India: Merger Control
Competition law in India is governed and regulated by the Competition Act 2002 (the Competition Act) and its underlying regulations. On 1 June 2011, the merger control regime in India came into effect. The Competition Commission of India (CCI) also issued the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (the Regulations), which have been amended annually. The CCI amended the Regulations (the Amendment Regulations) on 8 January 2016. In general, these amendments should result in fewer and less burdensome filings, though some concerns remain.
Since coming into effect, the CCI has reviewed around 300 merger notifications, all but five of which have been approved unconditionally. In this article, we outline various practical aspects of the merger control regime in India that have developed through the CCI’s case law.
Sections 5 and 6 of the Competition Act prohibit a combination (an acquisition, merger or amalgamation) that causes, or is likely to cause, an appreciable adverse effect on competition (AAEC) in the relevant market in India, and treat such combinations as void. Transactions that cross the jurisdictional thresholds (based on assets and turnover) specified in the Competition Act1 must be pre-notified to the CCI.
The regime is suspensory and transactions subject to merger control review by the CCI cannot be concluded until merger clearance in India has been obtained, or a review period of 210 calendar days has passed, whichever comes first.
Jurisdictional thresholds have been prescribed in section 5 of the Competition Act for parties and groups:
- under the parties test:
- the parties have combined assets in India of 15 billion rupees or a combined turnover in India of 45 billion rupees; or
- the parties have combined worldwide assets of US$750 million, including combined assets in India of 7.5 billion rupees or a combined worldwide turnover of US$2.25 billion including a combined turnover in India of 22.5 billion rupees; or
- under the group1 test:
- the group has assets in India of 60 billion rupees or a turnover in India of 180 billion rupees; or
- the group has worldwide assets of US$3 billion including assets in India of 7.5 billion rupees, or a worldwide turnover of US$9 billion including turnover in India of 22.5 billion rupees.
The government of India, pursuant to notifications dated 4 March 2011 and 27 May 2011, for a period of five years, introduced a target-based exemption. Where the target enterprise (ie, an enterprise whose control, shares, voting rights or assets are being acquired) has assets of up to 2.5 billion rupees in India or a turnover of up to 7.5 billion rupees in India, no notification to the CCI is required, irrespective of whether the parties test or the group test is met. However, it is important to bear in mind that the CCI is interpreting the target exemption only to apply in relation to transactions effected by way of an acquisition and not through mergers or amalgamations. Also, in the case of asset acquisitions, the CCI is viewing the ‘target’ to be the enterprise housing the assets and not the assets themselves. The CCI has clarified that a de-merger of assets or business undertaking that takes place through a court-approved scheme, will be treated as an acquisition under section 5(a) of the Competition Act, where the target-based exemption would be available. The target-based exemption is due to expire on 3 March 2016 and it is not currently clear if it will be renewed.
Entities to be considered for calculation of thresholds
The entities to be considered for the purposes of calculating the thresholds differ according to the type of combination.
In the case of an acquisition of an enterprise by means of acquisition of its assets, shares, voting rights or control under section 5(a) of the Competition Act, the entities are:
- the acquirer (including its subsidiaries, units or divisions) and the target enterprise (including its subsidiaries, units or divisions); or
- the group, to which the target enterprise would belong after the acquisition.
In the case of an acquisition of control over an enterprise, where the acquirer already has direct or indirect control over another enterprise competing with the target enterprise under section 5(b), the relevant entities are: the target enterprise (including its subsidiaries, units or divisions); and other enterprises in the same or substitutable field over which the acquirer has direct or indirect control (each including its subsidiaries, units or divisions), or the group the target enterprise would belong to after the acquisition.
In the case of a merger or amalgamation under section 5(c), the relevant entity is the enterprise remaining after the merger or the enterprise created as a result of the amalgamation; or the group the enterprise remaining after the merger, or created as a result of the amalgamation, would belong to after the merger or amalgamation.
