictional thresholds applicable to any particular sectors.

Computation of Asset/Turnover Values

The jurisdictional thresholds are calculated based on the asset and turnover values of the relevant entities, based on the audited financial statements for the last financial year. The CCI’s FAQs clarify that if audited statements are unavailable, unaudited financial statements or best available estimates may be used (which should preferably be certified by a statutory auditor).

The asset value is calculated by taking the book value of the assets, as shown in the last audited financial statements. The value of assets is to include the value of the brand, goodwill, copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout design or similar other commercial rights, if any. The setting-off of current liabilities (ie, subtracting the value of current liabilities from the total asset value) is not permitted.

The turnover value is calculated based on the value of sale of goods or services, excluding indirect taxes, if any. Through its FAQs, the CCI has also clarified that intra-group turnover and turnover derived from operations not directly connected with the operations of the parties (ie, income from ancillary operations/"other income") shall be excluded; however, turnover from exports shall be included when computing the turnover value.

The FAQs also provide some guidance on the manner of computing turnover, specifically in the banking sector and the insurance sector.

Where only a portion of an enterprise, division or business is being acquired, the assets/turnover values attributable to the actual portion/division/business being transferred are required to be considered. These values should be certified by a statutory auditor or based on the last available audited accounts.

Exchange Rate

The rate of conversion of the foreign exchange currency into INR or USD is to be based on the average spot rate of the last six months quoted by Financial Benchmark India Private Ltd from the date of the "trigger event". This is further explained in 3.1 Deadlines for Notification.

As stated in 2.5 Jurisdictional Thresholds, the Competition Act provides jurisdictional thresholds on a parties’ basis and a group basis.

The term "group" has been defined to mean two or more enterprises which, directly or indirectly, are in a position to:

  • exercise 26%* or more of the voting rights in the other enterprise;
  • appoint more than 50% of the members of the board of directors in the other enterprise; or
  • control the management or affairs of the other enterprise.

*In March 2021, an important Government notification which had enhanced the shareholding threshold (from 26% to 50%) for the “group” definition, expired. Until the renewal of the notification, the shareholding threshold for “group” entities should be read as 26%.

In the case of an acquisition, for the parties' test, the entities to be considered are the acquirer and the target. For the group test, the group to which the target would belong after the acquisition is to be considered. For assessing the Target Exemption, only the target enterprise would need to be considered.

In the case of a merger or amalgamation, for the parties' test, the enterprise remaining after the merger or the enterprise created as a result of the amalgamation is to be considered. For the group test, the group to which the enterprise would belong after the merger or amalgamation is to be considered. For assessing the Target Exemption, the enterprise(s) being merged or wound up would need to be considered. If two or more enterprises are being wound up to form a new entity, all such enterprises would need to be considered as the targets. 

In the case of the acquisition/merger/amalgamation of only a portion, a division or business of an enterprise, the assets/turnover figures attributable to the actual portion/divisions/business being transferred are required to be considered. Accordingly, the seller’s asset/turnover figures need not be included with that of the target.

In addition, in transactions involving a series of interrelated transactions, where assets are being transferred to an enterprise for the purpose of that enterprise entering into a combination, the Regulations provide that the value of the transferring enterprise’s assets and turnover is to be attributed to the transferee enterprise.

Further, as stated in 2.6 Calculation of Jurisdictional Thresholds, jurisdictional thresholds are to be assessed based on the last audited financial statements. Any later material changes – for example, the acquisition of a new business after the last audited accounts – should, however, be intimated to the CCI in the notification, or at any time during the CCI’s review period.

Foreign-to-foreign transactions are subject to merger control review in India if the prescribed jurisdictional thresholds are met. Previously, there was an exemption for foreign-to-foreign transactions that had an insignificant local nexus and effects on markets in India. However, this exemption was withdrawn in 2014. 

Nevertheless, as set out in 2.5 Jurisdictional Thresholds, the jurisdictional thresholds have a minimum asset/turnover value requirement in India, and a local nexus test is therefore effectively built into the jurisdictional thresholds.

It should be noted that a local presence is not always required, as foreign entities may have direct sales in India (through exports by foreign subsidiaries) through which they generate turnover, which may result in the prescribed jurisdictional turnover thresholds being met. However, in transactions where the enterprise/assets being acquired/taken control of/merged/amalgamated have no sales or assets in India, the parties may avail themselves of the Target Exemption, relieving them of the obligation to notify.

There are no jurisdictional thresholds based on market shares in India, and accordingly, a transaction may be notifiable even in the absence of any overlap, if the thresholds are met.

The creation of a "greenfield" joint venture is, in itself, not required to be notified. However, joint ventures may be notifiable if one or more parent enterprises is contributing existing assets, including fixed assets, businesses, customers, contracts, intellectual property and employees (provided the jurisdictional thresholds are satisfied).

Typically, only the value of the assets being contributed by the parent entities should be considered while assessing the applicability of the Target Exemption for a joint venture (and the asset attribution rule should ordinarily not apply). However, there is still no clear precedent from the CCI on how to reconcile the Target Exemption and the asset attribution rule while examining joint ventures.

If a transaction does not meet the jurisdictional thresholds, the CCI does not have the power to investigate it under its merger control provisions. However, the CCI may separately examine any agreements between the enterprises under Section 3 (pertaining to anti-competitive agreements) or the conduct of the (joint) enterprise under Section 4 (pertaining to abuse of dominance) of the Competition Act.

The CCI can exercise its power to investigate notifiable transactions and, if required, unscramble a notifiable transaction only within one year of that transaction taking effect (although the CCI has expressly held that it can still levy a penalty even after the one-year period has expired).

The Indian merger control regime is suspensory in nature. Accordingly, a reportable transaction (or any part/step of such a transaction) typically cannot be consummated until clearance has been obtained from the CCI or the review period of 210 calendar days has expired, whichever is earlier.

A relaxation to this general rule is the “green channel” route, introduced by the CCI in August 2019. Under this route, a transaction will be “deemed approved” on the day of filing the complete notification form (in the prescribed format) with the CCI. Therefore, under this route, parties do not have to wait for the CCI’s approval after the filing before consummating a transaction.

The “green channel” route may only be used in cases where the parties, their respective group entities and/or entities in which they directly/indirectly hold shares or which they control, have no horizontal overlaps, present or potential vertical relationships and are not engaged in any complementary businesses.

The power to impose a penalty under Section 43A of the Act (discussed in 2.2 Failure to Notify) is taken by the CCI to extend to gun-jumping. Accordingly, if parties consummate a transaction (or any step of a notifiable transaction) prior to CCI approval (or expiry of the waiting period), the CCI can impose a penalty of up to 1% of the combined turnover or assets of the transaction, whichever is higher.

The CCI has used these powers regularly, and has penalised parties for gun-jumping in approximately 21 cases. The conduct found to be problematic has previously included:

  • a valuation methodology allowing the acquirer to exercise notional control over the target even prior to closing;
  • pre-payment of consideration;
  • the grant of a loan to the target prior to closing;
  • providing a corporate guarantee on behalf of the target, to secure a loan prior to closing;
  • gaining permissions to use the target’s trade marks prior to closing; and
  • closing the global leg of a deal pending CCI approval, etc. 

