1.1. Policies and Practices

1.1.1. What, in general terms, are India’s policies and practices regarding oversight and review of foreign investment?

Primarily, since 1991, India has sought to liberalise its economy and has continuously opened up most of its industrial and business sectors to foreign investment. In particular, the Indian government has sought to attract foreign investment into the country by undertaking steps towards enhancing the ease of doing business in India, as it has the effect of establishing long-term economic relationships with India.

Foreign investment in India is principally governed by the Foreign Exchange Management Act 1999 (FEMA) and the regulations framed thereunder, which consolidate the law relating to foreign exchange in India. To regulate foreign investment, the Reserve Bank of India (RBI) had published the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000 and thereafter the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations 2017 (TISPRO 2017) (as amended from time to time), under the FEMA was published on 7 November 2017. Additionally, in 2010, the Department for Promotion of Industry and Internal Trade (DPIIT) (earlier known as the Department of Industrial Policy and Promotion (DIPP)) had put in place a policy framework that consolidated the sectoral requirements and other conditions that must be complied with by foreign investors investing in Indian entities (FDI Policy). The DPIIT is the nodal department for formulation of government policy on foreign direct investment (FDI). It is also responsible for maintenance and management of data on inward FDI into India, based on the remittances reported by the RBI. The FDI Policy is reviewed on an ongoing basis, with a view to making it more investor friendly. To attract higher levels of FDI, the government has put in place a liberal policy on FDI, under which FDI up to 100 per cent is permitted, under the automatic route, in most sectors and activities. Significant changes have been made in the FDI Policy regime in recent times, to ensure that India remains an increasingly attractive investment destination. The department plays an active role in the liberalisation and rationalisation of the FDI policy. Towards this end, it has been constructively engaged in extensive stakeholder consultations on various aspects of the FDI Policy. The FDI Policy used to be updated every year and amended from time to time, and the consolidated FDI Policy of 2020 is the last policy framework issued by the DPIIT (FDI Policy 2020).

On 15 October 2019, the central government notified, inter alia, certain amendments to the FEMA, pursuant to which, the central government, rather than the RBI, has been granted the power of specifying all permissible non-debt instruments capital account transactions and the RBI has been granted the power of specifying all debt instruments capital account transactions. The central government separately, on 16 October 2019, also notified the following instruments that shall be considered as ‘non-debt instruments’, inter alia, namely: (1) all investments in equity in incorporated entities (public, private, listed and unlisted); (2) capital participation in limited liability partnerships (LLPs); (3) all instruments of investment as recognised in the FDI Policy as notified from time to time; (4) investment in units of alternative investment funds, real estate investment trusts and infrastructure investment trusts; and (5) investment in units of mutual funds and exchange-traded funds that invest more than 50 per cent in equity.

Pursuant to these amendments to the FEMA, the central government, on 17 October 2019, notified the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (NDI Rules 2019) and the RBI notified the Foreign Exchange Management (Debt Instruments) Regulations 2019 (DI Regulations 2019) and Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations 2019 (Reporting Regulations 2019), that have superseded the TISPRO 2017 (as amended from time to time) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. In the past few years, the trend for liberalisation has continued, with relevant changes being made to the Indian foreign exchange laws in this regard. For example, central government:

• inserted clause (c) under paragraph 1.2(ii) in Annexure 4 of the FDI Policy 2020 which provides that investments by non-resident Indians (NRIs) on a non-repatriation basis as stipulated under Schedule IV of the 2019 rules are deemed to be domestic instruments at par with the investments made by residents; and accordingly, an investment by an Indian entity that is owned and controlled by NRIs on a non-repatriation basis will not be considered for calculation of indirect foreign investment (see Press Note No. 1 of 19 March 2021);
• increased the FDI cap to 74 per cent (from 49 per cent) through the automatic route for insurance companies; and increased the FDI cap to 100 per cent for intermediaries or insurance intermediaries (see Press Note No. 2 of 14 June 2021);
• notwithstanding the FDI cap of 49 per cent for petroleum refining by public sector undertakings (PSUs), without any disinvestment or dilution of domestic equity in the existing PSUs; foreign investment up to 100 per cent under the automatic route is allowed in case an ‘in-principle’ approval for strategic disinvestment of a PSU has been granted by the government (see Press Note No. 3 of 29 July 2021);
• made the entry route ‘automatic’ for the entire FDI cap limit of 100 per cent while continuing observance with licensing, security and other terms and conditions as specified by the Department of Telecommunications from time to time (Press Note No. 4 of 6 October 2021); and
• permitted foreign direct investment up to 20 percent through the automatic route in Life Insurance Corporation and liberalised the conditions for investment in insurance companies and insurance intermediaries (Press Note No. 1 of 14 March 2022).

Further, the NDI Rules 2019 contain sectoral requirements that must be complied with by foreign investors for the purposes of investing in particular sectors in India and also by Indian companies that receive foreign investments in India. They also classify sectors that fall under the approval route and those that fall under the automatic route. Further, there are also certain limited sectors and industries in which foreign investment is prohibited. Except for those sectors and subject to conditions for foreign investment (performance conditions) or government approval in certain sectors; by and large, there are no preconditions for making foreign investment into other sectors in India.

Additionally, the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations 2019 (FPI Regulations), read with Schedule II of the NDI Rules 2019, permits foreign portfolio investors (FPIs) to invest in equity instruments of an Indian company and specifies the form and manner in which such investment by FPIs in Indian entities can be categorised as foreign portfolio investment or foreign direct investment (FDI). As per the NDI Rules 2019, the total holding by each FPI is required to be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (individual limit) and the total investment of all the FPIs

Primarily, since 1991, India has sought to liberalise its economy and has continuously opened up most of its industrial and business sectors to foreign investment. In particular, the Indian government has sought to attract foreign investment into the country by undertaking steps towards enhancing the ease of doing business in India, as it has the effect of establishing long-term economic relationships with India.

Foreign investment in India is principally governed by the Foreign Exchange Management Act 1999 (FEMA) and the regulations framed thereunder, which consolidate the law relating to foreign exchange in India. To regulate foreign investment, the Reserve Bank of India (RBI) had published the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000 and thereafter the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations 2017 (TISPRO 2017) (as amended from time to time), under the FEMA was published on 7 November 2017. Additionally, in 2010, the Department for Promotion of Industry and Internal Trade (DPIIT) (earlier known as the Department of Industrial Policy and Promotion (DIPP)) had put in place a policy framework that consolidated the sectoral requirements and other conditions that must be complied with by foreign investors investing in Indian entities (FDI Policy). The DPIIT is the nodal department for formulation of government policy on foreign direct investment (FDI). It is also responsible for maintenance and management of data on inward FDI into India, based on the remittances reported by the RBI. The FDI Policy is reviewed on an ongoing basis, with a view to making it more investor friendly. To attract higher levels of FDI, the government has put in place a liberal policy on FDI, under which FDI up to 100 per cent is permitted, under the automatic route, in most sectors and activities. Significant changes have been made in the FDI Policy regime in recent times, to ensure that India remains an increasingly attractive investment destination. The department plays an active role in the liberalisation and rationalisation of the FDI policy. Towards this end, it has been constructively engaged in extensive stakeholder consultations on various aspects of the FDI Policy. The FDI Policy used to be updated every year and amended from time to time, and the consolidated FDI Policy of 2020 is the last policy framework issued by the DPIIT (FDI Policy 2020).

On 15 October 2019, the central government notified, inter alia, certain amendments to the FEMA, pursuant to which, the central government, rather than the RBI, has been granted the power of specifying all permissible non-debt instruments capital account transactions and the RBI has been granted the power of specifying all debt instruments capital account transactions. The central government separately, on 16 October 2019, also notified the following instruments that shall be considered as ‘non-debt instruments’, inter alia, namely: (1) all investments in equity in incorporated entities (public, private, listed and unlisted); (2) capital participation in limited liability partnerships (LLPs); (3) all instruments of investment as recognised in the FDI Policy as notified from time to time; (4) investment in units of alternative investment funds, real estate investment trusts and infrastructure investment trusts; and (5) investment in units of mutual funds and exchange-traded funds that invest more than 50 per cent in equity.

Pursuant to these amendments to the FEMA, the central government, on 17 October 2019, notified the Foreign Exchange Management (Non-debt Instruments) Rules 2019 (NDI Rules 2019) and the RBI notified the Foreign Exchange Management (Debt Instruments) Regulations 2019 (DI Regulations 2019) and Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations 2019 (Reporting Regulations 2019), that have superseded the TISPRO 2017 (as amended from time to time) and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018. In the past few years, the trend for liberalisation has continued, with relevant changes being made to the Indian foreign exchange laws in this regard. For example, central government:

• inserted clause (c) under paragraph 1.2(ii) in Annexure 4 of the FDI Policy 2020 which provides that investments by non-resident Indians (NRIs) on a non-repatriation basis as stipulated under Schedule IV of the 2019 rules are deemed to be domestic instruments at par with the investments made by residents; and accordingly, an investment by an Indian entity that is owned and controlled by NRIs on a non-repatriation basis will not be considered for calculation of indirect foreign investment (see Press Note No. 1 of 19 March 2021);
• increased the FDI cap to 74 per cent (from 49 per cent) through the automatic route for insurance companies; and increased the FDI cap to 100 per cent for intermediaries or insurance intermediaries (see Press Note No. 2 of 14 June 2021);
• notwithstanding the FDI cap of 49 per cent for petroleum refining by public sector undertakings (PSUs), without any disinvestment or dilution of domestic equity in the existing PSUs; foreign investment up to 100 per cent under the automatic route is allowed in case an ‘in-principle’ approval for strategic disinvestment of a PSU has been granted by the government (see Press Note No. 3 of 29 July 2021);
• made the entry route ‘automatic’ for the entire FDI cap limit of 100 per cent while continuing observance with licensing, security and other terms and conditions as specified by the Department of Telecommunications from time to time (Press Note No. 4 of 6 October 2021); and
• permitted foreign direct investment up to 20 percent through the automatic route in Life Insurance Corporation and liberalised the conditions for investment in insurance companies and insurance intermediaries (Press Note No. 1 of 14 March 2022).

Further, the NDI Rules 2019 contain sectoral requirements that must be complied with by foreign investors for the purposes of investing in particular sectors in India and also by Indian companies that receive foreign investments in India. They also classify sectors that fall under the approval route and those that fall under the automatic route. Further, there are also certain limited sectors and industries in which foreign investment is prohibited. Except for those sectors and subject to conditions for foreign investment (performance conditions) or government approval in certain sectors; by and large, there are no preconditions for making foreign investment into other sectors in India.