In calculating the assets and turnover of the group, it is necessary to do so assuming that the combination has already taken place. This can be done by adding the assets and turnover of the target enterprise (in the case of acquisitions), or the remaining enterprise (in the case of mergers), or the created enterprise (in the case of amalgamations). It is also worth noting that the CCI has interpreted ‘enterprise’ as referring to natural or legal persons and not unincorporated business divisions, units or standalone assets within a legal entity, even if they have an independent identity on the market.3 This assumes particular importance in the case of asset acquisitions, acquisitions of unincorporated businesses, units or divisions, and hive-offs. The CCI considers that, in relation to an acquisition of assets or an unincorporated business unit or division, for the purposes of the thresholds analysis (including application of the target-based exemption) the assets and turnover of the legal entity that houses the asset, business, unit or division being acquired are to be taken into account. In effect, this means that where only assets are being sold, the CCI will not consider the value of those assets and the turnover arising from them, but the assets and turnover of the selling legal entity that houses the assets being sold, to determine whether the transaction is notifiable.
Further, concerned with the fact that the selling enterprise may hive off assets into a step-down subsidiary to avail of the target-based exemption, and thus avoid filing, the Regulations provide that where assets are being hived off with the purpose of subsequently selling the same, the transferor parent entity’s assets and turnover are to be attributed to the step-down subsidiary when calculating the jurisdictional thresholds. This is particularly relevant in case of joint ventures.
Subject to the exceptions and exemptions explained below, a transaction qualifies as a combination that must be notified to the CCI if either of the parties-based thresholds or the group-based thresholds, in addition to applicable target-based thresholds, are met. The thresholds need to be calculated carefully, as the CCI will refuse to accept notifications where the jurisdictional thresholds are not met.
The government has, by way of a notification dated 8 January 2013, exempted banking companies, for a period of five years, from the merger notification requirement, when a notification of moratorium has been issued in respect of such companies. A notification of moratorium is ordinarily issued to ‘failing’ banks that are financially and operationally weak and on the brink of insolvency.
Combinations not requiring prior notification
Under the Competition Act, acquisitions, share subscription or financing facilities entered into by public financial institutions, registered foreign institutional investors, banks or registered venture capital funds, pursuant to a covenant in a loan agreement or an investment agreement, do not need to be pre-notified to the CCI. However, in such cases, the acquirer will need to notify the CCI of the acquisition in Form III within seven calendar days of completion.
Ordinarily exempt transactions
In order to prevent the merger control regime from becoming unduly onerous, the CCI has introduced, in regulation 4 and schedule I of the Regulations, certain categories of transactions that are ‘ordinarily’ not likely to cause an AAEC in the relevant market in India, and therefore do not ‘normally’ require pre-notification to the CCI. These categories are as follows:
direct or indirect acquisitions entitling the acquirer to hold less than 25 per cent of the shares or voting rights of a target company (including through shareholders’ agreements), solely for investment purposes or in the ordinary course of business, not leading to the acquisition of control.2 The Amendment Regulations introduce an explanation to this exemption, explaining that an acquisition of less than 10 per cent of the shareholding or voting rights of a target will be treated solely as an investment, provided the acquirer:
- is able to exercise only the rights of ordinary shareholders exercisable to the extent of their respective shareholdings;
- does not have, or have a right to have, or intend to have a seat on the board; and
- does not intend to participate in the management or affairs of the target;
- an acquisition of additional shares or voting rights of an enterprise by the acquirer or its group, not resulting in gross acquisition of more than 5 per cent of the shares or voting rights of such enterprise in a financial year, where the acquirer or its group, prior to the acquisition, already holds 25 per cent or more of the shares or voting rights of the enterprise, but does not hold 50 per cent or more of the shares or voting rights of the enterprise, either prior to or after such acquisition. This exemption is not available if the acquisition results in the acquisition of sole or joint control of such enterprise by the acquirer or the group. The Amendment Regulations remove the requirement that the gross acquisitions of shares or voting rights should not exceed 5 per cent in a financial year;
- further acquisition of shares or voting rights by an acquirer who already holds 50 per cent or more of the shares or voting rights, except where the transaction results in a transfer from joint control to sole control;
- 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 of the target enterprise, except where the assets represent substantial business operations in a particular location, or for a particular product or service of the target enterprise, irrespective of whether or not such assets are organised as a separate legal entity;
- intra-group reorganisations, covering:
- an acquisition of shares or voting rights or assets by one person or enterprise of another person or 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; and
- a merger or amalgamation of two enterprises where one of the enterprises has more than 50 per cent of the shares or voting rights of the other enterprise, or a merger or amalgamation of enterprises in which more than 50 per cent of the shares or voting rights in each of such enterprises are held by enterprises within the same group. This exemption is not available if the transaction results in transfer from joint control to sole control;
- acquisition of stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business;
- acquisition of shares or 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;
- amended or renewed tender offer where a notice to the CCI has been filed by the party making such an offer; and
- acquisition of shares or voting rights by a person acting as a securities underwriter or a registered stockbroker (on behalf of its clients), in the ordinary course of its business and in the process of underwriting or stockbroking.