Further, there have also been instances of the imposition of penalties in foreign-to-foreign transactions. For instance, in Baxter/Baxalta (C-2015/07/297) and Eli Lilly/Novartis (C-2015/07/289) (which were foreign-to-foreign transactions) the CCI imposed a penalty of INR10 million (approximately USD136,000) each, as the parties had closed the global leg of the respective transactions before receiving the CCI’s clearance. 

As previously stated, the CCI’s penalty orders are uploaded on its website and are publicly available.        

Presently, there are no general exceptions to the suspensory effect and the CCI is not empowered to grant any waivers or derogations.       

However, under the draft Competition Amendment Bill dated 12 February 2020 (discussed in 9. Recent Developments), the Government has proposed an amendment which would allow for dilution of the standstill obligation in the case of public bids and hostile takeovers. It remains to be seen whether the proposed amendment will be implemented.

As stated in 2.13 Penalties for the Implementation of a Transaction before Clearance, no step of a notifiable transaction can close prior to the CCI’s approval (or until the expiry of 210 calendar days of the review process, whichever is earlier).

However, as stated in 2.1 Notification, certain limited transactions involving financial institutions do not need to be pre-notified and can be notified post-consummation. 

Further, the CCI has made it clear that it is not possible to carve out the India-related part of a global transaction, and implement the global closing prior to obtaining CCI approval (see, for example, Baxter/Baxalta and Eli Lilly/Novartis).

As set out in 2.2 Failure to Notify, parties can notify reportable transactions at any time after the trigger event, but before consummating any step of the notifiable transaction.

If the parties fail to notify a reportable transaction prior to closing, or at all, the CCI has the power to impose a penalty of up to 1% of the combined turnover or assets, whichever is higher, of the transaction (and the CCI has regularly relied on such powers to penalise enterprises). These penalty orders are public.

In the case of acquisitions, an executed agreement or any other binding document (for instance, a term sheet, a letter of intent, a memorandum of understanding which sufficiently captures the key commercials of the transaction) can act as a trigger document. A public announcement under the relevant takeover regulations can also act as a valid trigger document. 

For mergers/amalgamations, the final board approval approving the merger is the relevant trigger event.

It should be noted that a filing cannot be made when there is nothing in writing, for instance, based on good-faith intentions to reach an agreement.

The filing fee for Form I (Short Form) (including the “green channel” route) is INR2 million (approximately USD27,230) and for Form II (Long Form) is INR6.5 million (approximately USD88,504). The filing fee is to be paid at the time of filing the notification form by the party responsible for the filing (as discussed in 3.4 Parties Responsible for Filing).

In an acquisition, the acquirer is responsible for the filing and payment of the filing fee. In a merger/amalgamation, the parties are jointly responsible for the filing and payment of the filing fee.

Detailed information is required for both Form I and Form II. 

In Form I, parties are required to submit information such as a description of their activities and products (worldwide and in India), transaction structure and rationale, asset and turnover values, control/shareholding and other details of their relevant groups, all investments (including minority investments) in the relevant market, sector overview, description of the relevant market (including for horizontal overlaps and vertical relationships), market shares, customer and supplier details, and structural/financial links between the parties. The documents required to be filed along with Form I include transaction documents, financial statements, proof of authorisation, declaration, market reports and documents considered by the board (for competitor deals).

Form II requires more detailed information/documents. In addition to the information/documents required to be submitted with Form I, parties must also submit financial statements for the previous three years, details of all major shareholders, charter documents, details of all antitrust cases in the past five years, and significantly more information on the market, such as promotional material, transport and production costs, recent entry/exits, proportion of imports and exports, entry barriers, local specifications, pricing methodologies and lists, distribution channels, in-house consumption details, list of applicable laws and R&D/pipeline products. 

Forms and supporting documents must be submitted in English. Documents in another language are to be accompanied by a certified English translation. Any affidavit executed outside India must be notarised and apostilled.

If certain information which is not very significant is missing from the notification, the CCI typically issues a "request for information" to the parties during the review process to gather that missing information. However, if the notification is significantly incomplete (with key/basic details missing), the CCI has the power to invalidate the notification, and often does so. As a result of invalidation, the review clock is reset (leading to a longer overall review process) and the 210-day statutory review period restarts.

There are no penalties for this invalidation, and the Regulations state that the filing fees will be adjusted to the new form filed. Separate penalties/consequences may accrue for inaccurate/misleading information, as discussed in 3.7 Penalties/Consequences of Inaccurate or Misleading Information.

Under the Competition Act, parties may be fined between INR5 million (approximately USD68,080) to INR10 million (approximately USD136,159) for providing false information or omitting to state material information.

The CCI has imposed these fines in at least three cases in the past, with the latest being in the CPPIB/ReNew, already previously discussed. Therefore, parties should be cautious and disclose true/complete facts concerning the market, related transaction steps and competitive landscape.

The CCI’s review process involves two phases, namely, Phase I and Phase II. The latter is for more problematic transactions that are not cleared in Phase I.

Phase I Review

In its Phase I review, the CCI is required to form a prima facie opinion on whether a transaction causes or is likely to cause an AAEC within the relevant market in India, within 30 working days of the filing. This period will be extended by 15 working days if the CCI reaches out to third parties (such as customers, competitors, suppliers and government agencies). This period may be further extended by 15 calendar days if the parties offer remedies in Phase I.

If the CCI requests information or requires the parties to remove defects, it “stops the clock”, which is restarted only after the parties have filed the complete information sought. Therefore, in practice, the Phase I review lasts between 60 and 90 days in non-problematic transactions. To date, all but eight transactions have been cleared by the CCI in Phase I.

Phase II Review

If the CCI forms a prima facie view that a transaction is likely to cause an AAEC in India, the CCI will issue a show-cause notice (SCN) asking the parties to explain within 30 calendar days why an in-depth investigation should not be conducted. After reviewing their response, if the CCI is still of the view that the transaction is likely to cause an AAEC in India, it will proceed with a detailed Phase II investigation.

If the transaction moves to Phase II, parties are required to publish details of the combination in four leading national daily newspapers and on the parties’ websites, inviting comments from the public. The public has 15 working days to furnish their comments. Thereafter, the CCI may call for additional information from the parties. After receipt of this additional information, the CCI has 45 working days to allow or block the transaction or propose modifications (ie, remedies). Therefore, in Phase II, the CCI first proposes modifications (although, informally, it allows parties to initiate this through informal discussions). The parties may then accept those modifications or propose their own amendments to the modifications, within 30 working days. If the amendments are rejected by the CCI, the parties have 30 additional working days in which to accept the original modifications proposed by the CCI. If the parties accept the proposed modifications, the combination is approved. If the parties still fail to accept the CCI’s modifications, the combination is deemed to have an AAEC in India and cannot take effect.