Additionally, the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations 2019 (FPI Regulations), read with Schedule II of the NDI Rules 2019, permits foreign portfolio investors (FPIs) to invest in equity instruments of an Indian company and specifies the form and manner in which such investment by FPIs in Indian entities can be categorised as foreign portfolio investment or foreign direct investment (FDI). As per the NDI Rules 2019, the total holding by each FPI is required to be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (individual limit) and the total investment of all the FPIs put together in an Indian company (including any other direct or indirect foreign investments) is required to not exceed 24 per cent of the paid-up equity share capital on a fully diluted basis or the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (aggregate limit). Additionally, with effect from 1 April 2020, the applicable aggregate limit for an FPI is the sectoral cap or statutory ceiling as prescribed in Schedule 1 of the NDI Rules 2019, with respect to its paid-up equity capital on a fully diluted basis or such same sectoral cap percentage of paid-up value of each series of debentures or preference shares or share warrants. However, an Indian investee company is permitted to decrease this aggregate limit to a lower threshold limit of 24 per cent, 49 per cent or 74 per cent as deemed appropriate by passing a resolution at the meeting of its board of directors followed by a special resolution at the shareholders’ meeting, before 31 March 2020. Further, such an Indian investee company that has decreased its aggregate limit to 24 per cent, 49 per cent or 74 per cent is permitted to increase it, once, up to 49 per cent or 74 per cent or the statutorily prescribed sectoral cap as under Schedule 1 of the NDI Rules 2019, by passing a resolution at the meeting of its board of directors followed by a special resolution at the shareholders’ meeting, after which this Indian investee company cannot reduce it to a lower threshold.

Further, as per the FPI Regulations, in the event that the investment by a FPI exceeds the individual limit of 10 per cent, the investment will qualify as FDI. Further, the DI Regulations 2019, read with the FPI Regulations, also permit FPIs to invest in any debt securities, shares, debentures and warrants of listed companies or companies whose securities are likely to be listed on a stock exchange in India.

Therefore, foreign investment in India can broadly be classified into investments in debt instruments and investments in non-debt instruments.

1.2. Main laws

1.2.1. What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?

The key legislation that directly or indirectly regulates and governs acquisitions and investments by foreign nationals is the FEMA (along with rules and regulations thereunder, in particular, the NDI Rules 2019, the FDI Policy and DI Regulations 2019), as well as other notifications, circulars and directions pertaining to foreign investments issued by the central government and RBI from time to time.

Until 2010, the regulatory framework for foreign investment in India consisted of the FEMA; the regulations framed thereunder, the press notes and press releases issued by the DPIIT, and the notifications, circulars and directions issued by the RBI. After April 2010, the press notes and press releases issued by the DPIIT were consolidated into the FDI Policy; however, the DPIIT continues to issue press notes and press releases each year, and the changes proposed in these press notes and press releases come into effect after being incorporated in the relevant regulations framed under FEMA.

The DPIIT issued Press Note No. 3 of 2020 dated 17 April 2020, according to which any entity of a country sharing a land border in India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route. This was primarily done to stem any attempts by Chinese firms to take control of Indian firms that have been affected by covid-19 related lockdowns. A corresponding amendment was introduced to the NDI Rules 2019 by the Department of Economic Affairs, Ministry of Finance, on 22 April 2020.

In addition to complying with the Indian foreign exchange laws, rules, regulations and policies, foreign investors are also required to comply with the relevant sector-specific and state-specific (local laws) legislation applicable to a particular industry or sector.

1.3. Scope of application

1.3.1. Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?

Under the present laws, including the Master Direction on Foreign Investment in India of 4 January 2018 (Master Direction 2018) (and as amended from time to time thereafter), foreign investment is allowed in almost all sectors either under the automatic route or under the approval route. Some sectors are exceptions, including real estate business (as specifically defined in the NDI Rules 2019); lottery; gambling and betting; chit funds; Nidhi companies; and trading in transferable development rights, where foreign investment is prohibited. In sectors that are not specifically prohibited or regulated under the NDI Rules and FDI Policy, 100 per cent foreign investment is deemed to be permitted under the automatic route.

There is a percentage threshold prescribed for foreign investment in some sectors (such as petroleum refining by public sector undertakings, terrestrial broadcasting FM, uplinking of news and current affairs TV channels, print media, scheduled air transport service and regional air transport service, private security agencies, multi-brand retail trading, banking, and infrastructure companies in securities markets) and, except for some prohibited sectors, foreign investment overall is allowed in almost all sectors under the automatic route up to 100 per cent of the equity shareholding, although, in some cases, with certain performance conditions, such as minimum capitalisation norms and exit conditions, among others.

India has consistently liberalised and eased the norms for foreign investments in India. For foreign investment in any automatic route sector, there is no need for prior approval and only certain post facto filings are required. There have been significant liberalisation and simplification efforts made in recent years through amendments in the FEMA and the rules and regulations framed thereunder; for example, important filings such as Form FC-TRS (reporting of transfer of shares between residents and non-residents) and Form FC-GPR (reporting of issuance of shares by an Indian investee company) have been made available online and subsumed into a single master form (SMF) for reporting the total investment in an Indian company. The online filing of an SMF can be done through a designated website portal from 1 September 2018. The SMF facility provides for an online reporting platform to Indian companies with investments from people resident outside India including in an investment vehicle. Subsequently, pursuant to the NDI Rules 2019, it is required that any Indian entity or investment vehicle making downstream investment in another Indian entity shall be considered as indirect foreign investment and shall, in accordance with the Reporting Regulations, 2019, be required to file Form DI with the RBI within 30 days of the date of allotment of the equity instruments.

Furthermore, a person or entity who has delayed the filing of the SMF can regularise that by paying a late submission fee, subject to the delay being condoned by the RBI.

However, in sectors where foreign investments are permitted with the prior approval of the sector-specific competent authority (eg, the Ministry of Information and Broadcasting in relation to foreign investment in the broadcasting sector; and the Department of Industrial Policy and Promotion in

Under the present laws, including the Master Direction on Foreign Investment in India of 4 January 2018 (Master Direction 2018) (and as amended from time to time thereafter), foreign investment is allowed in almost all sectors either under the automatic route or under the approval route. Some sectors are exceptions, including real estate business (as specifically defined in the NDI Rules 2019); lottery; gambling and betting; chit funds; Nidhi companies; and trading in transferable development rights, where foreign investment is prohibited. In sectors that are not specifically prohibited or regulated under the NDI Rules and FDI Policy, 100 per cent foreign investment is deemed to be permitted under the automatic route.

There is a percentage threshold prescribed for foreign investment in some sectors (such as petroleum refining by public sector undertakings, terrestrial broadcasting FM, uplinking of news and current affairs TV channels, print media, scheduled air transport service and regional air transport service, private security agencies, multi-brand retail trading, banking, and infrastructure companies in securities markets) and, except for some prohibited sectors, foreign investment overall is allowed in almost all sectors under the automatic route up to 100 per cent of the equity shareholding, although, in some cases, with certain performance conditions, such as minimum capitalisation norms and exit conditions, among others.

India has consistently liberalised and eased the norms for foreign investments in India. For foreign investment in any automatic route sector, there is no need for prior approval and only certain post facto filings are required. There have been significant liberalisation and simplification efforts made in recent years through amendments in the FEMA and the rules and regulations framed thereunder; for example, important filings such as Form FC-TRS (reporting of transfer of shares between residents and non-residents) and Form FC-GPR (reporting of issuance of shares by an Indian investee company) have been made available online and subsumed into a single master form (SMF) for reporting the total investment in an Indian company. The online filing of an SMF can be done through a designated website portal from 1 September 2018. The SMF facility provides for an online reporting platform to Indian companies with investments from people resident outside India including in an investment vehicle. Subsequently, pursuant to the NDI Rules 2019, it is required that any Indian entity or investment vehicle making downstream investment in another Indian entity shall be considered as indirect foreign investment and shall, in accordance with the Reporting Regulations, 2019, be required to file Form DI with the RBI within 30 days of the date of allotment of the equity instruments.

Furthermore, a person or entity who has delayed the filing of the SMF can regularise that by paying a late submission fee, subject to the delay being condoned by the RBI.

However, in sectors where foreign investments are permitted with the prior approval of the sector-specific competent authority (eg, the Ministry of Information and Broadcasting in relation to foreign investment in the broadcasting sector; and the Department of Industrial Policy and Promotion in relation to foreign investment in the multi-brand retail trading sector) (competent authority), the government reserves the right to oversee, control, permit or prohibit investments, and mainly these sectors are considered sensitive (such as print media and multi-brand retail trading).

In terms of competition law, all forms of (domestic and international) acquisitions, mergers or amalgamations that exceed the jurisdictional thresholds and do not benefit from any exemption, must be notified to and obtain the approval of the Competition Commission of India (CCI) before the transaction can be consummated.

Joint ventures are not specifically dealt with under the Competition Act 2002 (the Competition Act) from a merger control perspective. However, to the extent that setting up a greenfield joint venture or the entry of a new partner in a brownfield joint venture involves the acquisition of shares, voting rights or assets, their notifiability is examined as acquisitions and must be notified to the CCI where the jurisdictional thresholds are met.

Further, the Competition Act does not specifically regulate any industry in relation to merger control. However, certain sector-specific exemptions are available.

With respect to minority acquisitions, an acquisition of shares or voting rights, solely as an investment or in the ordinary course of business, of less than 25 per cent of the total shares or voting rights of an enterprise, is exempt from the requirement to file a pre-merger notification with the CCI, provided there is no acquisition of ‘control’ as a result. Under the Competition Act, ‘control’ is defined to include ‘controlling the affairs or management by (1) one or more enterprises, either jointly or singly, over another enterprise or group and (2) one or more groups, either jointly or singly, over another group or enterprise’. While there is no ‘bright line’ test prescribed by the Competition Act or the CCI to define control, based on the CCI’s decisional practice, control includes de facto and de jure control as well as ‘material influence’.

Further, minority acquisitions of less than 10 per cent are deemed to be made, ‘solely as an investment’ where the acquirer:

• is entitled to only such rights as are exercisable by ordinary shareholders of the target enterprise;
• is not a board member on the target nor has the right or intention to appoint a board member or to nominate one; and
• does not intend to participate in the management or affairs of the target.

1.4. Definitions

1.4.1. How is a foreign investor or foreign investment defined in the applicable law?

The term ‘foreign investment’ is defined under the NDI Rules 2019 to mean: ‘any investment made by a person resident outside India on a repatriable basis in equity instruments of an Indian company or to the capital of a LLP’. Furthermore, a person resident outside India is permitted to hold foreign investment as either FDI or FPI in a particular Indian company.

The NDI Rules 2019 do not define the term ‘foreign investor’. However, they provide the entry routes, eligible instruments and mechanism whereby a ‘person resident outside India’ can undertake foreign investment in India. The term ‘person resident outside India’ as per FEMA section 2(w) means a person who is not resident in India. Essentially, Indian foreign exchange law allows any set-up that is an association of persons, foundations, trusts, bodies corporate, companies or entities to make FDI in India.

1.5. Special rules for SOEs and SWFs

1.5.1. Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?

While the NDI Rules 2019 do not define SOEs or SWFs, the term has been referred to in the FPI Regulations, wherein a sovereign wealth fund is construed as a category I FPI (Regulation 5(a)(i), FPI Regulations). Therefore, the total holding of an SWF in an Indian company must be less than 10 per cent of the total paid-up equity capital on a fully diluted basis or less than 10 per cent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (individual limit), exceeding which, this investment will be regarded as FDI. Further, the total investment for all the FPIs put together in an Indian company (including any other direct or indirect foreign investments) must not exceed 24 per cent of the paid-up equity share capital on a fully diluted basis or the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company (aggregate limit).

