Regulatory framework

1. What (if any) merger control rules apply to mergers and acquisitions in your jurisdiction? What is the regulatory authority?

Regulatory framework

The Competition Act 2002 (Competition Act) is the principal legislation that regulates combinations (mergers and acquisitions) in India. Sections 5 and 6 of the Competition Act, which deal with the regulation of mergers and acquisitions, have been in force since 1 June 2011.

The merger control regime is also governed by various notifications issued by the Ministry of Corporate Affairs, Government of India (MCA) and the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (as last amended on 9 October 2018) (Combination Regulations).

Regulatory authority

The Competition Commission of India (CCI) is the regulatory authority responsible for reviewing and assessing mergers and acquisitions (see https://www.cci.gov.in).

Triggering events/thresholds

2. What are the relevant jurisdictional triggering events/thresholds?

Triggering events

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 CCI before the transaction can be completed.

The Competition Act does not define the terms “merger” or “amalgamation”. The term “acquisition” is defined to include the direct or indirect acquisition of any shares, voting rights or assets of any enterprise, or the control over the management or assets of an enterprise.

A notifiable transaction must be notified any time after the:

• Board approval of the proposed merger or amalgamation.
• Execution of any agreement or “other document” for the acquisition or acquiring of control. The term “other document” refers to:
• any binding document conveying an agreement or decision to acquire control, shares, voting rights or assets;
• in case of a hostile takeover, any document executed by the acquiring enterprise conveying a decision to acquire control, shares or voting rights; or
• a public announcement for the acquisition of shares, voting rights or control under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011.

Control. The term “control” includes controlling the affairs or management by:

• One or more enterprises, either jointly or singly, over another enterprise or group.
• One or more groups, either jointly or singly, over another group or enterprise.

(Section 5, Competition Act).

“Group” means two or more enterprises which are, directly or indirectly, able to do one or more of the following:

• Exercise 50% or more of the voting rights in the other enterprise.
• Appoint more than 50% of the members of the board of directors in the other enterprise.
• Control the management or affairs of the other enterprise.

The CCI has extended the meaning of the term “control” to include controlling the management or affairs of an enterprise, by:

• The right to nominate a director on the board of directors.
• Affirmative voting rights such as the right to change or amend the memorandum of association and/or articles of association, reorganisation or change in the nature of current business or launch of any new business, appointment or removal of key managerial personnel, among others.

No limitation period is prescribed for the CCI to pass an order or issue directions in relation to mergers. The CCI clearance does not preclude a future antitrust investigation.

Thresholds

The jurisdictional thresholds for notification comprise two broad sets of tests:

• Parties test. Parties (buyer and target (excluding seller)/ or merging parties) have:
• combined domestic assets exceeding INR20 billion (about USD280 million); or
• combined domestic turnover exceeding INR60 billion (about USD838 million); or
• combined worldwide assets exceeding USD1 billion, including domestic assets of at least INR10 billion (about USD140 million); or
• combined worldwide turnover exceeding USD3 billion, including domestic turnover of at least INR30 billion (about USD420 million).
• Group test. Group (buyer’s group and target (excluding seller) or group to which the merged entity will belong) has:
• combined domestic assets exceeding INR80 billion (about USD1.2 billion); or
• combined domestic turnover exceeding INR240 billion (about USD3.4 billion); or
• combined worldwide assets exceeding USD4 billion, including domestic assets of at least INR10 billion; or
• combined worldwide turnover exceeding USD12 billion, including domestic turnover of at least INR30 billion.

While examining whether the parties test is satisfied, the value of assets and turnover of the immediate parties, including their subsidiaries to the transaction must be taken into account.

While examining whether the group test is satisfied, the ultimate parent/holding company of the acquirer/the entity surviving after the merger must be identified. On identification, its consolidated value of assets and turnover must be taken into account. Reliance on the relevant accounting principles on consolidation of value of assets and turnover is generally useful.

Notification

3. What are the notification requirements for mergers?

Mandatory or voluntary

Notification to the CCI is mandatory if the jurisdictional thresholds are met (see Question 2, Thresholds) and exemptions are unavailable.

Timing

The MCA has removed (by a notification published on 29 June 2017) the requirement on parties to notify transactions to the CCI within 30 days of the relevant trigger event (see Question 2, Triggering events). Currently, transactions must be notified before completion. This notification will apply for five years from the date of publication.

Pre-notification and formal/informal guidance

The CCI offers informal, verbal and non-binding, pre-notification guidance to the parties to provide clarifications on procedural and substantive issues before filing a notice.