The CCI has an overall period of 210 calendar days from the date of notification to conclude its entire review. However, this 210-day period excludes two periods of 30 working days (the time taken to negotiate modifications), as well as any extensions taken by the parties to furnish additional information. Therefore, in several cases, the overall period has exceeded 210 days.

Parties can engage in pre-notification discussions (termed as "pre-filing consultations" in India) with the CCI, on both procedural as well as substantive issues.

On procedural issues, parties can seek the CCI’s guidance on various interpretational issues, such as on notifiability of certain "grey-area" transactions, computation of assets/turnover, availability of specific exemptions, or whether to file a short form or a long form. The pre-filing consultation can be done on a no-names basis and, although not statutorily protected, confidentiality is usually granted for the process.

In relation to substantive consultations, parties have the option of submitting draft notification forms to the CCI to ascertain gaps, and to align on relevant market definitions, etc, which will help to expedite the review once the actual notification form has been filed. Lately, the CCI has been encouraging the parties to use this tool. 

The CCI’s advice during such consultations is informal, verbal and non-binding.

Information requests are fairly common in both Phase I and Phase II. The scope of these information requests can often be burdensome, and parties are often required to file information/documents which may not be strictly relevant for the competitive assessment.

The time taken by parties to furnish the complete information sought for is excluded from the review timeline.        

The short form (Form I) is the default notification form and can be filed where:

  • the parties are competitors and have a combined market share in the same market of less than 15%; or
  • the parties are in vertically linked markets and the combined/individual market share in any of these markets is less than 25%.

The short form is itself quite burdensome and requires more detailed information than comparable short-form filings in other jurisdictions.

As also mentioned in 2.12 Requirement for Clearance before Implementation, the CCI has introduced a “green channel” route, under which transactions with no horizontal overlaps, vertical or complementary relationships may be deemed approved on the same day of filing the complete notification form with the CCI.

There are no other formal provisions to expedite the CCI review process, although parties can informally engage with the CCI to ascertain what additional information they should submit to assist and accelerate their review process.

The substantive test employed by the CCI is whether the transaction causes or is likely to cause an AAEC in the relevant market in India. While undertaking such an assessment, the CCI is required to consider various factors provided under Section 20(4) of the Competition Act, including market shares, barriers to entry, ability to raise prices post-transaction, countervailing buyer power, etc.

In practice, the CCI relies heavily on market shares for its assessment. 

The CCI’s review is primarily focused on:

  • horizontal markets where the parties have overlapping activities;
  • vertically related markets, where the parties have an actual or potential vertical relationship; and
  • more recently, complementary activities between the parties.

The CCI defines both relevant product and geographic markets.

While defining relevant product markets, the CCI considers both demand and supply-side substitutability along with other relevant factors. While defining a relevant geographic market, the CCI considers various factors such as regulatory trade barriers, local specification requirements, transport costs, etc.

In cases where the CCI defines the relevant market broadly (or ultimately does not define a relevant market), it typically still requires parties to submit data at the narrowest level. 

There are no pre-defined market share thresholds above which a transaction is considered problematic. This will need to be determined on a case-by-case basis, based on various factors including the market shares of the remaining competitors, nature and structure of the markets, pricing power of the parties post the transaction, etc.

Typically, cases where the parties have combined market shares below 35%, along with the presence of strong competitors in the market, would not be considered problematic.

The CCI frequently relies on its own past precedents and in the absence of any CCI precedents, it will often look at case law in other jurisdictions, particularly those of the EU and the USA. To a lesser extent, it also relies on precedents from jurisdictions such as Brazil, China, Russia, South Africa (all members of BRICS) and the UK. 

The CCI focuses more on unilateral effects. Typically, the CCI relies on a market share analysis as a starting point for this assessment. 

With the CCI becoming more experienced, it has also recently started to examine closely co-ordinated effects and vertical concerns, as well as portfolio effects (which has lately become a hot topic for the CCI).

The Competition Act prescribes various efficiency-related factors which the CCI may consider while reviewing a transaction, including potential innovation, economic development, and whether the benefits of the transaction outweigh any adverse impact.

In its limited decisional practice on efficiencies, the CCI has indicated that any efficiencies claimed by the parties should be:

  • merger-specific;
  • verifiable;
  • quantifiable (including what will be passed on to consumers); and
  • outweigh competition concerns.

To date, the CCI has not unconditionally cleared any transaction that was likely to cause an AAEC in India, solely on the grounds that the efficiencies outweighed the competition concerns.

The Competition Act does not mandate the CCI to consider any non-competition issues in its review process and it has not done so in practice. In fact, in Walmart/Flipkart (C-2018/05/571), the CCI expressly held that it would not consider any non-competition issues.

However, it should be noted that the CCI is able to take account of the relative advantage through economic development, and, to that extent, a limited non-competition issue may be taken into account (although this does not appear to have happened in practice).

The CCI does not appear to give any special considerations in its substantive review of joint ventures.

The CCI’s recent decisional practice has suggested that it may consider co-ordination issues between parent entities, their groups and their other joint ventures. In at least two cases, the CCI has required remedies in the form of information-sharing and other restrictions, to prevent any “spill-over” effects and potential co-ordination in relation to the other businesses of the parent entities (not forming part of the joint venture). Further, the CCI may also examine co-ordination issues between joint-venture parents outside its merger review, under its enforcement provisions (ie, anti-competitive agreements under Section 3 of the Competition Act). 

The CCI is able to prohibit or require modifications to a transaction if it is of the view that the transaction is likely to cause an AAEC in the relevant market in India.

The CCI has cleared a number of cases in Phase I, where parties have voluntarily offered a number of modifications. These include the scope of non-compete obligations, undertakings to comply with competition law, giving access to infrastructure, divestments and ring-fencing commitments. 

During the course of its Phase II investigation, the CCI may propose appropriate modifications if it is of the view that a transaction causes or is likely to cause an AAEC in India, but such concerns can be eliminated through modifications. The parties then have an opportunity to accept those modifications or propose their own (which may or may not be accepted by the CCI). If the CCI believes that the adverse effect cannot be eliminated by suitable modifications, it can prohibit the transaction, although in practice it has never done so. 

The CCI also has the ability to initiate inquiries on its own motion into reportable transactions which were not notified to it.

The Regulations allow the parties to offer remedies first in Phase I, in order to avoid the transaction moving to a Phase II review.

In Phase II, it is the CCI that first proposes remedies (and the parties have a right thereafter to file a counter-offer, which may or may not be accepted by the CCI). The detailed remedy process has been set out in 3.8 Review Process.

The CCI typically tailors remedies to the specific circumstances of each case, after considerable negotiations.

The remedies offered must be sufficient to address the specific AAEC concerns identified in a particular transaction in India. The CCI has made it clear that it will tailor remedies to the facts of each case and that it will not follow a "one-size-fits-all" approach. In addition, the remedies should be such that they can be monitored and implemented effectively. 

To date, the CCI has imposed:

  • structural remedies in approximately 12 cases;
  • hybrid remedies (ie, a mix of structural and behavioural) in approximately three cases; and
  • behavioural/non-structural remedies in approximately seven cases.