Additionally, with effect from 1 April 2020, the applicable aggregate limit for an SWF (and any other FPI) is the sectoral cap or statutory ceiling as prescribed in Schedule 1 of the NDI Rules 2019, with respect to its paid-up equity capital on a fully diluted basis or such same sectoral cap percentage of paid-up value of each series of debentures or preference shares or share warrants. However, an Indian investee company is permitted to decrease this aggregate limit to a lower threshold limit of 24 per cent, 49 per cent or 74 per cent as deemed appropriate, by passing a resolution at the meeting of its board of directors followed by a special resolution at the shareholders’ meeting, before 31 March 2020. Further, such an Indian investee company that has decreased its aggregate limit to 24 per cent, 49 per cent or 74 per cent is permitted to increase it, once, up to 49 per cent or 74 per cent or the statutorily prescribed sectoral cap as under Schedule 1 of the NDI Rules 2019, by passing a resolution at the meeting of its board of directors followed by a special resolution at the shareholders’ meeting, after which this Indian investee company cannot reduce it to a lower threshold.

1.6. Relevant authorities

1.6.1. Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?

Subject to satisfying the assets and turnover thresholds prescribed under the Competition Act, the regulations and notifications thereunder, and the non-applicability of any of the exemptions available to the transacting parties, investments that involve an acquisition of shares, assets, voting rights or control, or a merger or amalgamation (together referred to as ‘combinations’) must be notified to the CCI. The CCI is empowered to prohibit or modify transactions that are likely to cause an appreciable adverse effect on competition (AAEC) in India.

Further, there are specific regulators that review mergers or acquisitions of companies within certain industries and sectors (eg, the Insurance Regulatory Development Authority for insurance companies and the Telecom Regulatory Authority of India for telecom companies).

Previously, the Foreign Investment Promotion Board (FIPB) was the government body that offered a single-window clearance for proposals on FDI in India that are not allowed access through the automatic route. However, regarding OM No. 01/01/FC12017 FIPB dated 5 June 2017, the government of India has abolished the FIPB, and mandated that where FDI is only permitted through the approval route, the sector-specific competent authorities (such as the Ministry of Information and Broadcasting for activities in the broadcasting and print media sector; the Ministry of Mines for activities in the mining sector; the Department of Space for activities related to satellites; and the Department of Pharmaceuticals, the Ministry of Chemicals and Fertilizers for activities in the pharmaceuticals sector) must be approached for approval. However, in the case of doubt as to which competent authority is to be approached, the DPIIT is mandated to identify the competent authority concerned and to this effect, the DPIIT has established a Foreign Investment Facilitation Portal (FIFP).

1.6.2. Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?

The competent authorities have the discretion to approve, reject or defer a proposal for foreign investment where such proposals have come via the approval route after having sought the concurrence of the DPIIT. Apart from the discretion of the competent authorities, the proposed investment would also have to be in line with sectoral laws and regulations and, where necessary, applications for approval from the sectoral regulators would have to be given. If any sector-specific approval is required from any other sector regulator, it must be obtained from the relevant regulatory authority. Again, these authorities reserve the discretion to reject any applications made to them without specifying the reasons.

Further, the CCI’s discretion is limited to a qualitative assessment of whether the notified transaction causes or is likely to cause an AAEC within the relevant market in India. The CCI also has the power to direct modifications to the terms of a transaction, or even prohibit it, if it is of the view that this transaction is likely to cause an AAEC in India.

2.1. Jurisdictional thresholds

2.1.1. What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

Where the proposed foreign investment is to be made via the approval route, the jurisdiction of the competent authorities is triggered, as they have the authority to review the proposed applications. Foreign direct investment transactions of more than 50 billion rupees need the prior approval of the Cabinet Committee on Economic Affairs. Further, any investment or payment made into India must be reported to the Reserve Bank of India (RBI) either through authorised dealers or directly to the RBI, depending on the nature of investment or payment made into India.

Under the Competition Act 2002 (the Competition Act), a combination will need to be mandatorily notified to the Competition Commission of India (CCI) if it satisfies any of the following assets and turnover thresholds (as enhanced by the central government through its Notification No. SO 675(E) of 4 March 2016), and is unable to benefit from any of the available exemptions (please also see ‘Key developments of the past year’ for relevant details of imminent policy reforms, in terms of introduction of a deal value threshold):

2.2. National interest clearance

2.2.1. What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees? Is filing mandatory?

Foreign investments are permitted in India through the automatic route and the approval route depending on the sector. No prior approval is required for activities falling under the automatic route, subject to compliance with the applicable performance conditions. However, areas or activities that do not fall within the automatic route and are under the approval route require the prior approval of the competent authority. Further, foreign investment in some sectors, such as investment in greenfield in the pharmaceuticals sector, is permitted 100 per cent through the automatic route. However, investment in brownfield in the pharmaceuticals sector is permitted up to a 74 per cent via the automatic route, and beyond this threshold via the approval route. To obtain approval, the investor company or investee company (the applicant) must submit a single online application on the website of the Foreign Investment Facilitation Portal (FIFP) along with such information as required, which, inter alia, includes:

• a summary of the foreign investment proposed;
• the certificate of incorporation and memorandum and articles of association, memorandum and articles of association of the investor and investee company (and in the case of a joint venture, of the joint venture company);
• audited financial statements of the investor and investee company for the previous financial year;
• income tax return for the previous financial year;
• diagrammatical representations of the cash flow from the original investor to the investee company and the pre- and post-shareholding of the investee company;
• foreign inward remittance certificates evidencing the fund flows; and
• a copy of the board resolution of the investee or issuing company in the case of a fresh issue of shares. Certain categories of foreign investors, such as investment funds, are required to provide additional documentation pertaining to the investment managers and contributors to these funds.

If the online application is not digitally signed, the Department for Promotion of Industry and Internal Trade (DPIIT) will direct the applicant to submit a signed physical copy of the application to the concerned competent authority within seven days of the communication from the DPIIT (subject to a grant of an additional seven days if the signed physical copy is not submitted within the initial period of seven days). If the signed physical copy of the application is not submitted to the

Foreign investments are permitted in India through the automatic route and the approval route depending on the sector. No prior approval is required for activities falling under the automatic route, subject to compliance with the applicable performance conditions. However, areas or activities that do not fall within the automatic route and are under the approval route require the prior approval of the competent authority. Further, foreign investment in some sectors, such as investment in greenfield in the pharmaceuticals sector, is permitted 100 per cent through the automatic route. However, investment in brownfield in the pharmaceuticals sector is permitted up to a 74 per cent via the automatic route, and beyond this threshold via the approval route. To obtain approval, the investor company or investee company (the applicant) must submit a single online application on the website of the Foreign Investment Facilitation Portal (FIFP) along with such information as required, which, inter alia, includes:

• a summary of the foreign investment proposed;
• the certificate of incorporation and memorandum and articles of association, memorandum and articles of association of the investor and investee company (and in the case of a joint venture, of the joint venture company);
• audited financial statements of the investor and investee company for the previous financial year;
• income tax return for the previous financial year;
• diagrammatical representations of the cash flow from the original investor to the investee company and the pre- and post-shareholding of the investee company;
• foreign inward remittance certificates evidencing the fund flows; and
• a copy of the board resolution of the investee or issuing company in the case of a fresh issue of shares. Certain categories of foreign investors, such as investment funds, are required to provide additional documentation pertaining to the investment managers and contributors to these funds.

If the online application is not digitally signed, the Department for Promotion of Industry and Internal Trade (DPIIT) will direct the applicant to submit a signed physical copy of the application to the concerned competent authority within seven days of the communication from the DPIIT (subject to a grant of an additional seven days if the signed physical copy is not submitted within the initial period of seven days). If the signed physical copy of the application is not submitted to the competent authority within 14 days of the initial communication from the DPIIT to the applicant, the proposal will be treated as closed. There is no fee for filing an online application.

Further, as highlighted above, the DPIIT issued Press Note No. 3 of 2020 dated 17 April 2020, according to which any entity of a country sharing a land border in India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the government route. This was primarily done to stem any attempts by Chinese firms to take control of Indian firms that have been affected by covid-19 related lockdowns. A corresponding amendment was introduced to the NDI Rules 2019 by the Department of Economic Affairs, Ministry of Finance, on 22 April 2020.

Further, all notifiable combinations must be notified to the CCI in the format prescribed under the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (the Combination Regulations). The Ministry of Corporate Affairs (MCA) of the Indian government issued a notification on 29 June 2017 that does away with the erstwhile requirement to necessarily notify a combination within 30 calendar days of an event triggering a notification requirement, for a period of five years from the date of publication of the notification. This notification was further extended by an additional period of five years by way of a notification from the MCA dated 16 March 2022. However, the requirement to file a notice with the CCI is still mandatory and the suspensory regime (ie, the requirement to receive CCI approval prior to consummating a notifiable transaction in any way or form) still applies. Subject to the extent of market shares in the overlapping markets, the transaction may be notified in the shorter form (Form I) or a more detailed form (Form II). The CCI, by way of a gazette notification dated 13 August 2019 (the 2019 Amendment) and 31 March 2022 (the 2022 Amendment), amended the Combination Regulations and revised the scope of information that must be provided under Form I and Form II, respectively. Subsequent to filing the application, the CCI reviews the combination to ascertain if the combination causes or is likely to cause any appreciable adverse effect on competition (AAEC), before passing its final order.

The 2019 Amendment also introduced a ‘green channel’ clearance option for transactions with no overlaps. Under the green channel, transactions between parties that are not engaged in identical or similar business, and are not vertically linked or engaged in complementary business activities will be ‘deemed’ approved on notification to the CCI. A Form I being filed under the green channel must be accompanied by a declaration that shows both:

• the lack of overlap between transacting parties and their respective groups; and
• the proposed transaction is not causing an AAEC.

Notably, if the CCI subsequently concludes that a transaction notified to it under the green channel did not, in fact, meet the requirements for such a filing or that the declaration by the notifying party or parties in this regard was incorrect, the notice and the ‘deemed approval’ will be void ab initio and the CCI shall deal with the combination ‘in accordance with the provisions of the Competition Act’. Before reaching a conclusion, the CCI must give parties an opportunity to be heard.

2.2.2. Which party is responsible for securing approval?

The approval of the competent authority is required if the investment is made under the approval route and either of the parties, being the foreign collaborator or foreign investor, or the Indian company, can secure approval from the competent authority. Further, where an investment involves an acquisition of shares, assets, voting rights or control, the acquirer will be responsible for notifying

The approval of the competent authority is required if the investment is made under the approval route and either of the parties, being the foreign collaborator or foreign investor, or the Indian company, can secure approval from the competent authority. Further, where an investment involves an acquisition of shares, assets, voting rights or control, the acquirer will be responsible for notifying the combination to the CCI. In the case of a merger or amalgamation, all the parties are jointly responsible for notifying the combination to the CCI.