The pre-notification guidance meetings typically last one hour. However, the time can be extended by the CCI depending on the complexity of the issues identified for discussion.

Pre-notification contact with the CCI is recommended in cases where there is uncertainty on whether a transaction must be notified or where the parties are unclear on the format of the CCI notification (see below, Form of notification). Increasingly, the CCI has also been encouraging notifying parties to share drafts of the filing before notification to provide feedback and secure a more complete draft on formal filing.

Responsibility for notification

In an acquisition, the acquirer must file the notification. In a merger or amalgamation, it is the joint responsibility of all the parties to file the notification.

Relevant authority

The relevant authority is the CCI.

Form of notification

Notification to the CCI is made either in Form I (shorter form) or Form II (longer form). These forms can be downloaded from the CCI website (by clicking on the tab titled “Combinations”) (see www.cci.gov.in/index.php?option=com_content&task=view&id=23).

Notification to the CCI is typically filed in Form I. However, the parties to the transaction can use Form II where:

• The combined market shares of the parties post-combination is more than 15% in any horizontal market.
• Either the individual or combined market shares of the parties is more than 25% in any vertical market.

Filing fee

The filing fees are INR1.5 million (about USD21000) for Form I and INR5 million (about USD70000) for Form II. In case of an acquisition, the acquirer must pay the filing fees. In a merger/amalgamation, it is the joint responsibility of all the parties to pay the filing fees.

Obligation to suspend

Transactions (inside or outside of India) subject to review by the CCI must be suspended until clearance is obtained, or a review period of 210 calendar days from the date of notification passes, whichever is earlier. This obligation cannot be waived.

The 210 days period is inclusive of any “clock stops”, (that is, the time taken by the parties to a merger/amalgamation in providing information or a complete filing). However, it does not account for the time taken by the CCI and the transacting parties to negotiate remedies, for which an additional period of 60 working days is envisaged under the Competition Act.

Procedure and timetable

4. What are the applicable procedures and timetable?

The investigation into mergers and acquisitions by the CCI is in two phases.

Phase I. The CCI must issue a prima facie opinion on whether the transaction is likely to cause an appreciable adverse effect on competition (AAEC) within the relevant market in India within 30 working days from the date of notification. If the CCI finds that the transaction is unlikely to cause an AAEC, it will approve the transaction. The 30-day review period is referred to as Phase I.

The 30-day review period excludes the time taken by:

• The parties to provide additional information required by the CCI.
• The CCI to ask third parties for their views on the transaction.

Further, the review clock will stop if the CCI invalidates a notice for being substantially incomplete. The CCI can require the parties to file afresh resulting in resetting the review clock.

Phase II. If the CCI forms a prima facie opinion that the merger or acquisition is likely to cause an AAEC within the relevant market in India, the CCI can extend its review period until the full 210 calendar day statutory period (the Phase II review period) for an in-depth investigation.

A Phase II investigation involves the following steps:

• The CCI issues a show cause notice to the parties asking for an explanation as to why an investigation in to the combination (merger or acquisition) should not be conducted. The parties are given 30 calendar days to reply to this notice. After considering the parties’ response, the CCI can pass an order formally commencing the Phase II investigation process.
• After the CCI issues an order directing an in-depth investigation, the parties must publish non-confidential details of the transaction in four leading national daily newspapers and their own websites within ten working days of the CCI’s decision to investigate further. Third parties, including competitors, suppliers, customers and other market stakeholders are then invited to provide their views on the likely impact of the transaction within the relevant market within 15 working days of publication. Thereafter, within 15 working days from the expiry of the period, the parties can respond to these comments.
• After considering the response of the parties, the CCI passes an order within a period of 45 working days either:
• approving the transaction;
• disapproving the transaction; or
• proposing modifications to the transaction.

Where the CCI proposes modifications to the transaction, the review timeline is extended by up to 60 working days for discussion on remedies. This extension is excluded from the 210-day review period.

Publicity and confidentiality

5. How much information is made publicly available concerning merger inquiries? Is any information made automatically confidential and is confidentiality available on request?

Publicity

A 500-word, non-confidential summary of the combination must be submitted alongside the merger notification, to be published on the CCI’s website as soon as the notification is filed.

The summary must contain:

• The names of the parties.
• A description of the type of merger or acquisition.
• The parties’ business activities.
• The relevant market definition.

The CCI also indicates whether the transaction is notified in Form I or Form II, and the status of review (that is, whether pending or approved) on its website.

Once the CCI completes its review, it publishes its final approval order on its website. If the CCI initiates a Phase II investigation, the parties must publish the details of the transaction in Form IV (which includes a competitive assessment of the impact of the transaction on competition (see Question 7)). Form IV is published on:

• The CCI’s website.
• The parties’ websites.
• In all national editions of four leading daily newspapers, including at least two business newspapers.