Whilst the CCI has been receptive towards behavioural/hybrid remedies in the recent past, it typically prefers structural remedies, given that it is a "one-time fix". 

Some of the key decisions pertaining to structural remedies are:

  • divesture of the business of the target (Abbott C-2016/08/418);
  • divesture of the relevant products sold by the target in India (China National Agro/Sygenta C-2016/08/424);
  • divesture of specified products of each party (Sun/Ranbaxy C-2014/05/170);
  • divesture of one of the parties' stake in a joint venture with a competitor (Linde/Praxair C-2018/01/545);
  • divestiture of the business in India through an exclusive and irrevocable licence of the technology in India (Metso/Outotec C-2020/03/735); and
  • divesture of shareholding in companies involved in the same relevant market and a commitment not to acquire a stake in such companies for a specified period (Agrium/Potash C-2016/10/443) (ZF/WABCO C-2019/11/703).

The CCI has also accepted hybrid or non-structural remedies in various cases (PVR/DT C-2015/07/288, Bayer/Monsanto C-2017/08/523, L&T/Schneider C- 2018/07/586, ChrysCapital/Intas C-2020/04/741, etc). Non-structural remedies have largely been accepted to address concerns in relation to access, spill-over effects, consumer protection and structural links. However, in one case (L&T/Schneider), the CCI has also accepted behavioural remedies to address unilateral effects where the parties were direct competitors (remedies including price-caps, white-labelling, grant of technology licence, amendments to distribution agreements, etc, were accepted).

Recently, in ChrysCapital/Intas (2020), for the first time, the CCI imposed a remedy in a minority acquisition by a private equity fund. The CCI approved the transaction on the condition that the acquirer will remove its nominee director on the board of a competing portfolio entity and will not exercise its veto rights on certain strategic matters in that entity. This represents a shift in the CCI’s approach to transactions involving common minority ownership.

As the CCI’s concerns are restricted to AAEC in India, remedies are not required to address non-competition issues.

As previously stated, parties can voluntarily offer remedies during Phase I of the review process to address any AAEC concerns and avoid the transaction moving to a Phase II review. In Phase II, it is the CCI which will first propose remedies (although it allows the parties to set the ball rolling themselves through informal discussions), and parties may thereafter submit a counter-offer, which may or may not be accepted by the CCI. See 3.8 Review Process for the detailed steps/process on remedy negotiations.

The necessary condition for the CCI to propose remedies is a prima facie finding that the transaction causes an AAEC in India. The timing of the remedy process has been set out in 3.8 Review Process.

Parties may be able to consummate a transaction prior to the remedies being implemented, if a "fix-it-later" divestiture (rather than a "fix-it-first", where a buyer is required to be found before consummating the transaction) is imposed by the CCI. A "fix-it-first" divestment has only been required in one case, and in all others the CCI has allowed a "fix-it-later".

If the remedies are not implemented, the CCI has the power to revoke the approval order and/or impose penalties of up to INR100,000 per day (approximately USD1,362), subject to a maximum of INR100 million  (approximately USD1.3 million). A term of imprisonment may also be imposed in certain cases.

A formal decision permitting or prohibiting the transaction is issued to the parties. A public version of the decision (which does not contain any confidential information) is also uploaded on the CCI’s website.

As stated in 5.4 Typical Remedies, the CCI has required remedies in a number of transactions. Whilst several of these were transactions between two foreign entities (for instance, Holcim/Lafarge, Linde/Praxair, ChemChina/Syngenta, ZF/WABCO), both companies had a substantial presence in India. 

To date, the CCI has not prohibited a transaction.        

The CCI requires parties to file all ancillary arrangements along with the notification form. The CCI’s approval of the transaction also typically covers ancillary restraints, and separate notifications are not possible for them.

If these arrangements are not covered by the clearance, the CCI may review such arrangements separately under its enforcement provisions.

Third parties may be involved in both Phase I and Phase II of the review process.

In Phase I, the CCI can reach out to third parties for their comments and observations on the transaction (this typically happens through written questionnaires and interviews). The CCI is increasingly contacting third parties during the Phase I review period. Third parties have no right to be formally involved in the Phase I process, and it is at the CCI’s discretion whether to reach out to such third parties.

If the review goes into the detailed Phase II process, public consultation is a mandatory requirement. Any member of the public may file written objections within 15 working days from the date of publication of the details of the combination. In various cases (for instance, PVR/DT Bayer/Monsanto, L&T/Schneider, etc), numerous third parties filed their objections to the transaction.

Third parties can only present their submissions/objections in writing to the CCI and there is no provision for an oral hearing for third parties before the CCI.

The detailed framework for contacting third parties is discussed in 7.1 Third-Party Rights.

The fact of the notification and description of the transaction is made public when the CCI publishes a non-confidential summary of the transaction on its website, after the parties have filed the notification form. Separately, the CCI’s final order (which does not contain any confidential information relating to the transaction) is made public. These decisions are published on the CCI’s website.

The CCI allows requests for confidentiality to be made in writing by parties. Parties are permitted to claim confidentiality of information in cases where disclosure:

  • would result in disclosure of trade secrets;
  • would result in destruction or appreciable diminution of the commercial value of any information; or
  • can reasonably be expected to cause serious injury.

The CCI tends to look critically at such requests.

The CCI can and does reach out to competition authorities in other jurisdictions, especially the EU, the USA, Brazil, Russia and South Africa. However, before exchanging information on specific transactions with other competition authorities, the CCI typically seeks a specific waiver from the parties.

On general policy matters, the CCI has signed MOUs with several foreign competition authorities, including authorities in the EU, the USA, Brazil, Russia, South Africa, Canada, and Australia.

Any person aggrieved by an order of the CCI approving/prohibiting a transaction, or imposing fines for gun-jumping/delayed filing, may file an appeal with the National Company Law Appellate Tribunal (NCLAT) within 60 days. Orders of the NCLAT can be further appealed to the Supreme Court.

The Competition Act provides that appeals before the NCLAT must be dealt with expeditiously and the NCLAT must endeavour to dispose of appeals within six months. Appeals of merger decisions have generally been completed within this period. An appeal before the Supreme Court may take two to three years or even longer.

The appellate authorities have generally upheld the CCI’s order on merits, or have refrained from interfering on the grounds of absence of locus standi of the appellant.

Under the Competition Act, only an "aggrieved party" may file an appeal against the CCI’s decisions (including clearance decisions). Previously, in Jet/Etihad, the appellate authority held that a third party was not an "aggrieved party" and the appeal was dismissed. However, in the Walmart/Flipkart case, the NCLAT adjudicated an appeal filed by a third party on its merits. It therefore appears that third parties may have a right to appeal merger decisions in certain limited cases.