2.3. Review process

2.3.1. How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

Within two days of submission of the online application, the DPIIT is required to e-transfer the application to the competent authority concerned and also circulate the application to the RBI, the Ministry of Home Affairs (MHA) (if the proposed foreign investment is in a sector requiring security clearance) and the Ministry of External Affairs. The concerned ministries are required to upload their queries regarding the application on the FIFP website within four weeks of online receipt of the application. If security clearance is required from the MHA, the aforesaid timeline can be extended to six weeks (Stage 1). Within one week of the completion of Stage 1, the competent authority may pose queries to the applicant and ask the applicant for relevant additional information and documents. The applicant must respond to the queries of the competent authority within one week of the date of receipt of queries (Stage 2). If no clarifications to the queries are received within one week, the applicants will be reminded to expedite their clarifications within the next seven days, failing which a final reminder may be issued to the applicant to provide the information seven days before closure of the application due to incomplete or inadequate information or documents from the applicant. As and when the application is complete in all respects (which takes around six to eight weeks from receipt of the application), the competent authority must process the application for decision and convey its decision to the applicant within the next four weeks. The above timelines are subject to variation if the application is subject to receipt of security clearance from the MHA or because of other administrative reasons. The status of the application can be tracked on the FIFP website.

As far as the CCI is concerned, the overall prescribed statutory time period to review the combination and pass a final order is 210 calendar days from the date of filing of the notification, and in limited situations, where remedies may be warranted, 270 days to disapprove or approve the transaction. The Combination Regulations further provide that the CCI shall endeavour to pass its final order within 180 calendar days of filing the notification. Further, the CCI must form a prima facie opinion on the likelihood of the combination resulting in an AAEC within 30 working days of filing the notification. This is subject to ‘clock stops’ on account of requests from the CCI for additional information, extensions sought by parties and such like. The extent of overlaps relating to the combination, the sensitivity of the government towards the sector to which the combination relates and the existence or likelihood of the combination resulting in an AAEC, are some of the factors that may determine the timeline for clearance. In a majority of cases, the CCI has approved transactions within the 30-working-day timeline (excluding clock stops). Please see ‘Key developments of the past year’ for relevant details of imminent policy reforms, in terms of the proposed change to the CCI’s review timelines.

There are four broad categories of exemptions under the merger control regime that the parties to the combination can analyse and benefit from, namely:

Statutory exemption: as per section 6(4) of the Competition Act, the requirement of mandatory notification to the CCI prior to the closing of the transaction does not apply to any financing, acquisition or subscription of shares undertaken by FIIs, or venture capital funds registered with the Securities and Exchange Board of India, public financial institutions and banks pursuant to a

Within two days of submission of the online application, the DPIIT is required to e-transfer the application to the competent authority concerned and also circulate the application to the RBI, the Ministry of Home Affairs (MHA) (if the proposed foreign investment is in a sector requiring security clearance) and the Ministry of External Affairs. The concerned ministries are required to upload their queries regarding the application on the FIFP website within four weeks of online receipt of the application. If security clearance is required from the MHA, the aforesaid timeline can be extended to six weeks (Stage 1). Within one week of the completion of Stage 1, the competent authority may pose queries to the applicant and ask the applicant for relevant additional information and documents. The applicant must respond to the queries of the competent authority within one week of the date of receipt of queries (Stage 2). If no clarifications to the queries are received within one week, the applicants will be reminded to expedite their clarifications within the next seven days, failing which a final reminder may be issued to the applicant to provide the information seven days before closure of the application due to incomplete or inadequate information or documents from the applicant. As and when the application is complete in all respects (which takes around six to eight weeks from receipt of the application), the competent authority must process the application for decision and convey its decision to the applicant within the next four weeks. The above timelines are subject to variation if the application is subject to receipt of security clearance from the MHA or because of other administrative reasons. The status of the application can be tracked on the FIFP website.

As far as the CCI is concerned, the overall prescribed statutory time period to review the combination and pass a final order is 210 calendar days from the date of filing of the notification, and in limited situations, where remedies may be warranted, 270 days to disapprove or approve the transaction. The Combination Regulations further provide that the CCI shall endeavour to pass its final order within 180 calendar days of filing the notification. Further, the CCI must form a prima facie opinion on the likelihood of the combination resulting in an AAEC within 30 working days of filing the notification. This is subject to ‘clock stops’ on account of requests from the CCI for additional information, extensions sought by parties and such like. The extent of overlaps relating to the combination, the sensitivity of the government towards the sector to which the combination relates and the existence or likelihood of the combination resulting in an AAEC, are some of the factors that may determine the timeline for clearance. In a majority of cases, the CCI has approved transactions within the 30-working-day timeline (excluding clock stops). Please see ‘Key developments of the past year’ for relevant details of imminent policy reforms, in terms of the proposed change to the CCI’s review timelines.

There are four broad categories of exemptions under the merger control regime that the parties to the combination can analyse and benefit from, namely:

• Statutory exemption: as per section 6(4) of the Competition Act, the requirement of mandatory notification to the CCI prior to the closing of the transaction does not apply to any financing, acquisition or subscription of shares undertaken by FIIs, or venture capital funds registered with the Securities and Exchange Board of India, public financial institutions and banks pursuant to a covenant of an investment agreement or a loan agreement. However, section 6(5) of the Competition Act prescribes that these entities are required to provide details of the acquisition, including control, circumstances for exercising this control and consequences of default arising out of these loan agreements or investment agreements to the CCI within seven days of the date of closing. Please see ‘Key developments of the past year’ for relevant details of imminent policy reforms, in terms of the proposed changes regarding the entities that can avail themselves of this exemption.
• Categories of transactions ‘normally’ exempt from mandatory notification: Regulation 4 read with Schedule 1 of the Combination Regulations treats certain categories of combinations as being ordinarily not likely to cause an AAEC in India, and hence provides that a pre-notification need not normally be filed for these transactions.
• Target-based exemption (de minimis exemption): further to the thresholds notification, any transaction where the enterprise (ie, the enterprise whose shares, voting rights, assets or control are being acquired or are being merged or amalgamated) either has assets not exceeding 3.5 billion rupees in India or has a turnover not exceeding 10 billion rupees in India, is currently exempt from the mandatory pre-notification requirement. Please see ‘Key developments of the past year’ for relevant details of imminent policy reforms, in terms of introduction of a deal value threshold.
• Exemptions for specific sectors: on 30 August 2017, the government of India issued a notification exempting all mergers and acquisitions involving nationalised banks, under the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 and the Banking Companies (Acquisition and Transfer of Undertakings) Act 1980, for 10 years (that is, until 30 August 2027). On 22 November 2017, all mergers and acquisitions involving central public sector enterprises operating in the oil and gas sectors under the Petroleum Act 1934 have been exempted from the merger control provisions for five years (that is, until 22 November 2022). On 11 March 2020, the government of India issued a notification whereby the exemption from merger control provisions was also extended to a banking company under Section 45 of the Banking Regulation Act, 1949, for a period of five years (that is, until 10 March 2025).

There are no expedited or ‘fast-track’ options for the review process; however, occasionally the government of India considers proposals for the fast-track single-window clearance of foreign investment on a jurisdictional basis. With respect to the Competition Act, if a transaction is able to avail the green channel route (after satisfying all conditions for a green channel filing), then this transaction will be ‘deemed’ approved upon notification to the CCI.

2.3.2. Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

Where investment is through the approval route, prior approval must be obtained before the transaction is completed. If the parties complete the transaction before obtaining the relevant approvals or in a manner that contravenes the Foreign Exchange Management Act 1999 (FEMA) (or a rule, regulation, notification, direction or order is issued in exercise of the powers under the FEMA) or contravene any condition subject to which an authorisation is issued by the RBI, the parties shall, upon adjudication by the designated authorities of the Enforcement Directorate (Directorate), be liable to a penalty of up to three times the sum involved where this amount is quantifiable, or up to 200,000 rupees where the amount is not quantifiable. A penalty of 5,000 rupees will be incurred for every day after the first day on which the contravention continues. Further, under section 14 of the FEMA, in the event of non-payment of the penalty imposed under section 13 of the FEMA within 90

days from the date the notice for payment of this penalty is served, the parties shall be liable to civil imprisonment.

Every notifiable combination requires the approval of the CCI prior to its consummation. If a notifiable combination is not notified, or if the parties take any step to implement the combination (or a part thereof) prior to the receipt of the CCI’s approval, the CCI may impose penalties extending up to 1 per cent of the total turnover or assets (whichever is higher) of the combination. In the past, the CCI has imposed penalties of up to 2 billion rupees. To date, the CCI has not exercised its power to impose the highest allowable penalty under the Competition Act.

2.4. Involvement of authorities

2.4.1. Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

Formal or informal guidance from the competent authorities can be obtained prior to a filing being made or during the time that the application is in process. For any concerns regarding interpretation of the FDI policy, foreign investors can seek informal guidance by filing representations to the DPIIT through industry bodies. This can be followed up with a formal request for clarification made to the DPIIT. An applicant can submit a clarification to the DPIIT listing its query in the prescribed form. Informal guidance may also be sought from the authorised dealer banks who are involved in the transaction. The CCI has also put in place a mechanism for pre-filing informal merger consultations, but it is not binding.

2.4.2. When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

Experts and specialists are involved at the stage when policy decisions are being made for the purposes of receiving recommendations. Lobbying does not formally prevail in India. There is no informal procedure or mechanism available to facilitate clearance of any proposal. The process of granting approval is transparent and is solely considered on the basis of the NDI Rules 2019 and the standard operating procedure issued by DPIIT. The applicant must meet all the legal requirements as prescribed for the approval to be granted. Applicants can track the status of their applications on the FIFP website on both a daily and a weekly basis. In the past, economists have been engaged by parties for certain complex merger control filings to the CCI.

2.4.3. What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

The DPIIT and the RBI may review, challenge and unwind an approved transaction. In Bycell Telecommunication India P Ltd v Union of India and Ors, WP (C) No. 8989 of 2009, the Foreign Investment Promotion Board, having previously granted approval to the petitioner, revoked it – after the Ministry of Home Affairs withdrew the security clearance of the petitioner – on the grounds that even if the petitioner had complied with requirements under the laws relating to foreign investment, lack of security clearance is a valid ground to revoke an application. Further, under the provisions of the FEMA, the central government, by an order published in the Official Gazette, may appoint as many officers of the central government as it likes as the adjudicating authorities for holding an inquiry into the person alleged to have committed contravention of the FEMA. The Directorate is a specialised financial investigation agency under the Department of Revenue, Ministry of Finance,

The DPIIT and the RBI may review, challenge and unwind an approved transaction. In Bycell Telecommunication India P Ltd v Union of India and Ors, WP (C) No. 8989 of 2009, the Foreign Investment Promotion Board, having previously granted approval to the petitioner, revoked it – after the Ministry of Home Affairs withdrew the security clearance of the petitioner – on the grounds that even if the petitioner had complied with requirements under the laws relating to foreign investment, lack of security clearance is a valid ground to revoke an application. Further, under the provisions of the FEMA, the central government, by an order published in the Official Gazette, may appoint as many officers of the central government as it likes as the adjudicating authorities for holding an inquiry into the person alleged to have committed contravention of the FEMA. The Directorate is a specialised financial investigation agency under the Department of Revenue, Ministry of Finance, which has, under the central government, been accorded powers and is mandated with the task of enforcing the provisions under the FEMA.

