Introduction

Jurisdictional notification thresholds are considered one of the most objective ways of identifying transactions that are likely to have some impact on existing market conditions.[1] The rationale is rather straightforward; parties to a transaction that have ‘significant presence’ in a country are more likely (than not) to impact market conditions through combinations as compared to parties that have no or minimal presence. Transactions which exceed certain jurisdictional (global and local) asset and turnover thresholds are caught under the merger control provisions, unless they qualify for any available exemptions – the latter being a further filtration tool. India does not have high jurisdictional asset and turnover thresholds.[2] However, it has among other methods adopted, a de-minimis exemption, in accordance with which target businesses or merging businesses that have assets or turnover in India below a certain threshold are exempt from pre-notification requirements.[3] Other exemptions that the Competition Commission of India (‘CCI’) has adopted include: minority acquisitions, top-up investments that do not result in a change in control, buybacks, intra-group re-organisations, financing, acquisition or subscription of shares undertaken by foreign institutional investors, or venture capital funds registered with the Securities Exchange Board of India. CCI believes these exemptions capture transactions that are unlikely to impact competitive conditions in any market in India.

Despite this, a majority of transactions notified to CCI are those that are unlikely to raise any competition concerns. For instance, transactions involving no horizontal overlaps or vertical relationships[4] (‘No Overlap Transactions’) are routinely notified to CCI. Similarly, there is no carve-out for green field joint ventures (‘JV’) that have no envisaged operations in India. Since the JV has no operations in India, it could conceivably not affect competition in any market in India.  Transactions involving foreign JV may require notification to CCI simply because the parent entities have transferred assets to the JV that (directly or indirectly) breach the rather low, local nexus thresholds and the parent entity is a large multinational conglomerate that would breach global jurisdictional thresholds under the Competition Act, 2002 (‘Act’) (‘Foreign JV with Asset Transfer’). Moreover, CCI makes no distinction between data requests for No Overlap Transactions and transactions involving horizontal overlaps or vertical linkages.

This article: (a) explores why a simpler merger review process may be the need of the hour for, at least, No Overlap Transactions and Foreign JV with Asset Transfer transactions; and (b) proposes a broad framework to implement a simplified merger review process, based on processes currently in practice in Europe.

Need for Introducing a Simplified CCI Notification

If a transaction is notifiable, parties have to file a notification with CCI by completing the information request in the CCI form. Regardless of the nature of the transaction, the notification to CCI requires parties to submit extensive corporate and market data. Although, CCI recommends a ‘short’ form for transactions with minimal market overlaps[5], the information request even in the recommended short form is rather onerous. For instance, parties are required to not only provide market share information, but substantiate in detail why the transaction is unlikely to raise competition concerns in the narrowest possible market. There is no official mechanism for seeking concessions from CCI from these onerous information requests and incomplete information is a ground for invalidating the notification filed with CCI.

Detailed information requests for No Overlap Transactions or/and Foreign JV with Asset Transfers not only increase transaction costs for parties, but are an equal drain on CCI’s (already constrained) resources. Having to review these ‘routine’ transactions diverts CCI’s resources from complex cases that merit a substantive and thorough review, especially since CCI ultimately approves all No Overlap Transactions and Foreign JV with Asset Transfers transactions noting the absence of any overlaps in India. Insisting on detailed market information to reach a predictable conclusion is, at the very least, inefficient.

Best Practices in Other Jurisdictions and Concluding Thoughts

An ideal merger control regime would have notifiability criteria that capture transactions that are likely to raise competition concerns, while filtering out those that are wholly unlikely to. While this perfect model may be difficult to achieve, several competition authorities have introduced creative, yet easy to implement solutions. For instance, in France[6], a simplified notification may be filed in the case of: (i) No Overlap Transactions; and (ii) transactions in the retail sector, subject to satisfaction of certain conditions[7]. Transactions eligible for the simplified notification in France can be notified with information on just the activities of the parties and market shares of the main players. The European Commission (‘EC’) also provides parties the option to notify transactions that are unlikely to raise competition concerns in a ‘short form’. Unlike India, the EC ‘short form’ only requires basic details and dispenses with the need for a detailed analysis of the market. The EC also encourages parties opting for a simplified procedure to seek pre-notification engagement.

The advantages of a simplified notification process for prima facie non-problematic transactions are several, which include ease of doing business and cost-saving, both for the regulator and transaction costs for parties, and result in increased compliance from businesses. Simpler regulatory norms are known to ensure greater compliance, as parties have less to gain from avoiding compliance. For transactions other than No Overlap Transactions or Foreign JV with Asset Transfer, over time, CCI may adopt rules or even opt for a case by case approach to determine which transactions are eligible for such a simplified process.

[1] OECD working group paper on ‘Local Nexus and Jurisdictional Thresholds in Merger Control’ available here: http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP/WP3(2016)4&docLanguage=En [2] Section 5 of the Competition Act, 2002 (‘Act’) specifies eight alternate tests. Depending on the test in question and subject to any applicable exemptions, if the value of the turnover or assets of one or more parties to the transaction cross the thresholds specified, then the transaction is subject to CCI review. [3] Transaction where the target enterprise (i.e., the enterprise whose shares, voting rights, assets or control are being acquired or are being merged/amalgamated) either has assets not exceeding INR 350 crore (INR 3.5 billion) (approx. USD 49.81 million) in India, or has a turnover not exceeding INR 1000 crore (INR 10 billion) (approx. USD 142.33 million) in India, are currently exempt from the mandatory pre-notification requirement. Please note that when only a portion of an enterprise/division/business is involved in a transfer (i.e., in an asset sale), then only the value of the assets and turnover of such portion of enterprise/division/business should be considered to determine the applicability of the de minimis exemption. Please note that this exemption expires on 29 March 2022, unless it is further extended. [4] Horizontal overlaps refer to business activities of the parties that are substitutable/identical. Vertical relations refer to business activities of parties at different stages or levels of the production chain. [5] Transactions where the horizontal overlaps between parties exceed 15% or transactions where the combined market shares of the parties in any vertically linked market exceeds 25% are not considered as ‘minimal’ overlaps. [6] Please refer to: https://iclg.com/practice-areas/merger-control-laws-and-regulations/france [7] Transactions relating to the retail sector are eligible for simplified procedure in France provided that (i) parties cross the thresholds applicable to the retail sector; but (ii) parties do not cross the general thresholds; and (iii) there is no change in brand name of the outlets concerned.