Recent Amendments

  • As highlighted in 3.11 Accelerated Procedure, in August 2019, the CCI introduced the “green channel” route for automatic approval of certain non-problematic transactions.
  • In December 2020, the CCI amended the Regulations by removing the requirement for parties to identify and justify any non-compete restrictions in the notification form.
  • In March 2021, the CCI published revised guidance notes to preparation of Form I. One of the key changes introduced includes an express requirement for parties to disclose details of any entities in which they have a direct/indirect shareholding of 10% or more, or have a right that is not available to an ordinary shareholder, such as the ability to nominate a director, or which exhibits horizontal overlaps, or vertical or complementary relations (between the acquirer and target). 

Proposed Amendments

The Government of India had launched a public consultation on a new draft Competition Amendment Bill (dated 12 February 2020). Proposed amendments included revisions in the process for setting thresholds (including introduction of deal-value based thresholds), changes to the definition of "control", reducing the review timeline, and introducing the possibility of seeking waivers of the standstill obligation. The bill has yet to be reviewed and approved by Parliament. 

The CCI had previously (in November 2019) sought to introduce provisions allowing waivers of the standstill obligations, through an amendment to the Regulations itself, and had sought public comments on its draft amendments. It remains to be seen whether these proposed amendments will be implemented.

Further, in April 2021, the CCI has launched a public consultation on its proposed amendments to the confidentiality regime. The proposed amendments include introduction of a self-certification regime for claiming confidentiality, which may also be relevant for combinations, if implemented.

The CCI has regularly imposed fines for failure to file, and for gun-jumping, with fines ranging between INR100,000 (approximately USD1,362) to INR50 million (approximately USD680,797).

In the past three years (2019-2021), the CCI has only imposed fines for gun-jumping in one transaction (CPPIB/ReNew) where a fine of INR5,000,000 (approximately USD68,000) was levied for gun-jumping and providing incorrect information.

As further highlighted previously, the CCI has imposed structural, behavioural and hybrid remedies in a number of cases (including foreign-to-foreign transactions, which had a strong impact in the Indian market).

As further highlighted in 5.4 Typical Remedies, in April 2020, the CCI imposed for the first time a remedy in a minority acquisition by a private equity fund in order to address its concerns in relation to common minority shareholdings (ChrysCapital/Intas). Further, in June 2020, the CCI accepted a remedy pursuant to which the target would effectively transfer its business in India through an exclusive and irrevocable licence of the technology in India (Metso/Outotec). Earlier in the year, in February 2020, the CCI accepted a remedy involving the divestment of the acquirer’s 49% shareholding in a joint-venture entity which had various overlaps with the target entity (ZF/WABCO). A similar remedy involving the divesture of one of the parties’ stake in a joint venture operating in the same markets was also accepted by the CCI previously in 2018 (in addition to divestment of certain manufacturing plants) in the Linde/Praxair case.   

Therefore, the CCI has not followed a "one-size-fits-all" approach to remedies and has tailored remedies to the specific facts of a case.

The CCI has also continued to maintain its trend of never having blocked a transaction to date.

Greater Scrutiny for Private Equity (PE) Deals/Minority Investments

Of late, the CCI has been scrutinising private equity (PE)/minority investment deals more closely. It is seeking greater level of information/details regarding a PE firm’s other investments (including minority investments) in the same sector. As previously mentioned, for the first time, recently it also required a remedy in a minority PE investment deal (in the form of termination of board and veto rights in a competing portfolio entity).

The CCI has also recently announced that it is conducting a market study on the private equity investments landscape in India. The study is aimed at understanding the trends and patterns of common ownership by private equity investors across various sectors in India, and should help the CCI attain a better understanding of these aspects, with various stakeholders providing their insights on these key issues.

More Holistic Competitive Analysis

The CCI’s competitive assessment has become much more detailed and granular over the years. The CCI no longer focuses only on unilateral effects; rather, it is also focusing on vertical and portfolio effects, as seen in Bayer/Monsanto and L&T/Schneider.

Innovative Remedies

Over the past few years, the CCI has gained considerable experience with complex transactions which have required remedies to address competition concerns. The CCI has demonstrated that it will not shy away from accepting innovative remedies which effectively address the competition concerns, such as the case in L&T/Schneider (remedies such as price caps and white-labelling were accepted) and Hyundai/Kia (remedies around undertakings not to engage in discriminatory conduct were accepted).

Penalty for Incorrect Information and Gun-Jumping

The CCI has recently relied on Section 43A (gun-jumping) and Section 44 (non-disclosure of material information) together in CPPIB/ReNew (a 2019 decision). The order highlights the need for parties to identify and disclose correctly all inter-connected steps of the proposed transaction.

Review of Internal Documents

The CCI is increasingly relying on internal documents (including board agendas, studies, internal analysis, research data) while examining transactions (CPPIB/ReNew, Adani Ports/SEZ). Therefore, parties should be aware in drafting all such documents and ensure that nothing contained in these documents could potentially be used against the parties during the merger review process, as well as for future deals.

Shardul Amarchand Mangaldas & Co

Amarchand Towers
216, Okhla Industrial Estate Phase III
New Delhi - 110 020
India

+91 11 41590700

+91 11 2692 4900

aparna.mehra@amsshardul.com www.amsshardul.com
Author Business Card

Trends and Developments


Authors



J Sagar Associates (JSA) is a leading national law firm in India with over 320 professionals operating out of seven offices located in Ahmedabad, Bengaluru, Chennai, Gurugram, Hyderabad, Mumbai and New Delhi. The firm's practice is organised along service lines and sector specialisation that provides legal services to top Indian corporates, Fortune 500 companies, multi-national banks and financial institutions, governmental and statutory authorities and multilateral and bilateral institutions. The JSA competition team comprises five lawyers, including two partners, and has offices in New Delhi and Mumbai. The team advises on all aspects of the Indian competition regime, including multi-national merger approvals, cartels (including leniency), abuse of dominance, compliance and other areas of antitrust litigation. The team’s expertise spans a wide variety of sectors. Recently, JSA secured the Competition Commission for India’s approval for the formation of a joint venture between the Ford Motor Company and Mahindra & Mahindra Limited, and the sale of the automotive business of Ford India Private Limited to that joint venture.

Introduction

The Competition Act 2002 (Competition Act), in conjunction with the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (Combination Regulations), and notifications issued by the Ministry of Corporate Affairs (MCA), govern the merger control regime in India. The Competition Commission of India (CCI) carries out an ex ante review of transactions proposed to be undertaken to ensure that these do not harm competition, the touchstone being an appreciable adverse effect on competition in India (AAEC). The merger control regime in India was introduced on 1 June 2011 by bringing into effect Sections 5 and 6 of the Competition Act.

Under Section 6 of the Competition Act, all "combinations" require prior approval of the CCI. A "combination" means the acquisition of control, shares, voting rights or assets, or a merger or amalgamation exceeding the "thresholds" prescribed under Section 5 of the Competition Act. However, a combination does not require approval if it is exempt under the Combination Regulations or other government notifications. Given that the Competition Act requires mandatory notification to the CCI and provides for a 210-day suspensory regime from the date of notifying the CCI, the parties cannot consummate the combination or any part thereof prior to receiving approval of the CCI or until the lapse of 210 days.