Where the transactions that met the assets or turnover thresholds prescribed under the Competition Act were not notified to the CCI, the CCI may review, challenge or initiate inquiries into those combinations to ascertain whether any of them has caused, or is likely to cause, an AAEC. Such power of review exists for a period of one year following the closing of the transaction.

3.1. Substantive test

3.1.1. What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?

The online application submitted on the Foreign Investment Facilitation Portal (FIFP) website is reviewed in totality by the relevant ministries, the Reserve Bank of India (RBI) and the concerned competent authority, and to impart greater transparency to the approval process, guidelines and standard operating procedures have been issued that govern the consideration of foreign direct investment proposals by the FIFP. The onus of compliance with the sectoral or statutory caps on foreign investment and attendant conditions, if any, shall be on the company receiving foreign investment.

The substantive test for clearance adopted by the Competition Commission of India (CCI) is whether the combination causes or is likely to cause an appreciable adverse effect on competition (AAEC) within the relevant market in India. To conduct an AAEC assessment, the CCI considers a number of factors:

• actual and potential level of competition through imports in the market;
• extent of barriers to entry into the market;
• level of combination in the market;
• degree of countervailing power in the market;
• likelihood that the combination would result in parties to the combination being able to significantly and sustainably increase prices or profit margins;
• extent of effective competition likely to sustain in a market;
• extent to which substitutes are available or are likely to be available in the market;
• market share, in the relevant market, of the persons or enterprises in a combination, individually and as a combination;
• likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
• nature and extent of vertical integration in the market;
• possibility of a failing business;
• nature and extent of innovation;
• relative advantage, by way of the contribution to the economic development, by any combination having or likely to have an AAEC; and
• whether the benefits of the combination outweigh the adverse impact of the combination, if any.

If the CCI forms a prima facie opinion that the combination has caused or is likely to cause an AAEC within the relevant market in India, the onus of demonstrating the absence of any AAEC is on the party or parties notifying the transaction.

3.1.2. To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?

There is no obligation imposed by any statute or regulation on the authorities regulating or reviewing foreign investment to consult officials in other countries.

The CCI has entered into cooperation arrangements with several overseas competition regulators, including:

• the European Commission;
• CADE (Brazil);
• the Federal Anti-Monopoly Service (Russia);
• the Federal Trade Commission and the Department of Justice (United States);
• the Ministry of Commerce (China);
• the Australian Competition and Consumer Commission;
• the Competition Bureau (Canada);
• the Competition Commission of the Republic of South Africa;
• the Japan Fair Trade Commission; and
• the Competition Commission of Mauritius.

Cooperation with these foreign competition regulators, inter alia, extends to coordination to curb anticompetitive activities within their territories, which have an adverse effect on their respective relevant markets. To this end, the CCI can exchange information about parties that is not confidential, and does not harm the parties’ interest, after seeking prior approval from the parties concerned.

3.2. Other relevant parties

3.2.1. What other parties may become involved in the review process? What rights and standing do complainants have?

The review of an application process is an internal process of the government, and the competent authority or the Department for Promotion of Industry and Internal Trade may itself consult the relevant government departments while considering any application before it. No other party, including the applicant, is given a hearing as a matter of process. However, the competent authority can seek clarification or further information from the applicant while considering any application.

The CCI has the discretion to reach out to third parties (competitors, customers, suppliers, experts, etc) during the initial 30-business-day period as well as after forming a prima facie opinion that the combination has caused or is likely to cause an AAEC. In instances where the CCI reaches out to third parties, the initial 30-business-day period may be extended by an additional 15 business days.

3.3. Prohibition and objections to transaction

3.3.1. What powers do the authorities have to prohibit or otherwise interfere with a transaction?

Pursuant to the provisions of section 37 of the Foreign Exchange Management Act 1999 (FEMA), the Enforcement Directorate (Directorate) has been mandated to enforce the investigative and punitive provisions of the FEMA. The Directorate has jurisdiction under the provisions of the FEMA as well as the Prevention of Money Laundering Act 2002, and draws its personnel from other investigative entities such as customs and central excise, income tax authorities and the police, among others, on deputation, as well as through direct recruitment of personnel. Further, under section 13 of the FEMA, the RBI can impose penalties if any person contravenes the provisions of the FEMA or rules and regulations made under it (section 13(1)) or in the case of a contravention of any condition subject to which an authorisation has been issued by the RBI (section 13(1)). Upon adjudication, the monetary penalty that can be imposed for the instances described above is three times the sum involved in the contravention, if this amount is quantifiable, or a penalty of up to 200,000 rupees if it is not quantifiable. Further, if the contravention is ongoing, an additional penalty can be imposed of up to 5,000 rupees for every day the contravention continues (section 13(1)).

As indicated above, the CCI may modify or even prohibit a transaction if it determines that this transaction causes or is likely to cause an AAEC in the relevant market in India. To date, the CCI has not prohibited any transaction.

3.3.2. Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?

There are no specific guidelines or rules pursuant to which a transaction can be remedied or an objection avoided by submitting undertakings. However, we have seen instances where the RBI has directed Indian companies to provide an undertaking and declarations from their chartered accountants with respect to the confirmation of the pricing of the shares being transacted or confirmation on the investment being in compliance with the Foreign Exchange Management (Non-debt Instruments) Rules 2019 and Foreign Exchange Management (Debt Instruments) Regulations 2019.

The CCI can propose both structural and behavioural modifications where it believes that the combination has, or is likely to have, an AAEC, but can be eliminated through suitable modifications to the transaction. According to the amendments to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 dated 9 October 2018, the parties can offer remedies during the CCI’s 30-business-day review period. Once the CCI initiates its detailed investigation into the transaction, the parties can suggest amendments to the modification that can only be proposed by the CCI. If the CCI accepts the counterproposal, it approves the combination. However, if it does not accept the counterproposal, the parties are given time to accept the modifications proposed by the CCI. Please see ‘Key developments of the past year’ for relevant details of imminent policy reforms, in terms of offering modifications prior to receiving CCI approval.

3.4. Challenge and appeal

3.4.1. Can a negative decision be challenged or appealed?

If the online application submitted on the FIFP website is rejected by the competent authority, the applicant may write to the competent authority requesting reconsideration of the proposal. The CCI’s decision to approve or reject a combination is subject to appeal before the National Company Law Appellate Tribunal, with a subsequent right of appeal to the Supreme Court of India.

3.5. Confidential information

3.5.1. What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?

The applicant can, in its online application submitted on the FIFP website, insist that the information submitted is confidential. The CCI treats any information as confidential if disclosure of it will result in disclosure of trade secrets or destruction or appreciable diminution of the commercial value of the information or can be reasonably expected to cause serious injury.

Further, parties claiming confidentiality will have to file an undertaking confirming that the information over which confidentiality is claimed meets the following parameters, on a self-certification basis:

• that the information is not available in the public domain;
• that the information is known only to limited employees, suppliers, distributors and others involved in the party’s business;
• that adequate measures have been taken by the party to guard the secrecy of the information; and
• that the information cannot be acquired or duplicated by others.Further, the CCI may, if considered necessary or expedient, set up confidentiality rings at any time during the proceedings. Such a confidentiality ring would typically comprise of authorised representatives of the parties who would only be able to access the confidential information in an unredacted form. Representatives of the parties will need to execute undertakings to confirm that the information received by them as part of the confidentiality ring will not be disclosed to those beyond it, including to the other employees of the party (and its subsidiaries, joint ventures, etc) or third parties. Breach of these undertakings can result in proceedings under the Competition Act 2002. The mechanism of having a confidentiality ring was recently introduced on 8 April 2022 under Regulation 35 of the CCI (General) Regulations, 2009 (as amended), whereby controlled access of confidential information gathered during investigation or inquiry is provided to the parties to the proceedings for effective presentation of their case.

The CCI, while setting up a confidentiality ring, may decide upon the extent of information to be made accessible as well as the parties and their members to be included in the confidentiality ring.

4.1. Relevant recent case law

4.1.1. Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.

A notable transaction recently approved by the Competition Commission of India (CCI) was the acquisition of up to 100 per cent of the equity share capital of Hindusthan National Glass & Industries Limited (HNG), which was undergoing a corporate insolvency resolution process, by AGI Greenpac Limited (AGI). Both AGI and HNG are publicly listed companies.

AGI is engaged in the manufacture of glass containers in India with two manufacturing plants in Telangana, catering to the needs of a broad range of industries such as alcoholic beverages, cosmetics and perfumery, pharmaceutical, food and beverages (F&B), and non-alcoholic beverages. Apart from glass containers, AGI also manufactures PET bottles and caps and closures.

HNG is engaged in the manufacture and supply of container glass, offering a complete packaging solution to customers. Like AGI, HNG also caters to a broad range of industries, including F&B, pharmaceutical and wellness, alcoholic beverages and household and cosmetics. Its manufacturing plants are located at Rishra, Bahadurgarh, Rishikesh, Neemrana, Sinnar, Naidupeta and Puducherry (AGI and HNG are collectively referred to as Parties).

The CCI considered the information submitted by the Parties and formed a prima facie opinion that the transaction is likely to cause an appreciable adverse effect on competition (AAEC) in relevant market(s) in India. Consequently, the CCI issued a show-cause notice (SCN) to AGI, directing it to respond as to why an investigation in respect of the proposed acquisition should not be conducted. In its response to the SCN, AGI voluntarily offered a modification that it would divest HNG’s least loss-making plant, ie, the Rishikesh plant, to alleviate the prima facie concerns of the CCI.

With respect to the relevant product market, the CCI identified three broad dimensions of packaging that are required to be considered, ie: (i) forms/types/designs of packaging (including flexible/collapsible packaging and rigid container packaging), (ii) types of packaging materials (including glass, plastic, metal, board and other forms of packaging) and (iii) classification/types of industrial users (including F&B, pharmaceuticals and wellness, alcoholic beverages, and household and cosmetics). Based on the activities of AGI and HNG, the CCI observed that the scope of the plausible relevant market appears to be limited to container glass. Against this backdrop, the CCI undertook a holistic assessment of the substitutability of glass containers with other packaging material options, duly factoring in the relative advantages/disadvantages of packaging materials and the user perspective in the delineation of the relevant market. Based on its observations, the CCI concluded that (a) there is no demand homogeneity between various user segments for a particular packaging material; (b) the requirements in terms of bottle shape, design, colour, aesthetics and volume capacity vary for different user segments; (c) the standard bottles/containers are not used across segments; and (d) these specific requirements or differences in glass container bottles promote specialisation in terms of production of such glass containers, practically impacting the supply-side substitutability as well, which, to a large extent, is also reflected in the market structures of the supply of container glass to various user groups. The CCI further noted that HNG and AGI are leaders in the alcoholic beverage and F&B segments while the household segment is led by Piramal Glass (PGP) and pharma segment by Schott. The fact that players such as Schott do not have operations in alcoholic beverages or F&B suggests that specialisation is considered relevant. Accordingly, the CCI formed the prima facie view that the relevant product market for the purpose of competition assessment of the proposed acquisition is required to be further segmented by user groups, ie, alcoholic beverage, cosmetics and perfumery, pharmaceutical and F&B.