On 1 July 2015, the CCI amended the Regulations and added another exemption, covering cases where the CCI has conditionally approved a transaction subject to divestitures of assets to an approved acquirer, such acquisition will not require a separate notice or approval from the CCI.
Until the end of March 2014, the Regulations provided an exemption for transactions between parties outside India, provided there was insignificant local nexus and effects on markets in India. The CCI interpreted the exemption narrowly, rendering it virtually redundant. However, the CCI has withdrawn the exemption so that foreign-to-foreign transactions satisfying the standard assets and turnover thresholds under the Competition Act, and not covered by any of the other exemptions, will have to be notified, even if there is no local nexus and effects on markets in India.
While these ordinarily exempt categories provided much-needed relief from the requirement to file transactions unlikely to cause an AAEC, it is important to remember that these are not absolute exemptions. If the CCI takes the view that the transaction is one that, despite falling under one of these categories, causes or is likely to cause an AAEC, then the parties would be expected to notify it.
Meaning of ‘control’
Until recently, it could be said that India did not have a strict ‘change in control’ based test for determining which transactions are combinations and hence notifiable to the CCI. The term ‘control’ in section 5 of the Competition Act has been defined to include controlling the affairs or management of one or more enterprises or groups, either jointly or singly. The CCI, in its decisional practice, has clarified that the ‘ability to exercise decisive influence over the management or affairs’ of another enterprise (including its divisions), is tantamount to ‘control’ over such enterprise, whether such influence is being exercised by way of majority shareholding, veto rights (attached to minority shareholding) or contractual covenants.
While control must be ascertained on a case-by-case basis, it seems that the CCI is taking an expansive view in that the ability to veto any strategic commercial operation – such as veto rights over the annual business plan, annual budget, annual operating plan, plans to enter new lines of business or locations, the appointment and compensation of senior management personnel, with or without shareholding – could be considered enough to confer either sole or joint control.
Due to this interpretation, the distinction between genuine minority protection rights and negative control has become blurred. As a result, many pure financial investment and private equity transactions involving acquisitions of entitlements to less than 25 per cent shareholdings in companies in India now become subject to review by the CCI.
Treatment of joint ventures
The formation of a joint venture is not specifically covered by section 5 of the Competition Act, as it only covers acquisitions of enterprises, mergers and amalgamations. As the definition of ‘enterprise’ under the Competition Act covers a going concern that is undertaking or has undertaken business, a purely greenfield joint venture is unlikely to be considered an enterprise and would not fall within section 5. Moreover, in most cases, the establishment of purely greenfield joint ventures are unlikely to meet the thresholds under the target exemption.
By contrast, to the extent that the jurisdictional thresholds are met, the establishment of a ‘brownfield’ joint venture (ie, where parents are contributing their existing assets or businesses to the joint venture) would be notifiable, as it would involve the acquisition of an ‘enterprise’ under section 5 of the Competition Act. Further, as discussed above, while calculating thresholds in relation to such a joint venture, the assets and turnover of the parents are also likely to be considered.