The purpose of Form IV is to invite public comments or objections in respect of the transaction.

The final order of the CCI typically contains:

• A description of the proposed transaction.
• A description of the parties’ business activities.
• A definition of the relevant market.
• The CCI’s view on the likely impact of the proposed transaction on competition in India.
• If applicable, remedies or modifications directed by the CCI or offered by the parties and accepted by the CCI.

Automatic confidentiality

The parties must specifically request confidential treatment of the information they provide.

Confidentiality on request 

The parties can submit a request for confidentiality of information.

Confidentiality is generally granted only over such information, the disclosure of which will result in any of the following:

• The disclosure of trade secrets.
• The destruction or appreciable diminution of the commercial value of any information.
• Cause serious injury to the notifying parties.

Confidentially is typically granted for no more than three years. Some of the factors the CCI considers while arriving at a decision regarding confidentiality include the:

• Extent to which the information is known to outside public.
• Extent to which the information is known to the employees, suppliers, distributors and others involved in the party’s business.
• Measures taken by the party to guard the secrecy of the information.
• Ease or difficulty with which the information could be acquired or duplicated by others.

Rights of third parties

6. What rights (if any) do third parties have to make representations, access documents or be heard during the course of an investigation?

Representation

The CCI can, at its discretion, invite any member of the public affected by or likely to be affected by the completion of the transaction to file written objections in Phase I (see Question 4).

If the assessment moves to Phase II, Form IV invites public comments or objections in respect of the transaction (see Question 5).

Document access

While third parties can request to inspect/access documents submitted by notifying parties during the proceedings, such requests are not usually granted.

Be heard

There is no provision for an oral hearing for the third parties. Generally, third parties can only present their opinions in writing to the CCI.

Substantive test

7. What is the substantive test?

The CCI generally approves a notified transaction once it is certain that the transaction will not cause any AAEC within the relevant market in India. The CCI must consider all or any of the following 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 will result in the parties 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 enterprise 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.
• Whether the benefits of the combination outweigh the adverse impact of the combination, if any.

(Section 20(4), Competition Act.)

Although there is no separate test for deciding whether to initiate a Phase II investigation, the CCI typically considers the following factors:

• The parties’ and competitors’ market shares.
• Market concentration levels post-combination.
• The number of competitors remaining post-combination.
• Extent of barriers to entry.
• Extent of growth in the market and countervailing buyer power.

In a case concerning the acquisition of the film exhibition business, the CCI considered that the post-combination market shares and increments, the lack of efficiencies, the likelihood that the combination would result in the parties being able to significantly and sustainably increase prices or profit margins, and the lack of incentives to innovate further as sufficient grounds to determine that there would be an absence of effective competitors. The CCI ultimately prescribed remedies after conducting an in-depth investigation (PVR Ltd. and DLF Utilities Ltd., Combination Registration No. C-2015/07/288).

8. What, if any, arguments can be used to counter competition issues (efficiencies, customer benefits)?

The CCI will consider various factors, including efficiency-related factors while examining a transaction, which include the:

• Nature and extent of innovation created as a result of the transaction.
• Relative advantage, by contribution to economic development.
• Consumer benefits, including increased efficiencies.
• Low barriers to entry.
• Lack of ability or incentive to increase prices.
• Countervailing buyer power.

9. Is it possible for the merging parties to raise a failing/exiting firm defence?

The possibility of a failing business is a factor that the CCI can take into account while determining whether there has been or is likely to be any AAEC in the relevant market.

The CCI considered this defence in a case involving the acquisition of a steel company by another steel company in accordance with insolvency law proceedings (Tata Steel Ltd. and Bhushan Steel Limited, Combination Registration No. C-2018/03/562).

Remedies, penalties and appeal

10. What remedies (commitments or undertakings) can be imposed as conditions of clearance to address competition concerns? At what stage of the procedure can they be offered and accepted?

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 new amendments to the Combination Regulations, the parties can now offer remedies during Phase I also. Accordingly, the Phase I review period will be extended by 15 days (Regulation 19, Combination Regulations). The parties can also offer voluntary commitments at any time before the CCI issues its order proposing modifications (that is, towards the end of the Phase II review period). Once the CCI issues its order proposing modifications, the parties can offer a counter proposal, which the CCI can either accept or reject. If the CCI accepts the counter proposal, it approves the combination. However, if it does not accept the counter proposal, the parties are given time to accept the modifications proposed by the CCI.