As regards the geographic market, the CCI observed that, while some regional trends are discernible in the dispatch patterns, considering that the competition assessment is not impacted regardless of the sub-segmentation by geographical areas, this question can be left open and the proposed acquisition can be assessed in the overall pan-India market.

Consequently, the CCI proceeded with its competition assessment of the proposed acquisition, addressing the following factors: (i) level of concentration; (ii) extent of effective competition likely to sustain in a market; (iii) countervailing buying power; (iv) competition from imports; and (v) expansion of existing competitors. The CCI observed that, while all the sub-segments are concentrated, there appears to be a difference in the structure of the market regarding market leaders.

• In the alcoholic beverage and F&B space, the Parties are the market leaders, while the household & cosmetics segment is led by PGP and pharma is led by Schott. The combined share of the Parties in terms of volume in the alcoholic beverage segment is around 45–50 per cent while PGP’s share is less than 5 per cent and Schott does not even have a presence in this segment.
• In the F&B segment, the combined share of the Parties is around 80–85 per cent while that of PGP is around 10–15 per cent.
• The household and cosmetics segment is led by PGP, with around 70–75 per cent share, and the pharma segment is led by Schott, with 45–50 per cent market share.

Accordingly, the CCI concluded that AGI and HNG are the only significant organised players in both the alcoholic beverage and F&B subsegments.

In relation to the extent of effective competition likely to be sustained in the market, the CCI noted that the presence of competitors in the overall packaging market does not indicate constraints in a particular packaging segment. Based on its analysis of market shares, the CCI observed that PGP is second in the glass container market, with a market share of around 10–15 per cent. Apart from PGP, as per the Parties’ own estimate, five out of seven competitors identified had a market share of less than 5 per cent. Consequently, these competitors are not expected to individually impose sufficient competitive constraints on the combined entity. Further, in the alcoholic beverages segment, the only competitors in the organised segment are Empire and Canpack (with an estimated combined share of around 10–15 per cent) and Haldyn and Sunrise (both having less than 5 per cent). Other than these organised players, 35–40 per cent of the market is ascribed to the unorganised Ferozabad Cluster container glass manufacturing units. In relation to the competitive constraints possibly imposed by the unorganised sector, the CCI noted that owing to factors such as the wide gap in production output, R&D capabilities of the organised players and supply chain dynamics (such as the ability of the organised players to buy soda ash in bulk), the unorganised sector and smaller organised players can impose only limited competitive constraints on the Parties. Upon assessing the countervailing buying power in the relevant market(s), the CCI noted that while switching may seem theoretically plausible, it may be difficult in practice for lack of viable options that can cater to the volume, choice and quality requirements of large buyers and that, as a result, the countervailing buying power appears to be at best, limited. In relation to imports, the CCI noted that the imports of glass containers constitute only a minuscule percentage of glass consumption, which as per the Parties’; own estimates was 3 per cent of the overall demand for container glass in 2020–2021. Finally, in relation to expansion of existing competitors, the CCI noted that the market shares of various players in the market for container glass and its segments over the last three years has largely moved in a narrow range and market structure has remained largely the same.

With respect to the vertical overlaps, noting the insignificant presence of AGI in the segment of security caps and closures (with a market share of less than 2 per cent) and that HNG does not have any presence, the CCI concluded that the proposed acquisition is unlikely to confer any ability or incentive on the Parties to change the competition dynamics in any segment riding on the vertical/complementary linkage resulting therefrom.

The CCI also noted AGI’s ‘failing firm’ arguments, in which it highlighted (i) the inefficient state of operations of HNG; (ii) that the acquisition is in the best interest of every stakeholder including the customers (industrial), end consumers and the existing financial and operational creditors of HNG as well as its workmen and employees; and (iii) the safeguard against the assets exiting the market. Upon considering these arguments, the CCI took the view that time is of the essence for the proposed acquisition and assessment of the same would require balancing the structural changes in concentration, etc, resulting from the transaction and the conditions of HNG’s pre-transaction operations.

The CCI focused on the following factors prior to concluding that the voluntary modifications offered by AGI were sufficient to mitigate the CCI’s prima facie concerns of AAEC: (a) HNG’s Rishikesh plant (that was offered to be divested) has two glass melting furnaces and a production capacity of 400TPD (146,000MTPA); (b)  the Rishikesh plant has a substantial and sizeable operation and has witnessed growth in revenue over the years; (c) the revenue from the Rishikesh plant increased from 2.331billion rupees in FY2021 to 2.9 billion rupees in FY2022; (d) the Rishikesh plant is engaged in the manufacture and sale of container glass in all segments, and since of two furnaces and corresponding complementary assets and other submissions relating to the operational aspects of Rishikesh plant, the assets proposed to be divested appear to be self-contained and the divestiture appears to incentivise a new entry or increase in capacity by an existing competitor of the Parties. In that regard, the CCI noted that the new entrant or an existing competitor would gain an overall presence of around 5 per cent market in container glass while gaining presence in all four segments of container glass. On this basis, the CCI approved the transaction subject to the modifications offered by the Parties.

Another notable transaction approved by the CCI in recent years was the acquisition of approximately 3 per cent of the shareholding in Intas Pharmaceutical Limited (Intas) by Canary Investment Limited (Canary) and Link Investment Trust II (Link) (affiliates of ChrysCapital). Through the transaction, the shareholding of ChrysCapital (through its affiliates) would have increased from 3 per cent to approximately 6 per cent in Intas. The transaction also granted ChrysCapital and its affiliates the right to receive information regarding the affairs of Intas, the right to appoint a director on the board and the right to veto certain corporate actions, including amending charter documents, commencing new businesses and changing capital structure.

ChrysCapital, Canary and Link (together, acquirers) argued that the acquisition of less than 10 per cent with minority investment protection rights was exempt because it does not qualify as a strategic acquisition. The CCI disagreed. It noted that an acquisition that involves rights that allow active participation or the ability to materially influence the day-to-day affairs or the strategic corporate actions of a target enterprise cannot be regarded as being ‘solely as an investment’. ChrysCapital had minority shareholdings in other companies in the pharmaceutical sector apart from its shareholding in Intas. It held less than 10 per cent shareholding in Mankind Pharma Limited (Mankind) and Eris Lifescience Limited; and 20 per cent shareholding in GVK Biosciences Private Limited (GVK) and Curatio Healthcare Private Limited (Curatio).

In its assessment, the CCI was concerned with the acquirers’ common shareholding in their controlled portfolio entities (ie, GVK, Curatio and Mankind) and Intas in the same business. The CCI considered that such a shareholding in competing businesses is likely to allow the acquirers the ability to pursue anti-competitive goals, such as allocation of product or geographic market or customers, streamlining innovation efforts, price arrangements or bid-rigging in concentrated markets. It also noted that the combined market share of Intas and the acquirers’ controlled portfolio entities was greater than 30 per cent in more than 20 pharmaceutical products.

To address the CCI’s concerns, the acquirers offered certain voluntary modifications. They undertook to:

• remove their director on the board of Mankind;
• restrict the use of information concerning Intas, Curatio and Mankind; and
• not exercise their veto rights in Mankind regarding changing the capital structure, mergers and acquisitions, amending charter documents and commencing new businesses, excepting some limited exemptions to protect the value of their investment.

The CCI accepted these commitments and approved the transaction.

The CCI recently approved another notable transaction involving a composite scheme of arrangement between Culver Max Entertainment Private Limited (CME) (formerly known as Sony Pictures Networks India Private Limited); Zee Entertainment Enterprises Limited (ZEEL); Bangla Entertainment Private Limited (BEPL); and Essel Group Participants (EGP) (collectively referred to as parties). The notice was filed to the CCI pursuant to the draft composite scheme of arrangement between CME, BEPL, ZEEL and their respective shareholders and creditors, along with the merger cooperation agreement.

The proposed transaction involved the amalgamation of ZEEL and BEPL with and into CME, which would be the resultant entity, and the preferential allotment of certain shares by CME to Essel Holdings Ltd (now known as Sunbright Mauritius Investments Ltd). After the conclusion of the proposed transaction, the majority shareholding of 50.86 per cent in the resultant entity will be held indirectly by Sony Pictures Entertainment Inc; 3.99 per cent of the shareholding of the resultant entity will be held by the promoters of ZEEL; and 45.15 per cent of the shareholding of the resultant entity will be held by the public shareholders of ZEEL. Ultimately, the resultant entity will indirectly be controlled by and belong to the Sony Group Corporation (SGC), which is the parent entity of CME.

CME is engaged in the business of, inter alia:

• creating owning, programming, providing, transmitting, distributing, operating, and promoting linear and non-linear services, non-news program services, including sports content; and
• production, exhibition, broadcast, re-broadcast, transmission, re-transmission or other exploitation of non-news audio-visual content, including sports content.

BEPL also belongs to the SGC group and is broadly engaged in:

• acquisition of rights for motion pictures, events, and other TV content; and
• generating advertising revenue from the telecast of TV content.

BEPL has two regional channels – Sony AATH and Sony Marathi.

ZEEL is a publicly listed media and entertainment company and is engaged in the business of, inter alia:

• TV content development;
• broadcasting of regional and international entertainment satellite television channels;
• mobiles;
• music; and
• digital business.

ZEEL also provides digital entertainment video services in India and international markets through its over-the-top (OTT) channel (ie, ZEE5).

Based on the parties’ submissions, the CCI formed a prima facie opinion that the proposed combination was likely to cause adverse effects on competition as it is a horizontal combination between two competing broadcasting houses. The resultant entity would be the largest broadcasting house in India, enjoying an unparalleled dominant position as an indispensable partner to downstream players, particularly distribution platform operators (DPOs). It will likely have the ability and incentive to increase the price of advertisers, DPOs and viewers in the high market shares television channels categories and the ability and incentive to engage in differential pricing and behaviour with DPOs.

In view of this, the CCI concluded that the proposed transaction is likely to result in an AAEC. The parties undertook to offer certain structural remedies and requested the CCI to reconsider their submissions in light of:

• a declining trend in market shares,
• a stringent regulatory framework;
• the evolving and dynamic nature of broadcasting industry;
• a significant boom in production of content for viewing on OTT services;
• significant competitive constraints posed by various large competitors with entrenched presence; and
• constraints posed by OTT services in the relevant markets highlighted above.

