The Indian merger control regime came into effect on 1 June 2011 with the notification of Sections 5 and 6 of the Competition Act 2002 (the Competition Act). The regime is governed by the Competition Act, 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 amended up to 8 January 2016 (the Combination Regulations).
Under the Indian merger control regime, a 'combination' (i.e., an acquisition, merger or amalgamation) must be notified to and approved by the Indian competition authority, the Competition Commission of India (CCI), if it breaches the prescribed asset and turnover thresholds and does not qualify for any exemptions. The requirement to notify the CCI is mandatory and such combinations are subject to a 'standstill' or suspensory obligation. Where a combination causes or is likely to cause an 'appreciable adverse effect on competition' (AAEC) within the relevant market in India, the combination is void. By 1 May 2019, the CCI had cleared approximately 600 combinations, with a vast majority within the 30-working-day Phase I period. To date, the CCI has cleared eight combinations subject to remedies after a detailed Phase II investigation, but is yet to outright block a combination.2
In this chapter we give a brief overview of the recent trends in Indian merger control, including key amendments to the Combination Regulations and then outline the circumstances under which parties to a transaction are required to notify the CCI, and the factors taken into account by the CCI when determining whether a combination is likely to cause an AAEC.
II YEAR IN REVIEW
The past year has seen the CCI increasingly assert itself in relation to both procedural and substantive matters relating to merger reviews. Up until 1 May 2019, the CCI cleared approximately 600 combinations in various industries such as e-commerce, consumer goods, healthcare, steel, cement, telecommunications, agro-chemicals, pharmaceuticals, aviation, manufacturing, information technology, financial services, banking and broadcasting.
The landscape of the Indian merger control regime is shifting rapidly, owing to the frequent amendments to the Combination Regulations. On 27 March 2017,3 MCA issued a notification (the March 2017 notification) that (1) extended the scope of the de minimis exemption to mergers as well; (2) limited the value of assets and turnover in the transfer of a portion of an enterprise (i.e., in an asset sale), to only the value of the assets and turnover of such a portion of the enterprise, division or business being transferred; and (3) maintained the increased value of the jurisdictional thresholds under the Competition Act. These changes are far-reaching and very welcome.
The March 2017 notification does away with the artificial distinction based on form, between transactions structured as 'acquisitions' and 'mergers and amalgamations' and instead, looks to the substance. In sum, the de minimis exemption will now be available to all types of combinations, irrespective of the manner in which they are structured. It clarified the basis for computing the value of assets and turnover attributable to assets in asset sales. It also extended the application of the de minimis exemption until 29 March 2022.
On 31 March 2017, the Finance Act 2017 (the Finance Act) was notified in the official gazette, and sought to dissolve the Competition Appellate Tribunal (COMPAT). The Finance Act has since become effective on 26 May 2017, and all the powers and duties of the COMPAT have been transferred to the National Company Law Appellate Tribunal (NCLAT). As a result, over 50 cases pending with the COMPAT as of 26 May 2017 have been transferred to the NCLAT. Such cases are being heard afresh by the NCLAT, including at least two merger control cases.4
Subsequently, on 29 June 2017 the MCA issued another notification (the June 2017 notification) that does away with the requirement to necessarily notify a combination within 30 calendar days of the trigger event. The measure has been taken to alleviate the concerns of stakeholders who felt constrained by the deadline stipulated under the Competition Act.
Importantly, the June 2017 notification puts an end to the possibility of penalties for delayed filing. Transacting parties will no longer be constrained to decide on the strategy, collect information and make the filing within the short window of 30 calendar days. Parties to global transactions that require notification in multiple jurisdictions can now make the filing in India contemporaneous with other jurisdictions. The June 2017 notification will not only help the parties align their strategy, but also help the CCI align its review timelines with other jurisdictions.
Notably, the requirement to file a notice with the CCI is still mandatory and the suspensory regime (i.e., requirement to receive CCI approval prior to closing) still applies. Accordingly, any breach of these requirements will still lead to penalties for 'gun-jumping' under Section 43A of the Competition Act. However, removal of a 30-calendar day deadline makes it significantly easier for businesses to comply with the merger notification requirement in India and is in line with international best practices in merger control. On account of the anticipated reduction in the CCI's case load due to the revised de minimis thresholds, on 4 April 2018, the Union Cabinet, chaired by the Prime Minister, approved a proposal to reduce the number of members in the CCI from one chairperson and six members to one chairperson and three members, by not filling in the current and expected vacancies.5 Further, on 30 September 2018, the MCA constituted the Competition Law Review Committee (CLRC) to review the Competition Act. The CLRC's mandate includes (1) review of the Competition Act and its subordinate rules and regulations, (2) assessment of international competition best practices, especially in relation to antitrust, merger control and cross-border issue management, and (3) study of other regulators, government policies and institutional mechanisms that overlap with the Competition Act.6
III THE MERGER CONTROL REGIME
i Applicable thresholds
A 'combination' is any acquisition, merger or amalgamation that meets certain asset or turnover thresholds, under Section 5 of the Competition Act. The asset and turnover thresholds applicable to combinations comprise two tests, which are applicable to the immediate parties to the transaction and separately to the group to which the target or merged entity (as the case may be) will belong, and have both Indian and worldwide dimensions.