2020 has brought the world face-to-face with unprecedented challenges. The CCI, which completed a decade of merger control in June 2021, is no exception. Despite the upheavals caused by the COVID-19 pandemic, the CCI has continued its merger enforcement activities apace. In fact, it found new paths for its functioning and focus, as it responded to the challenges. 15 months into the pandemic, there has been little change in the CCI’s responsiveness, or its priorities.

In March 2020, the CCI temporarily suspended its regulatory functions in view of the pandemic, but quickly resumed them "virtually" by issuing a press release clarifying the procedure for electronic filing of notification forms, as well as online video consultations. Currently, a standard operating procedure is in place to conduct virtual hearings/pre-filing consultations/meetings with the CCI’s officers.

Remarkably, between January 2020 and May 2021 (Relevant Period), the CCI has reviewed nearly 120 merger notifications, out of which 80 were notified under the regular Form I (short form), 25 under the GCR Form I and 14 under Form II (long form).

As the CCI evolves, it demonstrates its maturity in its approach to dealing with cases under the Insolvency and Bankruptcy Code 2016 (IBC), Green Channel Route (GCR) and complex combinations such as ZF Friedrichshafen AG/WABCO Holdings, Outotec OYJ/Metso OYJ, Canary Investments/Intas Pharmaceuticals, Facebook/ Google/Jio Platforms and Blackstone group/Prestige group. As in 2019, most combinations in the Relevant Period were approved unconditionally, while three required modifications.

To date, over 95% of the notified transactions (ie, about 800) have raised no competition concerns and were approved without further ado. In a small number of cases – around 37 – some form of modification has been required to secure approval.

As in the previous year, this year also the average number of working days taken by the CCI for disposal of combination cases stood at 18. No combination has been prohibited to date.

Key Changes in the Law

Revision of guidance notes to Form I

To clarify the scope of information required to be submitted along with the Revised Form I, the CCI published a revised guidance to its notes to Form I on 27 March 2020 (Guidance Note).

The Guidance Note, inter alia, provides clarity on the (i) definition of complementary activities, to include those products/services that are related and are used together (eg, printers and ink cartridges), and (ii) details of special rights acquired pursuant to a combination, including affirmative/veto rights, information rights and the acquisition of any other rights or advantages of commercial nature. Further, it clarifies that market-facing information needs to be provided for three years only where the parties have a combined market share of 10% or more in any of the defined relevant markets.

Exemption for banking companies

In the backdrop of the recent banking crisis in India, on 11 March 2020, the MCA issued a notification exempting banking companies which are placed in moratorium by the Reserve Bank of India under Section 45 of the Banking Regulation Act, 1949, from the mandatory requirement of pre-merger approval under the Competition Act for a period of five years until 11 March 2025.

Income tax authorities to share information with the CCI

On 30 July 2020, the Ministry of Finance, Government of India, issued a notification authorising the Income Tax Authorities to share relevant information with the CCI after forming an opinion that this information is necessary for the CCI to perform its statutory functions. Additionally, the CCI has been mandated to maintain absolute confidentiality with respect to the information being shared with it.

Amendment to the combination regulations to exclude the requirement of non-compete disclosures

On 26 November 2020, the CCI amended the Combination Regulations and omitted the information disclosure requirement regarding the non-compete restrictions (NCC) agreed between the parties. Prior to the amendment, the Form I (short form) required notifying parties to provide details of the NCC agreed between them (including its scope, territorial extent, and duration) and corresponding justifications as a precondition to the CCI’s merger clearance.

Developments Relating to Merger Remedies

The Indian merger control regime has seen a noticeable shift in the nature of the CCI’s review of combinations. In the initial days, the CCI’s review and modifications dealt with benign changes to the transaction structure, such as duration of non-compete obligation. After a couple of years, the CCI’s approach to address AAEC concerns resulted in ordering several divestitures. In the recent past, the CCI has appeared to be adopting a mature, balanced approach that demonstrates restraint, but still ensures that the competition dynamics in the markets are not adversely affected.

To date, the CCI has imposed modifications in 37 notified transactions (including modifications to non-compete obligations), out of which three transactions were approved in the past year. Industry also seems to have understood and appreciated the areas that may be of concern to the CCI, and often adopted the option of offering voluntary modifications (which was introduced in 2018), as is evident from the combinations discussed below.

ZF Friedrichshafen AG/WABCO Holdings

On 14 February 2020, the CCI conditionally approved the acquisition of 100% of shares of WABCO Holdings Inc (WABCO) by ZF Friedrichshafen AG (ZF). WABCO and ZF (through its joint-venture company with TVS, ie, Brakes India) are major players in automotive products in India.

Based on the overlapping business activities of the parties, the CCI carried out the competition assessment in the market for automotive products, including foundation brakes and clutches, and noted that there is a limited number of players with the parties that have a strong position and strong capabilities to offer the complete portfolio of braking products for commercial vehicles. Further, the acquisition would lead to the exit of a formidable player, ie, Brakes India. Accordingly, the CCI noted that the acquisition would cause an AAEC.

In order to address these concerns, ZF offered voluntary modifications which included:

  • divestment of its entire shareholding of 49% in Brakes India;
  • no re-acquisition of interest in Brakes India; and
  • no formation of any new joint venture with TVS in India relating to relevant products. Based on these modifications, the CCI approved the acquisition.   

Canary Investments/Intas Pharmaceuticals

On 30 April 2020, the CCI conditionally approved the acquisition of an additional 3% (total 6%) equity share capital of Intas Pharmaceuticals (Intas) by Canary Investments Limited (Canary) and Link Investments Trust II (Link), affiliates of ChrysCapital. ChrysCapital also acquired a right to nominate a director on the board of Intas, along with a few veto rights.

ChrysCapital has an existing stake in a competing portfolio company, Mankind Pharma, along with certain veto and information rights. Based on this, the CCI noted that ChrysCapital has access to non-public information as well as the ability to influence materially the strategic affairs of Mankind Pharma.

Further, there exists a horizontal overlap between Intas and Mankind Pharma in over 150 products, including consistently high market shares in some competing product categories. Accordingly, the CCI noted that ChrysCapital’s common interest/shareholding in these competing companies will give it the ability to pursue anti-competitive goals.

To address these concerns, ChrysCapital offered voluntary modifications, which included:

  • removal of its director on the board of Mankind;
  • restriction of the use of non-public information accessed or possessed by it relating to Intas and certain investee companies of ChrysCapital to only evaluating its investments in these companies; and
  • limiting the exercise of existing veto rights in Mankind.

The CCI noted that the voluntary modifications will reduce ChrysCapital’s participation in the management of Mankind to the extent that it will not materially influence the strategic or day-to-day affairs of Mankind. The CCI permitted ChrysCapital to continue to have certain veto and information rights in Mankind to protect the value of its investment.

Outotec OYJ/Metso OYJ

On 18 June 2020, the CCI conditionally approved the acquisition of Metso OYJ’s (Metso) mineral business (Metso Minerals) by Outotec OYJ (Outotec).