Ultimately, the CCI formed the opinion that the composite voluntary remedy proposed by the parties addressed the prima facie concerns of a likely AAEC. Accordingly, the CCI decided not to further proceed with the investigation and approved the proposed transaction on the condition that ZEEL and the resultant entity’s investment in or ownership of the following channels be divested:

• Big Magic (part of the Hindi GEC market segment);
• Zee Action (part of the Hindi Films channel market segment) and
• Zee Classic (part of the Hindi Films Channel market segment).

As a part of the commitment offered to the CCI, the parties agreed to divest the above-mentioned business to any viable and active competitor other than Star India Pvt Ltd or Viacom 18 Media Pvt Ltd. If the divestiture does not take place within the first divestiture period, the CCI may appoint an independent agency for completing the divestiture and during the second divestiture period, the divestiture agency would have the sole authority to complete the sale of the divestment business at no minimum price.

In September 2022, the CCI penalised PI Opportunities Fund – I (PI) and Pioneer Investment Fund (PIF) in relation to the acquisition of 6.03% of the shareholding in Future Retail Limited (FRL) through market purchases, without obtaining prior approval from the CCI. The CCI observed that the acquisition was consummated through on-market purchases on 7 June 2018, and, despite its being a combination under Section 5 of the Competition Act 2002 (the Competition Act), it was not notified to the CCI. Additionally, the PI and PIF did not notify the CCI about the combination even when they were asked to nominate a director in FRL’s board.

PI and PIF argued that this acquisition was exempt from prior notification to the CCI due to the applicability of Item 1 of Schedule 1 of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (the Combination Regulations) (Combination Regulations), for the following reasons: (a) the acquiring parties were alternative investment funds, which are established solely for the purposes of investing and so the acquisition of shares of FRL was in their ordinary course of business; (b) the acquiring parties were not aware of the fact that after acquiring a stake in FRL, they would automatically be bestowed upon the right to appoint a director. It was also submitted that FRL invited directorship from them on its own accord and accepting it did not result in an acquisition of control.

The CCI, in this context, noted that PI and PIF had knowledge that the seller had a board seat in FRL, and so the intention to participate in the affairs of FRL was clear. The CCI also referred to the principle of ’substance over form’ to conclude that it is immaterial how PI and PIF obtained

A notable transaction recently approved by the Competition Commission of India (CCI) was the acquisition of up to 100 per cent of the equity share capital of Hindusthan National Glass & Industries Limited (HNG), which was undergoing a corporate insolvency resolution process, by AGI Greenpac Limited (AGI). Both AGI and HNG are publicly listed companies.

AGI is engaged in the manufacture of glass containers in India with two manufacturing plants in Telangana, catering to the needs of a broad range of industries such as alcoholic beverages, cosmetics and perfumery, pharmaceutical, food and beverages (F&B), and non-alcoholic beverages. Apart from glass containers, AGI also manufactures PET bottles and caps and closures.

HNG is engaged in the manufacture and supply of container glass, offering a complete packaging solution to customers. Like AGI, HNG also caters to a broad range of industries, including F&B, pharmaceutical and wellness, alcoholic beverages and household and cosmetics. Its manufacturing plants are located at Rishra, Bahadurgarh, Rishikesh, Neemrana, Sinnar, Naidupeta and Puducherry (AGI and HNG are collectively referred to as Parties).

The CCI considered the information submitted by the Parties and formed a prima facie opinion that the transaction is likely to cause an appreciable adverse effect on competition (AAEC) in relevant market(s) in India. Consequently, the CCI issued a show-cause notice (SCN) to AGI, directing it to respond as to why an investigation in respect of the proposed acquisition should not be conducted. In its response to the SCN, AGI voluntarily offered a modification that it would divest HNG’s least loss-making plant, ie, the Rishikesh plant, to alleviate the prima facie concerns of the CCI.

With respect to the relevant product market, the CCI identified three broad dimensions of packaging that are required to be considered, ie: (i) forms/types/designs of packaging (including flexible/collapsible packaging and rigid container packaging), (ii) types of packaging materials (including glass, plastic, metal, board and other forms of packaging) and (iii) classification/types of industrial users (including F&B, pharmaceuticals and wellness, alcoholic beverages, and household and cosmetics). Based on the activities of AGI and HNG, the CCI observed that the scope of the plausible relevant market appears to be limited to container glass. Against this backdrop, the CCI undertook a holistic assessment of the substitutability of glass containers with other packaging material options, duly factoring in the relative advantages/disadvantages of packaging materials and the user perspective in the delineation of the relevant market. Based on its observations, the CCI concluded that (a) there is no demand homogeneity between various user segments for a particular packaging material; (b) the requirements in terms of bottle shape, design, colour, aesthetics and volume capacity vary for different user segments; (c) the standard bottles/containers are not used across segments; and (d) these specific requirements or differences in glass container bottles promote specialisation in terms of production of such glass containers, practically impacting the supply-side substitutability as well, which, to a large extent, is also reflected in the market structures of the supply of container glass to various user groups. The CCI further noted that HNG and AGI are leaders in the alcoholic beverage and F&B segments while the household segment is led by Piramal Glass (PGP) and pharma segment by Schott. The fact that players such as Schott do not have operations in alcoholic beverages or F&B suggests that specialisation is considered relevant. Accordingly, the CCI formed the prima facie view that the relevant product market for the purpose of competition assessment of the proposed acquisition is required to be further segmented by user groups, ie, alcoholic beverage, cosmetics and perfumery, pharmaceutical and F&B.

As regards the geographic market, the CCI observed that, while some regional trends are discernible in the dispatch patterns, considering that the competition assessment is not impacted regardless of the sub-segmentation by geographical areas, this question can be left open and the proposed acquisition can be assessed in the overall pan-India market.

Consequently, the CCI proceeded with its competition assessment of the proposed acquisition, addressing the following factors: (i) level of concentration; (ii) extent of effective competition likely to sustain in a market; (iii) countervailing buying power; (iv) competition from imports; and (v) expansion of existing competitors. The CCI observed that, while all the sub-segments are concentrated, there appears to be a difference in the structure of the market regarding market leaders.

• In the alcoholic beverage and F&B space, the Parties are the market leaders, while the household & cosmetics segment is led by PGP and pharma is led by Schott. The combined share of the Parties in terms of volume in the alcoholic beverage segment is around 45–50 per cent while PGP’s share is less than 5 per cent and Schott does not even have a presence in this segment.
• In the F&B segment, the combined share of the Parties is around 80–85 per cent while that of PGP is around 10–15 per cent.
• The household and cosmetics segment is led by PGP, with around 70–75 per cent share, and the pharma segment is led by Schott, with 45–50 per cent market share.

Accordingly, the CCI concluded that AGI and HNG are the only significant organised players in both the alcoholic beverage and F&B subsegments.

In relation to the extent of effective competition likely to be sustained in the market, the CCI noted that the presence of competitors in the overall packaging market does not indicate constraints in a particular packaging segment. Based on its analysis of market shares, the CCI observed that PGP is second in the glass container market, with a market share of around 10–15 per cent. Apart from PGP, as per the Parties’ own estimate, five out of seven competitors identified had a market share of less than 5 per cent. Consequently, these competitors are not expected to individually impose sufficient competitive constraints on the combined entity. Further, in the alcoholic beverages segment, the only competitors in the organised segment are Empire and Canpack (with an estimated combined share of around 10–15 per cent) and Haldyn and Sunrise (both having less than 5 per cent). Other than these organised players, 35–40 per cent of the market is ascribed to the unorganised Ferozabad Cluster container glass manufacturing units. In relation to the competitive constraints possibly imposed by the unorganised sector, the CCI noted that owing to factors such as the wide gap in production output, R&D capabilities of the organised players and supply chain dynamics (such as the ability of the organised players to buy soda ash in bulk), the unorganised sector and smaller organised players can impose only limited competitive constraints on the Parties. Upon assessing the countervailing buying power in the relevant market(s), the CCI noted that while switching may seem theoretically plausible, it may be difficult in practice for lack of viable options that can cater to the volume, choice and quality requirements of large buyers and that, as a result, the countervailing buying power appears to be at best, limited. In relation to imports, the CCI noted that the imports of glass containers constitute only a minuscule percentage of glass consumption, which as per the Parties’; own estimates was 3 per cent of the overall demand for container glass in 2020–2021. Finally, in relation to expansion of existing competitors, the CCI noted that the market shares of various players in the market for container glass and its segments over the last three years has largely moved in a narrow range and market structure has remained largely the same.

With respect to the vertical overlaps, noting the insignificant presence of AGI in the segment of security caps and closures (with a market share of less than 2 per cent) and that HNG does not have any presence, the CCI concluded that the proposed acquisition is unlikely to confer any ability or incentive on the Parties to change the competition dynamics in any segment riding on the vertical/complementary linkage resulting therefrom.

The CCI also noted AGI’s ‘failing firm’ arguments, in which it highlighted (i) the inefficient state of operations of HNG; (ii) that the acquisition is in the best interest of every stakeholder including the customers (industrial), end consumers and the existing financial and operational creditors of HNG as well as its workmen and employees; and (iii) the safeguard against the assets exiting the market. Upon considering these arguments, the CCI took the view that time is of the essence for the proposed acquisition and assessment of the same would require balancing the structural changes in concentration, etc, resulting from the transaction and the conditions of HNG’s pre-transaction operations.

The CCI focused on the following factors prior to concluding that the voluntary modifications offered by AGI were sufficient to mitigate the CCI’s prima facie concerns of AAEC: (a) HNG’s Rishikesh plant (that was offered to be divested) has two glass melting furnaces and a production capacity of 400TPD (146,000MTPA); (b)  the Rishikesh plant has a substantial and sizeable operation and has witnessed growth in revenue over the years; (c) the revenue from the Rishikesh plant increased from 2.331billion rupees in FY2021 to 2.9 billion rupees in FY2022; (d) the Rishikesh plant is engaged in the manufacture and sale of container glass in all segments, and since of two furnaces and corresponding complementary assets and other submissions relating to the operational aspects of Rishikesh plant, the assets proposed to be divested appear to be self-contained and the divestiture appears to incentivise a new entry or increase in capacity by an existing competitor of the Parties. In that regard, the CCI noted that the new entrant or an existing competitor would gain an overall presence of around 5 per cent market in container glass while gaining presence in all four segments of container glass. On this basis, the CCI approved the transaction subject to the modifications offered by the Parties.

Another notable transaction approved by the CCI in recent years was the acquisition of approximately 3 per cent of the shareholding in Intas Pharmaceutical Limited (Intas) by Canary Investment Limited (Canary) and Link Investment Trust II (Link) (affiliates of ChrysCapital). Through the transaction, the shareholding of ChrysCapital (through its affiliates) would have increased from 3 per cent to approximately 6 per cent in Intas. The transaction also granted ChrysCapital and its affiliates the right to receive information regarding the affairs of Intas, the right to appoint a director on the board and the right to veto certain corporate actions, including amending charter documents, commencing new businesses and changing capital structure.