If the parties then fail to accept the modifications proposed by the CCI, the combination is deemed to have an AAEC and is treated as void. However, there have been no such cases to date.

Remedies can be behavioural, structural or a combination of both. However, the CCI generally prefers structural remedies.

See Question 4 for the impact of remedies on Phase II timelines.

The compliance of commitments is usually monitored by an independent agency (Monitoring Agency) appointed by the CCI for the transaction. The appointed agent must report to the CCI.

11. What are the penalties for failing to comply with the merger control rules?

Failure to notify correctly

Various types of penalties are prescribed under the Competition Act on individuals and companies.

• If the parties fail to notify a notifiable transaction, or implement the transaction without approval, the CCI can impose a penalty of up to 1% of the total turnover or value of assets of the proposed combination, whichever is higher.
• Where the parties make material false statements or omit to disclose material facts in the notification, penalties between INR5 million to INR10 million (about USD70000 to USD140000) can be imposed. The fines are administrative in nature.
• If the parties fail to pay the above penalty, the Chief Metropolitan Magistrate in Delhi can impose fines of up to INR250 million (about USD3.5 million) and/or imprisonment of up to three years.

Implementation before approval or after prohibition

The regime is suspensory in nature and a combination cannot be implemented until approval. In the case of non-compliance, the CCI can impose a penalty of up to 1% of the total turnover or value of assets of the combination, whichever is higher.

Implementation after prohibition of the merger can result in a penalty of INR100,000 (about USD1,400) for each day of non-compliance, up to a maximum of INR100 million (about USD1.4 million). Failure to pay this penalty can result in fines of up to INR250 million (about USD3.5 million) and/or imprisonment of up to three years.

Failure to observe

Where a person fails to comply with the CCI’s orders or directions, the CCI can impose a fine of up to INR100,000 per day up to a maximum of INR100 million. Failure to pay this penalty can result in fines of up to INR250 million (about USD3.5 million) and/or imprisonment of up to three years.

Although there have been no such cases to date, a failure to comply with any proposed remedies could possibly result in the combination being deemed to have an AAEC in the relevant market in India and being blocked from taking effect. Further, non-compliance with such remedies could also be treated in the same way as failure to comply with the CCI’s orders.

12. Is there a right of appeal against the regulator’s decision and what is the applicable procedure? Are rights of appeal available to third parties or only the parties to the decision?

Rights of appeal

As a general rule, decisions of the CCI which conclusively determine the rights and obligations of the parties, can be contested before the appellate tribunal. The types of decisions against which an appeal can be filed are specifically listed in the Competition Act and include decisions to:

• Block a transaction.
• Approve a transaction with conditions.
• Impose penalties.

The decisions of the CCI can be appealed before the National Company Law Appellate Tribunal (NCLAT) either by the notifying party(ies) or by any person who can demonstrate that he/she has been harmed by any direction, decision or order of the CCI.

Further, appeals against any decision or order of the NCLAT can be filed before the Supreme Court of India (SCI).

Procedure

An appeal to the NCLAT must be filed within 60 days from receipt of the CCI’s order by the party(ies). Similarly, appeals before the SCI must be filed within 60 days from the date of communication of the decision or order of the NCLAT to the parties.

The completion of appellate proceedings before the:

• NCLAT can take between six months to two years.
• SCI can take between two to three years.

Third party rights of appeal

See above, Rights of Appeal.

Automatic clearance of restrictive provisions

13. If a merger is cleared, are any restrictive provisions in the agreements automatically cleared? If they are not automatically cleared, how are they regulated?

If a merger is cleared, the restrictive provisions in the agreements are also presumed to be automatically cleared.

The CCI’s concerns with respect to restrictive provisions such as non-compete covenants are typically addressed during the review of the transaction. The CCI will only clear a transaction if such restrictive provisions have been removed or amended.

A clearance of a transaction by the CCI however, does not preclude the possibility of a future antitrust investigation into the restrictive provisions. Although, no specific exemptions are available to protect the goodwill of the purchaser, such restrictions are generally allowed for between two and three years.

Regulation of specific industries

14. What industries (if any) are specifically regulated?

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

• On 10 August 2017, the Government of India issued a notification (under section 45 of the Banking Regulation Act 1949) exempting certain regional rural banks (governed by the Regional Rural Banks Act 1976) from the merger control provisions for five years (that is, until 10 August 2022).
• On 30 August 2017, the exemption from the merger control provisions was also extended to 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 ten 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).

15. Has the regulatory authority in your jurisdiction issued guidelines or policy on its approach in analysing mergers in a specific industry?