The CCI noted that Metso and Outotec, being close competitors, would have the ability to provide integrated solutions to customers and no other entity would be able to compete with them effectively in the market for Iron Ore Pelletizing (IOP) Equipment in India. Accordingly, the CCI noted that the acquisition would cause an AAEC.

In order to address these concerns, the parties offered voluntary modifications, including the divestment of Metso Minerals’ Indian Straight Gate (SG) IOP capital equipment business to a suitable buyer. The divestment inter alia includes the exclusive and irrevocable licensing of Metso Mineral’s Indian SG IOP technology in India, comprising two patents. Based on these modifications, the CCI approved the acquisition.

Developments Relating to Gun-Jumping

The Indian merger control regime is mandatory and suspensory in nature. Thus, if any party consummates a notifiable transaction, in full or in part, prior to the approval of the CCI, it would be tantamount to "gun-jumping". The penalty may extend up to 1% of the total turnover or the assets, whichever is higher, of the combination. To date, the CCI has found gun-jumping violations in 40 out of approximately 800 combinations.

The CCI did not issue any gun-jumping orders in the Relevant Period. 

Notable Combinations Reviewed by the CCI

Apart from the above combinations, the CCI has reviewed transactions and their impact on competition in varied sectors in the Relevant Period.

In the healthcare and pharmaceuticals sector, the CCI, inter alia, approved the:

  • merger of Mylan NV and Upjohn Inc (a subsidiary of Pfizer Inc);
  • acquisition of DuPont de Nemours’ Nutrition and Biosciences Business by International Flavours and Fragrances Inc; 
  • acquisition of Columbia Asia Hospitals Private Limited by Manipal Health Enterprises Limited;
  • acquisition of a minority stake in Piramal Pharma Limited by Carlyle Group Inc; and
  • investments in API Holdings (PharmEasy) by Temasek, Lightstone Global Fund, CDPQ and Naspers (under GCR). 

In the automobile sector, the CCI inter alia approved the formation of a joint venture between Mahindra & Mahindra and Ford Motor Company and between Honda Motor Co and Hitachi Limited. It also approved a merger of Peugeot SA with and into Fiat Chrysler Automobiles NV, pursuant to which Peugeot SA entered the Indian market, and a combination between Escorts Limited and Kubota Corporation, Japan.

In the e-commerce and digital sector, the CCI approved the:

  • acquisition of a minority stake in Jio Platform Limited by Facebook and Google;
  • acquisition of the retail and wholesale undertaking of the Future group by Reliance Retail Ventures; and
  • acquisition of a minority stake in Aditya Birla Fashion and Retail Limited by Walmart group.

In the real estate sector, the CCI approved two major transactions, which were the acquisition of (i) 11 real estate projects of the RMZ group by the Brookfield group and (ii) certain assets of the Prestige group by the Blackstone group.

In the power and energy sector, the CCI approved the acquisition of a majority stake of North Eastern Electricity Supply Company of Odisha Limited by the Tata Power Company Limited. The transaction was undertaken pursuant to a bidding process initiated by the Odisha State Electricity Regulatory Commission under Section 20 of the Electricity Act, 2003. Apart from this, the CCI also approved the acquisition of:

  • a majority stake of THDC India Limited, Jhabua Power and North Eastern Electric Power Corporation Limited by NTPC Limited;
  • Teesta Urja Limited by Greenko Mauritius;
  • GMR Kamalanga Energy Limited by JSW Energy Limited;
  • Odisha Power Generation Corporation Limited by Adani Power Limited;
  • Ostro Energy Private Limited by ReNew Power Limited;
  • Greenko Energy Limited by the Orix group; and
  • Adani Green Energy by the Total group.

Insolvency Cases

Since the introduction of the time-bound insolvency resolution process under the IBC in 2016, a number of merger notifications have been filed with the CCI in relation to the acquisition of companies undergoing insolvency. Given the criticality of adherence to strict timelines under the IBC, the CCI has swiftly reviewed and approved several insolvency cases, despite few being long-form notifications. The CCI has, so far, reviewed about 25 combinations under the IBC, including eight in the Relevant Period, such as Indian Opportunities Investments Singapore Pte Ltd/Dewan Housing Finance Limited, Reliance Projects & Property Management Services Limited/Reliance Infratel Limited, Twin Star Technologies/Videocon, NTPC Limited/Jhabua Power Limited, etc. These transactions were often cleared in record time.

Review of CCI Orders by the Appellate Authority, National Company Law Appellate Tribunal

Walmart/Flipkart

On 8 August 2018, the CCI approved the proposed acquisition of up to 77% of the outstanding shares of Flipkart Private Limited by Wal-Mart International Holdings, Inc, as it did not find that the transaction would cause an AAEC in India. During the review period, the CCI received representations from several retailers and trade associations raising objections to the combination, including allegations of deep discounting and preferential treatment to selected e-tailers, resulting in the combination having a negative impact on small- and medium-sized enterprises/companies. The CCI noted that the majority of the objections had no nexus with competition law and were beyond the CCI’s jurisdiction.

Against allegations of deep discounting and preferential treatment to selected e-tailers, the CCI observed that this did not result from the combination under review.

Aggrieved, the Confederation of All India Traders (CAIT), a trade association challenged the CCI order before the National Company Law Appellate Tribunal (NCLAT). On 12 March 2020, the NCLAT upheld the CCI order and dismissed the appeal filed by the CAIT. The NCLAT clarified that the CCI, while approving a combination, has only to investigate whether it will cause an AAEC. The CCI is not required to launch an antitrust investigation at the prima facie stage itself if the CCI believes that the combination will not cause an AAEC.

Eli Lily/Novartis

In another case, the NCLAT provided clarification on the computation of assets and turnover for combinations involving acquisition of a business division. In 2016, the CCI imposed a penalty of INR10 million (USD130,857) on Eli Lily, as it failed to notify the acquisition of the business division of Novartis India Limited (NIL), namely, the animal health business in India (NAH India), to the CCI. The CCI noted that Eli Lily had incorrectly determined that its combination benefited from the then-applicable de minimis/target exemption since it had failed to consider the entire turnover and asset value of NIL (including its non-animal/human health business).

Aggrieved, Eli Lily challenged the CCI order before the NCLAT. Eli Lilly contended that the CCI erroneously applied thresholds of the de minimis/target exemption to the incorporated company (NIL) and not NAH India. The Competition Act applies the test of threshold to the “person” or “enterprise” being acquired, and expressly defines “enterprise” broadly to include both incorporated and non-incorporated businesses.

On 12 March 2020, the NCLAT set aside the CCI order. The NCLAT took into consideration the subsequent de minimis/target exemption notifications and the press release issued by the Central Government which clarified its intent to extend the exemption to the business being acquired and not merely to incorporated companies. Given that the CCI failed to consider the asset value and the turnover of NAH India, which did not exceed the de minimis/target exemption thresholds, there was no requirement to notify the combination to the CCI.