ChrysCapital, Canary and Link (together, acquirers) argued that the acquisition of less than 10 per cent with minority investment protection rights was exempt because it does not qualify as a strategic acquisition. The CCI disagreed. It noted that an acquisition that involves rights that allow active participation or the ability to materially influence the day-to-day affairs or the strategic corporate actions of a target enterprise cannot be regarded as being ‘solely as an investment’. ChrysCapital had minority shareholdings in other companies in the pharmaceutical sector apart from its shareholding in Intas. It held less than 10 per cent shareholding in Mankind Pharma Limited (Mankind) and Eris Lifescience Limited; and 20 per cent shareholding in GVK Biosciences Private Limited (GVK) and Curatio Healthcare Private Limited (Curatio).

In its assessment, the CCI was concerned with the acquirers’ common shareholding in their controlled portfolio entities (ie, GVK, Curatio and Mankind) and Intas in the same business. The CCI considered that such a shareholding in competing businesses is likely to allow the acquirers the ability to pursue anti-competitive goals, such as allocation of product or geographic market or customers, streamlining innovation efforts, price arrangements or bid-rigging in concentrated markets. It also noted that the combined market share of Intas and the acquirers’ controlled portfolio entities was greater than 30 per cent in more than 20 pharmaceutical products.

To address the CCI’s concerns, the acquirers offered certain voluntary modifications. They undertook to:

• remove their director on the board of Mankind;
• restrict the use of information concerning Intas, Curatio and Mankind; and
• not exercise their veto rights in Mankind regarding changing the capital structure, mergers and acquisitions, amending charter documents and commencing new businesses, excepting some limited exemptions to protect the value of their investment.

The CCI accepted these commitments and approved the transaction.

The CCI recently approved another notable transaction involving a composite scheme of arrangement between Culver Max Entertainment Private Limited (CME) (formerly known as Sony Pictures Networks India Private Limited); Zee Entertainment Enterprises Limited (ZEEL); Bangla Entertainment Private Limited (BEPL); and Essel Group Participants (EGP) (collectively referred to as parties). The notice was filed to the CCI pursuant to the draft composite scheme of arrangement between CME, BEPL, ZEEL and their respective shareholders and creditors, along with the merger cooperation agreement.

The proposed transaction involved the amalgamation of ZEEL and BEPL with and into CME, which would be the resultant entity, and the preferential allotment of certain shares by CME to Essel Holdings Ltd (now known as Sunbright Mauritius Investments Ltd). After the conclusion of the proposed transaction, the majority shareholding of 50.86 per cent in the resultant entity will be held indirectly by Sony Pictures Entertainment Inc; 3.99 per cent of the shareholding of the resultant entity will be held by the promoters of ZEEL; and 45.15 per cent of the shareholding of the resultant entity will be held by the public shareholders of ZEEL. Ultimately, the resultant entity will indirectly be controlled by and belong to the Sony Group Corporation (SGC), which is the parent entity of CME.

CME is engaged in the business of, inter alia:

• creating owning, programming, providing, transmitting, distributing, operating, and promoting linear and non-linear services, non-news program services, including sports content; and
• production, exhibition, broadcast, re-broadcast, transmission, re-transmission or other exploitation of non-news audio-visual content, including sports content.

BEPL also belongs to the SGC group and is broadly engaged in:

• acquisition of rights for motion pictures, events, and other TV content; and
• generating advertising revenue from the telecast of TV content.

BEPL has two regional channels – Sony AATH and Sony Marathi.

ZEEL is a publicly listed media and entertainment company and is engaged in the business of, inter alia:

• TV content development;
• broadcasting of regional and international entertainment satellite television channels;
• mobiles;
• music; and
• digital business.

ZEEL also provides digital entertainment video services in India and international markets through its over-the-top (OTT) channel (ie, ZEE5).

Based on the parties’ submissions, the CCI formed a prima facie opinion that the proposed combination was likely to cause adverse effects on competition as it is a horizontal combination between two competing broadcasting houses. The resultant entity would be the largest broadcasting house in India, enjoying an unparalleled dominant position as an indispensable partner to downstream players, particularly distribution platform operators (DPOs). It will likely have the ability and incentive to increase the price of advertisers, DPOs and viewers in the high market shares television channels categories and the ability and incentive to engage in differential pricing and behaviour with DPOs.

In view of this, the CCI concluded that the proposed transaction is likely to result in an AAEC. The parties undertook to offer certain structural remedies and requested the CCI to reconsider their submissions in light of:

• a declining trend in market shares,
• a stringent regulatory framework;
• the evolving and dynamic nature of broadcasting industry;
• a significant boom in production of content for viewing on OTT services;
• significant competitive constraints posed by various large competitors with entrenched presence; and
• constraints posed by OTT services in the relevant markets highlighted above.

Ultimately, the CCI formed the opinion that the composite voluntary remedy proposed by the parties addressed the prima facie concerns of a likely AAEC. Accordingly, the CCI decided not to further proceed with the investigation and approved the proposed transaction on the condition that ZEEL and the resultant entity’s investment in or ownership of the following channels be divested:

• Big Magic (part of the Hindi GEC market segment);
• Zee Action (part of the Hindi Films channel market segment) and
• Zee Classic (part of the Hindi Films Channel market segment).

As a part of the commitment offered to the CCI, the parties agreed to divest the above-mentioned business to any viable and active competitor other than Star India Pvt Ltd or Viacom 18 Media Pvt Ltd. If the divestiture does not take place within the first divestiture period, the CCI may appoint an independent agency for completing the divestiture and during the second divestiture period, the divestiture agency would have the sole authority to complete the sale of the divestment business at no minimum price.

In September 2022, the CCI penalised PI Opportunities Fund – I (PI) and Pioneer Investment Fund (PIF) in relation to the acquisition of 6.03% of the shareholding in Future Retail Limited (FRL) through market purchases, without obtaining prior approval from the CCI. The CCI observed that the acquisition was consummated through on-market purchases on 7 June 2018, and, despite its being a combination under Section 5 of the Competition Act 2002 (the Competition Act), it was not notified to the CCI. Additionally, the PI and PIF did not notify the CCI about the combination even when they were asked to nominate a director in FRL’s board.

PI and PIF argued that this acquisition was exempt from prior notification to the CCI due to the applicability of Item 1 of Schedule 1 of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (the Combination Regulations) (Combination Regulations), for the following reasons: (a) the acquiring parties were alternative investment funds, which are established solely for the purposes of investing and so the acquisition of shares of FRL was in their ordinary course of business; (b) the acquiring parties were not aware of the fact that after acquiring a stake in FRL, they would automatically be bestowed upon the right to appoint a director. It was also submitted that FRL invited directorship from them on its own accord and accepting it did not result in an acquisition of control.

The CCI, in this context, noted that PI and PIF had knowledge that the seller had a board seat in FRL, and so the intention to participate in the affairs of FRL was clear. The CCI also referred to the principle of ’substance over form’ to conclude that it is immaterial how PI and PIF obtained directorship; the substance is that they gained the ability to participate in the management of FRL. The CCI also concluded that the acquisition was not ’solely as an investment’ since the first test for examining a transaction for being in the ordinary course of business is to ascertain whether it is a revenue transaction or a capital transaction. The CCI acknowledged that revenue transactions and capital transactions may differ from business to business but held that the key consideration for the ’ordinary course of business‘ test is that the activity in question should not be an investment. As a result, if the transaction is a capital transaction, it will not be in the ordinary course of business, and since PI and PIF had themselves referred to the acquisition as an investment, which by its very definition constitutes a capital transaction being a form of ’asset‘ for the investing firm, the CCI held that the acquisition is not in the ordinary course of business and an Item 1 exemption was not made available to the acquisition.

As a result, the CCI penalised PI and PIF for gun jumping and violating the provisions of Section 6(2) and Section 6(2A) of the Competition Act, and levied a penalty of 2 million on PI and PIF for their conduct.

5.1. Key developments of the past year

5.1.1. Are there any developments, emerging trends or hot topics in foreign investment review regulation in India? Are there any current proposed changes in the law or policy that will have an impact on foreign investment and national interest review?

The Competition (Amendment) Bill 2023 (Bill) was recently passed by both houses of the Parliament of India (ie, the Lok Sabha and Rajya Sabha) on 3 April 2023 and subsequently received assent from the President of India on 11 April 2023. Notably, the government is yet to notify the date on which the amended provisions will come into effect and the corresponding regulations are expected to be published after consultation from stakeholders. The Bill proposes significant amendments to the Competition Act 2002. Some of the key amendments proposed in the Bill that would impact foreign investments are set out below.

Introduction of deal value threshold

The Bill mandates notification of transactions that exceed a deal value of 20 billion rupees, subject to the target’s having substantial business operations in India. The applicability of this threshold will not be affected by the de minimis exemption, which exempts transactions (from the requirement to be notified to the CCI) where either the target’s value of assets does not exceed 3.5 billion rupees or its turnover does not exceed 10 billion rupees. The Competition Commission of India (CCI) is yet to issue regulations governing the applicability of the deal value threshold. The Bill clarifies that the deal value would include every valuable consideration (direct or indirect or deferred).

Shortening review timelines

The Bill proposes to shorten the review timeline from the current 210 days (from the date of notification) to 150 days, with a provision to extend by 30 days. Under the amendments, the CCI is required to form its prima facie opinion within 30 calendar days (as opposed to the current timeline of 30 working days), failing which the combination is deemed to be approved.

New threshold of control

The Bill formalises a lower threshold of ‘control’ (ie, the ability to exercise material influence, in any manner, over the management or affairs or strategic commercial decisions). The CCI, in its decisional practice, has considered material influence to include factors such as shareholding, special rights, status and expertise of a person, board representation or commercial or financial arrangements.

Exemption for certain transactions by public financial institutions, foreign portfolio investors, banks or Category I alternate investment funds

The Bill exempts these entities from the requirement to notify a share subscription, financing facility or acquisition pursuant to covenant under a loan agreement or investment agreement.

Mechanism to regulate open offers and stock market purchases

The Bill exempts the following combinations from standstill obligations under Section 6(2A) of the Competition Act 2002: (1) an open offer or (2) an acquisition of shares or securities, through a series of transactions on a regulated stock exchange. In these cases, the acquirer would be allowed to acquire the shares prior to the CCI’s approval but cannot exercise any ownership, beneficial rights or voting rights, or receive dividends or any other distributions until the CCI approves the acquisition. This amendment enables time-sensitive market stock purchases while fulfilling the notification requirements of the CCI.

New mechanism to offer modifications to the CCI

The Bill provides the notifying party the opportunity to propose modifications before the CCI forms its prima facie view.

Clarification regarding the definition of ‘turnover’

The Bill proposes to exclude intra-group sales, indirect taxes, trade discounts and all amounts generated through assets or business from customers outside India while computing turnover.

Clarification re definition of assets

The Bill clarifies that in cases of acquisition, merger or amalgamation of a portion or division or business of an enterprise by or with another enterprise, the entire value of the asset or turnover of the said portion or division or business will be considered to assess the requirement of a notification to the CCI.

Increased penalty for making false statements or omission to submit material information

The Bill increases the maximum penalty to 50 million rupees (from 10 million rupees).