Background

The Indian merger control regime requires transactions that may be ‘inter-connected’ to one another to be mandatorily notified to the Competition Commission of India (‘CCI’) by way of a single notice.[1] Accordingly, where one or more transactions in a series of transactions are exempt from CCI’s notification requirements, but are nevertheless inter-connected to a notifiable transaction, parties need to: (i) file a composite notice with CCI with details of all transactions, including ‘exempt’ but inter-connected transactions; and (ii) ensure that no transaction is implemented, including the exempt transaction. prior to receipt of approval from CCI (‘Inter-Connection Provision’). For example, in CCI v. Thomas Cook (India Limited)[2], the Supreme Court of India confirmed the penalty on Thomas Cook for completing minority market purchases which were independently exempt from notification to CCI. The penalty was imposed by CCI on the ground that they were ‘inter-connected’ to a share acquisition contemplated by way of a separate share purchase agreement, which in any event had been separately notified to CCI.

The Inter-Connection Provision is not unique to merger control practice in India. Several competition law jurisdictions, including the European Union and the U.K. require composite antitrust review of ‘inter-related transactions’ which may be staggered in time. The purpose for a composite review is to ensure that notifiable transactions are not avoided by breaking down what is essentially one transaction into multiple sub-transactions, which, when individually examined, avoid notification. [3]

CCI’s decisional practice identifies the following parameters for determining whether two or more transactions are ‘inter-connected’: (i) commonality of business and parties involved; (ii) simultaneity in negotiation, execution and consummation of transaction documents; (iii) commercial feasibility of isolating the two transactions, i.e., whether one would happen without the other; (iv) cross-conditionalities in transaction documents or public announcement of the parties (‘Inter-Connection Parameters’) [4].

Challenges with Strict Interpretation of the Inter-Connection Provision

The underlying rationale for notifying inter-connected transactions together is indeed legitimate transactions with a common ‘ultimate intended effect’ ought to be reviewed by CCI holistically. An unduly wide interpretation however, may lead to outcomes which are impractical and often times, inconsistent, with the underlying rationale behind the provision. These are discussed below.

A.       Acquisitions by multiple investors in a common target

Contemporaneous investments by unrelated multiple investors in a common target may arguably be ‘inter-connected’, at least on the basis of the Inter-Connection Parameters identified above; investments are typically negotiated contemporaneously with the objective of investing in a common target. That said, they nevertheless involve a distinct set of acquirers, with independent commercial reasons for investing in a target that may be artificially linked with cross-conditionalities (such as on the extent of funding) or overlapping timelines.

Treating such investments as ‘inter-connected’ would extend CCI’s review jurisdiction as well as corresponding standstill obligations to investments that would have otherwise been exempt from notification requirements. For example, consider an investment by Investor ‘A’ into a Target enterprise ‘X’, notifiable to CCI. On account of high combined market shares in markets where A’s portfolio entities overlaps with X, the investment by A may justifiably be subject to a relatively time-intensive antitrust review process. At the same time, Investor ‘B’, which is unrelated to A, with no presence in India, also invests in X. B’s investment independently benefits from an exemption. If the Inter-Connection Parameters are mechanically applied to the investment by Investor B, then both investments qualify as ‘inter-connected’. The result: an exempt transaction by Investor B is artificially tied to the investment by A. Investment by B is necessarily subject to CCI review and cannot be implemented until CCI concludes its detailed review, including of an investment by A in X.

Not only would this approach be inconsistent with the underlying rationale behind the Inter-Connection Provision and global best practices, but would entail significant uncertainty in doing business. It was also result in higher transaction costs and regulatory burden as CCI would need to review transactions which are unlikely to impact competitive conditions. Such transactions also may not have a common ‘ultimate intended effect’ – as the competitive effects of each such acquisition would depend on the independent presence of each investor in India

The EC seeks to address concerns that arise from such an interpretation of ‘inter-connected transactions’ by clarifying that two or more transactions are treated as a single concentration, even where they are inter-conditional upon each other, ‘if control is acquired ultimately by the same undertaking(s)’, and that ‘it would not be in line with the general framework and the purpose of the Merger Regulation if different transactions, linked by conditionality, were assessed as a whole under the Merger Regulations if only some of these transactions lead to a change in control of a given target.’[5]

B.       Uncertain transactions

Extending the Inter-Connection Provision (which covers all inter-connected ‘series of steps’ or ‘small individual transactions’) to transactions that are not yet determinative may lead to impracticable outcomes as identified below.

At the very threshold, in line with global best practices, the Inter-Connection Parameters should be evaluated only where two seemingly related transactions seek to achieve a ‘common ultimate intended effect’.  Examining the Inter-Connection Parameters absent this threshold test may result in undesirable consequences, particularly in cases where one transaction may be cross-conditional with an envisaged albeit uncertain transaction.

For example, at the time of entering into a binding agreement to invest in Target X, the same investor often contemplates a follow-on investment in the same target that is still being negotiated. In this case, requiring the investor to wait to notify CCI of its primary investment till the follow on investment is fully negotiated and recorded in a binding agreement, may unduly delay transaction timelines and create uncertainty. The issue may be further confounded where a primary investment may not be notifiable but a related follow on transaction, which is still uncertain, is likely to be notifiable to CCI. If the Inter-Connection Regulation were to be applied strictly to this case, case, parties may be unable to consummate the exempt primary investment, in case the follow-on related transaction eventually materializes. Not only would this create uncertainty in doing business, but would be inconsistent with the mandate of the Competition Act, 2002 (‘Act’) that requires parties to notify CCI of transactions that are sufficiently binding[6] and meet the notifiability. In fact, where transactions have been notified to CCI on the basis of uncertain transaction documents, CCI has directed parties to approach them with a filing once there is more certainty. [7]

Conclusion

Applying the Inter-Connection Regulation mechanically or without necessary flexibility is likely to have wide-reaching implications in form of legal uncertainties, regulatory burden on account of reviewing transactions which may otherwise be exempt from antitrust review, higher transaction costs, avoidable consequences for non-implementation in form of gun-jumping proceedings etc. The difficulties that arise with applying this rule may be avoided altogether if its application is flexible and applied in a manner that is aligned with larger policy considerations and international best practices.

[1] Regulation 9(34) of the CCI (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011 reads ‘Where ultimate effect of a business transaction is achieved by way of a series of steps or smaller individual transactions which are inter-connected, one or more of which may amount to a combination, a single notice, covering all these transactions, shall be filed by the parties to the combination’. [2] CCI v. Thomas Cook (India Limited), Civil Appeal No.13578 of 2015 (‘Thomas Cook’). [3] European Commission’s (‘EC’) Consolidated Jurisdictional Notice Under Council Regulation (EC) No. 139/2004 on the control of concentrations between undertakings (‘EC Notice’) and Supreme Court’s judgment in Thomas Cook. [4] CCI’s Order in Thomas Cook and Order under Section 43A against Piramal Enterprises Limited, Combination Registration No. C-2015/02/249; Mandala Rose Co-Investment Limited/ Jain Irrigation Systems Limited, Combination Registration No. C-2015/12/356. [5] Paragraph 44, EC Notice. [6] The Act prescribes a standard threshold for measuring certainty – i.e., execution of any agreement or any binding document which conveys an agreement or decision to acquire control, shares, voting rights or assets. [7] See, for example, SVF Doorbell (Cayman) Limited/ Delhivery Private Limited, Combination Registration No. C-2019/01/633.