The CCI has not issued any guidelines or policy on its approach in analysing mergers in any specific industry.

Joint ventures

16. How are joint ventures analysed under competition law?

Joint ventures (JVs) are not specifically dealt with under the Competition Act from a merger control perspective. However, as setting up a greenfield JV or the entry of a new partner in a brownfield JV involves the acquisition of shares, voting rights or assets, they must be notified to the CCI where the jurisdictional thresholds are met and the acquisitions are not otherwise eligible for any exemption.

Inter-agency co-operation

17. Does the regulatory authority in your jurisdiction co-operate with regulatory authorities in other jurisdictions in relation to merger investigations? If so, what is the legal basis for and extent of co-operation (in particular, in relation to the exchange of information, remedies/settlements)?

The CCI, with the prior approval of the Government of India, can enter into memoranda or arrangements with foreign regulators, to discharge its duties or perform its functions. The CCI has entered into co-operation arrangements with:

• The European Commission.
• Brazil, Russia, China and South Africa.
• Canada.
• Australia.
• The US.

Information on the CCI’s international co-operation arrangements is available on its website (https://cci.gov.in/node/1761).

To date, co-operation with foreign competition regulators has been in the field of competition awareness, policy-making, experience sharing and technical co-operation in competition law enforcement. This co-operation is voluntary and subject to the requirements under the domestic laws of each party to the co-operation agreement. The co-operation does not extend to the:

• Exchange of information treated as confidential under the domestic laws of the party possessing the information.
• Information barred by domestic laws from being shared.
• Information which can harm the interests of the parties.

Co-operation with foreign competition regulators also extends to co-ordination among regulators to make endeavours to curb anti-competitive activities within their territories, which have an adverse effect on their respective relevant markets.

Recent mergers, cases, trends and statistics

18. What notable recent developments, trends or notable recent mergers or proposed mergers have been reviewed by the regulatory authority in your jurisdiction and why is it notable? Are there any statistics published on annual merger reviews conducted in the jurisdiction?

Recently, the CCI approved three large transactions in the telecommunications sector, including the unconditional approval of the merger of Vodafone India and Idea Cellular Limited on 3 October 2017 (Combination Registration No. C-2017/04/502) valued at USD23 billion, (which is the largest transaction by value in the history of Indian M&A).

The other two mergers took place between:

• Bharti Airtel Limited and Tata Teleservices Limited (Combination Registration No. 2017/10/531). The CCI issued an order on 16 November 2017 unconditionally approving this merger.
• Bharti Airtel Limited and Telenor (India) Communications Private Limited (Combination Registration No. C-2017/03/494). The CCI issued an order on 30 May 2017 unconditionally approving this merger.

The CCI also cleared three global deals in the agro-chemical sector that is, Bayer AG/Monsanto Co, ChemChina/Syngenta, and Agrium Inc/Potash Corporate. These transactions were all cleared subject to remedies offered by the parties.

The CCI has also fast-tracked the approval process for certain transactions arising out of insolvency proceedings, to ensure that there is no conflict with the strict timelines envisaged under the insolvency laws. Examples of such transactions include:

• Tata Steel Ltd. and Bhushan Steel Limited (Combination Registration No. C-2018/03/562).
• Tata Steel Ltd. and Bhushan Power and Steel Limited (Combination Registration No. C-2018/07/581).

In 2016/17, the CCI received 113 merger notifications (see, https://www.cci.gov.in/sites/default/files/annual%20reports/CCI_AR-2016-17_English.pdf).

Of these applications:

• 91 were approved in the same financial year (that is, 2016-17).
• Six were declared invalid and the parties were asked to refile their notices.
• 12 were approved in the first quarter of the financial year 2017-18, as they were filed towards the end of the financial year 2016-17.
• Four were approved at a subsequent stage due to the CCI having concerns with the transactions. Two of these went into Phase II (Combination Registration No. C-2016/10/443, and Combination Registration No. C-2016/05/400), and the other two were cleared at Phase I based on the parties’ voluntary commitments (Combination Registration No. C-2016/08/424, and Combination Registration No. C-2016/11/459).

Proposals for reform

19. Are there any proposals for reform concerning merger control?

In April 2018, the Union Cabinet (Government of India) gave its approval for downsizing the CCI from one chairperson and six members (totalling seven) to one chairperson and three members (totalling four) by not filling the existing vacancies of three members.

The aim of this reduction is to pursue the Government’s objective of “minimum government – maximum governance”.

Content for table: Merger control thresholds

Authors:

Rahul Rai, of Counsel
Akshat Kulshrestha, Senior Associate
Nikita Agarwal, Associate