Currently, there is no clear guidance from the CCI in relation to the treatment of joint ventures or the attributes it would consider in determining if a transaction is greenfield or brownfield; or, for that matter, whether it would treat full-function joint ventures differently from non-full function joint ventures.
The Regulations provide that where a proposed combination comprises a series of interconnected or interdependent transactions, one or more of which may be ordinarily exempt and others notifiable, a single composite filing including the exempt transactions must be made by the parties. The determination of whether steps of a transaction are interconnected or interdependent will depend on the facts of the case. The Competition Appellate Tribunal has recently overturned a CCI finding that an otherwise non-notifiable market share purchase in the Thomas Cook/Sterling Holidays transaction was intrinsically linked to demerger and amalgamation elements that were notifiable.
The CCI also seeks to capture the ‘innovative structuring’ of transactions designed to avoid notifications to the CCI. The Regulations provide that a notification requirement must be assessed with respect to the ‘substance of the transaction’ and that any structure of a transaction that has the effect of avoiding a filing requirement will be disregarded by the CCI. The scope of this anti-avoidance provision is very unclear and it remains to be seen how the CCI will assume jurisdiction over transactions that, strictly speaking, do not trigger a notification obligation. However, parties will now have to ensure that transaction structures are not devised in a manner that has the effect of avoiding a filing requirement, perhaps even where such an effect is not intended.
In the Amendment Regulations, the CCI has removed the words ‘or interdependent on each other’ so that it only has to be determined whether the transactions in question are ‘interconnected’. It is likely that the CCI has taken the view that the purpose of the provision can adequately be served by the ‘interconnected’ test, and the inclusion of an alternative test of ‘interdependence’ (which would generally be seen as involving an interconnection) is unnecessary and confusing.
Merger filing and review process
Timing of filing
The Competition Act prescribes that the notifying party (or parties) must file a notification with the CCI within 30 calendar days of either:
- the final approval of the proposal of merger or amalgamation by the board of directors of the enterprises concerned; or
- the execution of any agreement or other document for the acquisition of shares, voting rights, assets or control.
The Regulations provided that ‘other document’ shall mean any binding document conveying an agreement or decision to acquire control, shares, voting rights or assets. The Amendment Regulations have now limited the scope of ‘other document’ to public announcements to the Securities and Exchange Board of India (the SEBI) under the 2011 Substantial Acquisition of Shares and Takeover Regulations.
The trigger event or document must be of sufficient finality. Accordingly, interim arrangements such as a memorandum of understanding (even if they are binding on the parties), that are terminable or do not finally determine the exact scope of the proposed combination, will not be accepted as a trigger for filing by the CCI.
Failure to file
The CCI observes the requirement to file within the 30-day period quite strictly, although the Regulations allow for the CCI to accept a belated notice, at their discretion.
If the parties fail to notify a notifiable combination within 30 days from the trigger event, or at all, the CCI has the power to impose a penalty of up to 1 per cent of the total turnover or value of assets, whichever is higher, of the proposed combination. In addition, in the event the CCI believes the transaction will have, or is likely to have, an AAEC in India, the transaction will be treated as void and all actions taken in pursuance of the void transaction shall also be void. In such a case, the CCI also has the power to unscramble the transaction, though this has not happened to date.
Penalties have been imposed only after the first year of operation of the merger control provisions. The CCI initially imposed a ‘relatively nominal’ penalty of 5 million rupees for a delayed filing where the parties argued that the reason for the delay in filing was incorrect legal advice. In Titan International Inc/Titan Europe PLC, the parties sought to justify a lengthy delay in filing, on the grounds that the transaction was foreign-to-foreign, they were not aware of the filing requirement, the delay was unintentional and there was no bad faith. However, the CCI pointed to the 147-day delay and the fact that the combination had been completed by the time the filing had been made. The CCI could have imposed a maximum penalty of 1.45 billion rupees. However, since the transaction was a foreign-to-foreign acquisition, the parties were based outside India and, notwithstanding the delay, had voluntarily filed the notification, the CCI accepted these as mitigating factors and imposed a lower penalty of 10 million rupees. In Temasek/DBSH, in imposing a penalty of 5 million rupees, the CCI noted that the failure to file on time was extremely serious and it did not matter that the underlying transaction (on the basis of which the CCI’s jurisdiction arose) was itself called off.
