Introduction

Competition Commission of India (‘CCI’) on March 27, 2020, issued guidance for parties (‘Revised Notes’) to file a Form I^[1] under the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Amendment Regulations, 2011 (‘Combination Regulations’).

The Revised Notes have been issued to incorporate the amendments brought in to Form I by CCI (‘Revised Form 1’) last year by way of the notification dated August 13, 2019, (‘CCI Notification’). The Revised Form 1 clarified the scope of information to be provided to CCI while notifying a combination in Form 1.

The Revised Notes, to a large extent, are a welcome development, especially for private equity investors and enterprises that do not have substantial overlaps with the target entity. The Revised Notes: (i) provide relaxation in mapping overlaps between the parties; (ii) provide relaxation in providing market facing information; and (iii) clarify the scope of ‘complementary’ products and services. The Revised Notes also require an enhanced level of disclosure: (i) from the acquirer with respect to its group activities; and (ii) on the intricacies of the transaction. In addition, the Revised Notes mandate the presence of a senior officer of each of the parties to the combination during meetings with CCI, which may be arduous for some enterprises.

Key Changes

Some of the key changes in the Revised Notes and their implications have been explained below:

I.     Relaxation in Mapping Overlaps between Parties: Until now, while mapping overlaps between an acquirer and a target, the parties were required to provide such information if the (i) parties to the combination; and/or (ii) their respective group entities were directly or indirectly engaged in any: (a) horizontal (e. producing or providing similar or identical or substitutable products or services); (b) vertical (i.e. they must not be engaged in commercial activities at different levels of production chain); or (c) complementary (i.e. they must not be engaged in any complementary activities) activities (‘Overlaps’).

Additionally, the CCI Notification also introduced the Green Channel regime (‘GC Regime’) granting deemed approval to combinations involving no Overlaps (for both (i) and (ii) above) on receiving an acknowledgement of filing. Therefore, the parties were required to map overlaps with all investments, regardless of how limited (arguably even one share) in an ‘overlapping business’.

The Revised Notes have now relaxed the eligibility criteria for (a) mapping Overlaps; and (b) applicability of the GC Regime. For (a) and (b), the parties are now required to consider only those entities in which they hold:

i.      a direct or an indirect shareholding of 10% or more; or

ii.    a right or an ability to exercise any right (including any advantage of commercial nature) that is not available to an ordinary shareholder; or

iii.   a right or an ability to nominate a director or observer in another enterprise.

This relaxation in mapping Overlaps and the applicability of the GC Regime is important as it reduces the burden for various enterprises (including private equity investors) holding  minority investments in numerous companies who can now still approach CCI under the GC Regime.

ii.   Relaxation on Providing Market Facing Information of Parties: In transactions involving Overlaps, the Revised Form 1 had previously increased the scope of disclosure on the market share information of parties to three years (as opposed to the earlier requirement of one year).

 The Revised Notes have clarified that the market share data of the parties for the past three years is required to be provided only where the combined market share of parties for any plausible alternative market(s) (whether horizontal, vertical or complementary) exceeds 10%. This substantially reduces the burden of the parties to collate information in transactions where the parties do not have substantial combined market shares.

iii.  Clarification on ‘Complementary Products’: The Revised Form 1 introduced the requirement to disclose and also map overlaps with respect to complementary activities of the parties. However, no guidance was provided on the definition of ‘complementary’ products/services. CCI has now clarified ‘complementary’ as products/services which:

i.      are related because they are combined and used together (g., printers and ink cartridges);

ii.    do not compete and are not vertically related; and

iii.   enhance the value of a combined product/service.

iv.   Threshold Assessment to be done in Substance, not Form: The Revised Notes also clarify that the parties are required to calculate the total value of assets and turnover of the combination based on the substance of the transaction and not its form^[2].

v.   Clarification on Entities Belonging to the Target ‘Group’: The Revised Notes have clarified that the target group means all the entities belonging to the group starting from the target entity to its downstream affiliates and not the target and its group entities, as was suggested in the Revised Form.

Other Changes

i.    Disclosure on Rights Acquired in a Combination: The Revised Notes expressly require a disclosure of the following rights acquired as a result of the transaction: (a) veto rights; (b) affirmative voting rights; (c) any other rights or advantage of commercial nature (likely to include rights such as rights of first refusal/offer, pre-emptive rights, tag-along and drag along rights, call options, put options, etc.); (d) right or ability to appoint a member or observer on the board of directors; and/or (e) information sharing rights.

ii.    Additional Disclosure from the Acquirer Group: The Revised Notes also require the acquirer to provide a diagrammatic representation of its group e., from the ultimate controlling entity of the party to the transaction to the downstream affiliates, along with the shareholdings in each affiliate^[3].

[1] Notification to CCI is made either in Form I (shorter form) or Form II (longer form). The parties may at their option file notification in Form II where (a) the combined market shares of the parties post-combination is more than 15% in any horizontal market; or (b) the individual or combined market shares of the parties is more than 25% in any vertical market. 

[2] The clarification is in line with Regulation 9(5) of the Combination Regulations which requires that notifications to CCI are to be determined with respect to the substance of a transaction and any structure of the transaction that has the effect of avoiding notice shall be disregarded. While parties were following this approach in practice, the clarification formally records CCI’s interpretation of Regulation 9(5).

[3] Before the amendments to Form I by way of Revised Notes, the requirement was to only provide the details of the enterprises whose structure, ownership and control was likely to be affected by the combination.