CCI Market Studies in Various Sectors

The Relevant Period saw the CCI releasing its much-anticipated market study reports on e-commerce and the telecom sector, and its discussion paper on the interplay between blockchain technology and competition law. The reports trace the recent history of the e-commerce and telecom sector and highlight trends and market outcomes. They discuss the key competition issues facing the sectors, both currently and in the near future. Finally, it provides a summary of the competition issues, makes observations and gives indications of the expected way forward.

The CCI also announced its intention to conduct a market study on the pharmaceutical industry, and issue-based studies on common ownership by Private Equity (PE) funds and its impact on competition. Investment by PE funds has seen a surge in the past few years. Even in the midst of the pandemic, global PE funds have invested significant amounts in India. The CCI proposes to launch a study on common ownership by PE funds, focusing on the underlying incentives and motivations behind common minority investments across different firms in an industry, along with their potential to hurt competition. The study will assess the rights of the PE funds that protect their financial interest from their shareholding and whether these rights can translate into an ability to influence the decision of a company and consequently impact competition.

From media reports, it appears that a CCI study on surge pricing by cab aggregators is also underway.

Proposals in the Pipeline

Introduction of the Competition (Amendment) Bill

On 20 February 2020, the MCA introduced the draft Competition (Amendment) Bill, 2020 (Bill), which sought to clarify certain provisions, increase transparency and improve the overall efficiency of the competition law regime in India. The Bill was issued pursuant to the recommendations of the Competition Law Review Committee (CLRC), which was set up by the MCA in October 2018 to review and recommend amendments to the Competition Act in line with international best practices and the changing economic reality.

The Bill proposes notable amendments for the regulation of combinations, which can broadly be categorised into the following.

New criteria to trigger merger filing: the Bill proposes to empower the Central Government (in consultation with the CCI) to prescribe any new criteria (such as deal value or size of transaction) to trigger mandatory notification to the CCI. The rationale for this is to capture transactions in the digital markets within the scope of the CCI’s review, which currently escape scrutiny due to low asset value/turnover.

Codification of GCR: with a view to bringing the Competition Act in line with the August Amendments and codify the provision for GCR, the Bill proposes to empower the Central Government (in consultation with the CCI) to specify a deemed approval process for transactions which are not otherwise exempt from notification to the CCI, in the public interest. Such transactions can be notified to the CCI in a separate, prescribed form.

Wider definition of "control": the Bill proposes to codify the CCI’s decisional practice by expanding the scope of control to include the ability to exercise "material influence" in any manner whatsoever over the management or strategic commercial decisions by one or more enterprise/group over another.

Waiver of standstill obligation in certain cases: given that the Indian merger control regime is suspensory in nature, there are standstill obligations imposed on the parties to a combination under which they are not permitted to consummate any part of a transaction prior to the CCI’s approval. However, in order to reduce the regulatory burden on listed companies and account for special characteristics of combinations involving the implementation of an open offer and the acquisition of convertible shares/securities on a stock exchange, the Bill proposes a dilution of the standstill obligation in such cases on the fulfilment of prescribed criteria.

Timelines for review of combinations reduced: with a view to providing faster approvals, the Bill proposes to reduce the statutory timeline for (i) the CCI to form its prima facie view on a merger notification from 30 working days to 20 calendar days, and (ii) deemed approval of a combination notified to the CCI from 210 calendar days to 150 calendar days (extendable by an additional 30 calendar days for certain events).

Amendments to confidentiality provisions

On 13 April 2021, the CCI issued a draft amendment to the confidentiality provisions in the Competition Commission of India (General) Regulations, 2009 (General Regulations) for public comments. The key amendments are as follows:

Furnishing of undertaking: parties seeking confidentiality on any information from the CCI will have to submit an undertaking certifying that the confidentiality claims are in terms of the parameters of seeking confidentiality under the General Regulations. This undertaking shall be provided by a company secretary or compliance officer or any other senior officer authorised on behalf of the party concerned.

Incorporation of a confidentiality ring: a confidentiality ring may be set up by the CCI, comprised of internal and external authorised representatives of the parties, who will be able to review the confidential/unredacted case records of other parties. The internal authorised representatives in the confidentiality ring shall be from commercially non-operational streams (ie, other than sales/marketing/commercial teams). Further, parties accessing confidential/unredacted case records will need to submit an undertaking against disclosure of any information other than for the purpose of the proceedings before the CCI/Director General (the investigative arm of the CCI). A breach of the undertaking will invite penal consequences under the relevant provisions of the Competition Act. A similar confidentiality ring may also be constituted at the level of the Director General, if so required, for the purposes of investigation.

Conclusion

In light of the COVID-19 pandemic, the year 2020 posed serious challenges to parties to transactions and the CCI review team alike. 2021 is expected to be a crucial year for Indian competition law, in terms of the progress of the Bill through the legislature, and into law. The developments in the Indian merger control regime demonstrate that the CCI is willing to adapt to unforeseen circumstances and adopt new practices to tackle such hurdles. The CCI moved to an entirely electronic mode of functioning to ensure the smooth functioning of businesses, transaction and the merger approval process. The CCI has, further, shown willingness to tailor its analysis of complex transactions to the facts and needs of each case, rejecting a "one-size-fits-all" approach. The introduction of several key changes to the merger control regime appears to be in line with the government’s stated policy of increasing the ease of doing business in India and providing faster approval. The CCI continues to take steps towards aligning its practices with the jurisprudence of mature jurisdictions. Although the Indian merger control regime is relatively new, the CCI’s evolution over the past year is encouraging and is attuned to the evolving needs of doing business in India.

J Sagar Associates

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Law and Practice

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Shardul Amarchand Mangaldas & Co (SAM & Co) is one of India’s leading law firms recognised by international organisations, law directories and professional journals. It is a full-service law firm which delivers solutions in the field of mergers and acquisitions, tax, competition law, dispute resolution and arbitration, regulatory litigation, capital markets and private equity practices. It has over 668 lawyers, including over 129 partners, with offices in New Delhi, Mumbai, Gurugram, Ahmedabad, Kolkata, Bengaluru and Chennai. The competition law team of SAM & Co has a proven track record of successfully steering clients through some of the largest transactions, complex investigations and high-stakes litigations. It has the largest competition law practice in India, with close to 40 dedicated lawyers, including ten partners.

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J Sagar Associates (JSA) is a leading national law firm in India with over 320 professionals operating out of seven offices located in Ahmedabad, Bengaluru, Chennai, Gurugram, Hyderabad, Mumbai and New Delhi. The firm's practice is organised along service lines and sector specialisation that provides legal services to top Indian corporates, Fortune 500 companies, multi-national banks and financial institutions, governmental and statutory authorities and multilateral and bilateral institutions. The JSA competition team comprises five lawyers, including two partners, and has offices in New Delhi and Mumbai. The team advises on all aspects of the Indian competition regime, including multi-national merger approvals, cartels (including leniency), abuse of dominance, compliance and other areas of antitrust litigation. The team’s expertise spans a wide variety of sectors. Recently, JSA secured the Competition Commission for India’s approval for the formation of a joint venture between the Ford Motor Company and Mahindra & Mahindra Limited, and the sale of the automotive business of Ford India Private Limited to that joint venture.

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