In Tesco Overseas Investments Limited/Trent Hypermarket Limited, the notification was made more than 30 days after the relevant triggering event (ie, the application to the statutory authority). The CCI treated the application as belated and levied a penalty of 30 million rupees on Tesco – the highest penalty levied so far for a late notification.
Similarly, in Zuari Fertilisers and Chemicals Limited and SCM Soilfert Limited, the CCI levied a penalty of 30 million rupees and 20 million rupees respectively, for consummation of the transaction and a belated filing.
Responsibility to file
In case of an acquisition or acquiring of control of an enterprise, the acquirer is required to file the notice. In case of a merger or an amalgamation, all the parties to the combination are jointly required to file the notice.
Forms of notification
The Regulations prescribe three forms for filing a merger notification. All notifications are ordinarily required to be filed in Form I (that is, the short form). Most combinations notified to the CCI so far have been made in Form I only. Form I is accompanied by a fee of 1.5 million rupees.
The parties, however, remain free to file the merger notification in Form II (ie, the long form) based on their own self-assessment of the competitive overlaps, and Form II is ‘recommended’ to be filed for transactions where:
- the parties to the combination are competitors and have a combined market share in the same market exceeding 15 per cent; or
- the parties to the combination are active in vertically linked markets and the combined or individual market share in any of these markets is greater than 25 per cent.
With effect from 1 July 2015, following public consultation, the CCI amended the Regulations, to further refine the merger control process. Highlights of the amendment included an overhaul of the entire Form I. For the very first time, the CCI has prepared detailed guidance notes for preparing Form I, including providing tabular formats.
Form II requires extremely detailed information – far more than that required by Form CO under the EU Merger Regulation, or a ‘second request’ pursuant to the US Hart-Scott-Rodino Act – and is to be accompanied by a filing fee of 5 million rupees.
In cases where parties have filed a Form I and the CCI believes that it requires information in Form II, it may require parties to file the notification in Form II. The Regulations clarify that, in such a case, the clock will restart once Form II is filed; this can severely impact deal timelines. Accordingly, the decision of which notification form to file needs to be taken carefully. Further, in cases where there is a material change to the transaction or the parties, while the review is underway, that significantly changes the CCI’s determination of whether there is an AAEC, the CCI can, and in fact has, rejected a notification and asked the parties to re-file within 30 days (with the timetable starting afresh).
The CCI has further consolidated its power to consider a notice as being invalid unless it is complete, at any time during the review, up to the end of the 210-day statutory time period. While the CCI recorded reasons for the invalidation, it did not offer the parties an opportunity of being heard. The Amendment Regulations now provide that the CCI may give the parties an opportunity to be heard before it invalidates a notification. The amendment also provides that the time taken for the invalidation proceedings will be excluded from the 210 days’ time limit for approval of a combination and the 30 working days’ time limit for the CCI to form its prima facie opinion. A successful hearing (which could take place at any stage of the review process and that means that the parties were not in the wrong) may, therefore, result in a delay in receiving clearance. The CCI requires a mandatory, single, consolidated notice for transactions where the ultimate intended effect is achieved by way of a series of steps or smaller individual transactions that are interconnected.
Intimations to the CCI under Form III (as explained above) do not require any filing fees.
It is possible to have oral, informal, binding pre-notification consultations with the CCI on procedural aspects of filing a notification, as well as on substantive issues.
Phase I review
On receipt of a notification, the CCI is required to form a prima facie opinion on whether the combination causes, or is likely to cause, an AAEC within the relevant market in India within a period of 30 working days, referred to as the Phase I review process. There is no deemed approval at the end of this 30 working day period. If the CCI requests the parties for additional information, it stops the clock until the additional information is provided. The CCI has been known to ask for very detailed information in several cases where Form I has been filed, and often this information is of the nature that is usually required to be submitted in Form II. In practical terms, due to the stopping of the clock, the review period has exceeded 30 working days in certain cases, and transactions are taking, on average, between 50 and 80 calendar days to clear. However, almost all combinations notified to the CCI to date have been cleared unconditionally in Phase I of the review process. The recent amendment has also clarified that the 30 working day period can be further extended up to 15 working days, if a third-party opinion is sought by the CCI at this stage. This would, in effect, provide the CCI with 45 working days for arriving at its prima facie opinion in Phase 1, excluding clock-stops for clearing defects or providing additional information.
The Regulations also allow the parties to a combination to propose ‘modifications’ to the combination up front in Phase I, in order to satisfy the CCI that the combination will not cause an AAEC in the relevant market in India. In such a scenario, the CCI will have an additional period of up to 15 calendar days to form its prima facie opinion. Since the merger control regime came into effect, parties have offered modifications in only four cases (ie, reduction in the period of non-compete obligation, submission of a competition compliance report in respect of certain laws and contracts, and modification to certain terms of the contract), which were accepted, and the transactions were cleared in Phase I.
Phase II investigation
At the end of the Phase I review period, if the CCI forms a prima facie opinion that a combination causes or is likely to cause an AAEC, a detailed investigation will follow and the standstill obligation will continue until a final decision is reached by the CCI, or a review period of 210 calendar days has passed. This is Phase II of the investigation process.
During Phase II, the CCI will ask the parties to explain, within 30 days, why an in-depth investigation in respect of the combination should not be conducted. The CCI may then choose to direct the director general (DG) to investigate the combination or do so on its own. Following the receipt of the response of the parties or the DG’s report (whichever is later), the CCI directs the parties to publish the details of the combination in four national dailies (including at least two business dailies) and on the respective parties’ websites, inviting any person or member of public who is likely to be affected by the combination to file written objections within 15 working days from the date of publication. Thereafter, the CCI may call for additional information from the parties within 15 working days of the completion of this period. After receipt of the additional information, the CCI has 45 working days to clear or prohibit the transaction or to propose modifications.
During the course of the Phase II investigation, if the CCI is of the opinion that the combination has or is likely to have an AAEC, but such adverse effect can be eliminated by suitable modifications to the combination, it may propose appropriate modifications to address such concerns.
To date, the CCI has granted conditional approval to two transactions after a Phase II review.
While determining whether a particular transaction has an impact on competition, the CCI looks at the various factors listed under section 20(4) of the Competition Act.
The CCI will consider the individual and combined market shares of the parties to the combination as a rough guide to establish whether they have the ability to exercise market power in the relevant market. The higher the individual and combined market shares of the parties, the more likely it is that the combination can cause an AAEC. The CCI will also consider the existence of barriers to entry, such as sunk costs, regulations and intellectual property rights protection, and whether a combination of two enterprises may result in them being able to increase prices or profit margins significantly and sustainably without being adequately constrained by competitors, customers or suppliers. The CCI will also be concerned with combinations that result in competition in the relevant market decreasing appreciably post-combination.
To assess the appreciability of any adverse effect, section 20(4) allows the CCI to consider the benefits of the combination as well. So far, there have been no cases decided by the CCI that discuss such efficiencies in any detail. In addition, parties may also be able to demonstrate competitiveness post-combination by ensuring open and non-discriminatory access is offered to third parties, especially where essential facilities are involved. In addition, the CCI can and has (in Nestlé/Pfizer) looked into the possibility of loss of potential competition by removal of an effective potential competitor from the market. While in this case the CCI found no concerns in relation to potential competition, the buying out of a potentially viable competitor that planned to enter into a market could be a reason for finding that a combination causes or is likely to cause an AAEC.
Other practical aspects of merger control in India
The combination registry officials at the CCI have a formalistic approach in terms of filing formalities, and each filing is checked extensively before being accepted. Particular care needs to be taken in case of filings by non-Indian entities, due to notarisation and legalisation (apostille) requirements. Absence of such documents or failure to follow such requirements could lead to a filing not being accepted by the CCI. The Amendment Regulations have done away with the requirement to verify a notification before it could be filed. The Amendment Regulations now provide for a declaration to be made on behalf of the notifying party. This obviates the need for notarisation that was implied by verification. Additionally, the declaration makes a specific mention of sections 44 and 45 of the Competition Act, which lay down the penalties applicable for submitting false information or refraining to submit material information. This amendment does not appear to affect the requirement to apostille all foreign documents, as stated in the notes to Form I and Form II.
Person authorised to sign the notification
The Amendment Regulations now allow for the notification to be signed by any person authorised by the company, and there is now no need for a board resolution.
The CCI allows requests for confidentiality by parties, when these requests are specifically made in writing along with the notification form. The CCI requires parties to provide detailed justifications for confidentiality claims in line with the strict parameters specified in the Competition Commission of India (General) Regulations 2009. These must be accompanied by an affidavit from the authorised person. Once accepted, the CCI will not publish information for which the parties have claimed confidentiality, without first obtaining the permission of the parties. As a general matter, the CCI will grant confidentiality for three years.
Since the enforcement of the merger control regime in June 2011, the CCI has been commendably swift in granting approvals, thus allaying concerns about the timing and the adverse impact that the clearance process may have on the merger and acquisition activity. Additionally, the CCI has been quick and responsive to the concerns raised by various stakeholders, by bringing in amendments to the Regulations that clarify certain aspects of the scope of the CCI’s review process.
However, the notification process involves a lot of red tape and the information requirements can be onerous. The notification form requires parties to provide a large amount of data, and the CCI frequently requests additional information, which often has little bearing on the competition assessment to be made. These problems have only increased with the increased information demands in the recently revised Form I.
In addition, the CCI’s extension of jurisdiction over minority investments, and the in-depth review involved in receiving approval for such transactions, could be seen to be at odds with the current government’s push towards a business-friendly and investment-friendly environment in India.
It is not always clear from the CCI’s orders why it considers a given transaction to be notifiable. Greater clarity up front would assist parties in knowing whether or not they need to notify, and could assist in the process of economic development, including the current government’s policy of encouraging foreign investment. Even though it may be premature to issue comprehensive guidance akin to the EU Commission Consolidated Jurisdictional Notice, some published guidance would be welcome in areas such as acquiring control (including negative control), the trigger document, joint ventures and the calculation of assets and turnover. Parties need to prepare for filings well in advance.
Finally, there could be more clarity in relation to the substantive review of transactions. Although the Competition Act lists the various factors to be considered in determining any impact on competition, the thinking of the CCI is often not spelt out in its orders. While its position may become clearer in time – especially where there have been Phase II investigations – it would help notifying parties, even now, to have more detailed guidance on the approach the CCI takes to making its competition assessment.
- The government of India may revise these thresholds on the basis of changes in the wholesale price index or exchange rate fluctuations.
- Under the Competition Act, as modified by the Government of India Notification dated 4 March 2011, for the purposes of merger control assessment, ‘group’ is defined to mean two or more enterprises that, directly or indirectly, are in a position to:
• exercise 50 per cent or more of the voting rights in the other enterprise;
• appoint more than 50 per cent of the members of the board of directors in the other enterprise; or
• control the management or affairs of the other enterprise.
- An enterprise has been defined in section 2(h) of the Competition Act as:
"[A] person or a department of the Government, who or which is, or has been, engaged in any activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, whether such unit or division or subsidiary is located at the same place where the enterprise is located or at a different place or at different places, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defence and space."
Therefore, in assessing the requirement of notification of an acquisition of an enterprise, the presence of a division, unit or subsidiary in India will also have to be considered.
- While the Regulations have the threshold of 25 per cent, in line with the SEBI Takeover Regulations, the CCI now considers instruments that entitle the acquirer to hold 25 per cent or more at a future date, at the time of their issuance, in assessing the 25 per cent threshold.