The 'parties test' looks at the assets and turnover of the immediate parties to the transaction, that is, the acquirer and the target, or the merging parties, and a notification is triggered if the parties have any of the following:
- combined assets in India of 20 billion rupees;
- a combined turnover in India of 60 billion rupees;
- combined global assets of US$1 billion including combined assets in India of 10 billion rupees; or
- combined global turnover of US$3 billion including combined turnover in India of 30 billion rupees.7
Even if the parties' test thresholds are not met, a notification may be triggered if the 'group' to which the parties would belong post-transaction has any of the following:
- assets in India of 80 billion rupees;
- turnover in India of 240 billion rupees;
- global assets of US$4 billion including assets in India of 10 billion rupees; or
- global turnover of US$12 billion including a turnover in India of 30 billion rupees.8
Every combination must mandatorily be notified to the CCI, unless the parties are able to benefit from the exemptions provided in the Competition Act, the Combination Regulations or the Notification9 issued by the MCA. These exemptions are as follows.
The requirement of mandatory notification prior to completion does not apply to any financing facility, acquisition or subscription of shares undertaken by foreign institutional investors,10 venture capital funds,11 public financial institutions12 and banks pursuant to a covenant of an investment agreement or a loan agreement. Such transactions need to be notified in the simpler and shorter Form III within seven days of the date of acquisition.13
Categories of transactions usually exempt from mandatory notification – Schedule 1 of the Combination Regulations identifies certain categories of transactions that are ordinarily not likely to cause an AAEC in India, and need not normally be notified to the CCI. They are as follows:
- acquisition of shares or voting rights made solely as an investment or in the ordinary course of business, that entitles the acquirer to less than 25 per cent of the total shares or voting rights of the target enterprise, and there is no acquisition of control of the target enterprise;14
- acquisition of additional shares or voting rights of an enterprise, where the acquirer or its group, prior to the acquisition, already holds 25 per cent, but not 50 per cent, and there is no acquisition of joint or sole control over the target enterprise by the acquirer or its group;
- acquisition of shares or voting rights by an acquirer who has 50 per cent or more of the shares or voting rights of the enterprise prior to the acquisition, except where the transaction results in a transfer from joint to sole control;
- acquisition of assets not directly related to the business activity of the party acquiring the asset or made solely as an investment or in the ordinary course of business, not leading to control of an enterprise, and not resulting in acquisition of substantial business operations in a particular location or for a particular product or service, irrespective of whether such assets are organised as a separate legal entity;
- amended or renewed tender offer, where a notice has been filed with the CCI prior to such amendment or renewal;
- acquisition of stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business;
- acquisition of shares or voting rights pursuant to a bonus issue, stock split, consolidation, buy back or rights issue, not leading to acquisition of control;
- acquisition of shares or voting rights by a securities underwriter or a stockbroker on behalf of a client in the ordinary course of its business and in the process of underwriting or stockbroking;
- acquisition of control, shares, voting rights or assets by one person or enterprise, of another person or enterprise within the same group, except in cases where the acquired enterprise is jointly controlled by enterprises that are not part of the same group; and
- a merger or amalgamation involving two enterprises where one of the enterprises has more than 50 per cent of the shares or voting rights of the other enterprise, or a merger or amalgamation of enterprises in which more than 50 per cent of the shares or voting rights in each of such enterprises are held by enterprises within the same group, provided that the transaction does not result in a transfer from joint control to sole control; and
- acquisition of shares, control, voting rights or assets by a purchaser approved by the CCI pursuant to and in accordance with its order under Section 31 of the Competition Act (i.e., divestment-related acquisitions).
Target-based exemption (de minimis exemption)
Transactions where the target enterprise either holds assets of less than 3.5 billion rupees in India, or generates turnover of less than 10 billion rupees in India, are currently exempt from the mandatory pre-notification requirement. Pursuant to the March 2017 notification the exemption has been extended to mergers and amalgamations as well (it was previously applicable only to transactions structured as acquisitions).
Applicability of thresholds to asset acquisitions
Pursuant to the March 2017 notification, in the transfer of a portion of an enterprise, division or business (i.e., in an asset sale), the applicability of the thresholds under Section 5 of the Competition Act and the de minimis exemption is limited to only the value of the assets and turnover of such a portion of enterprise, division or business.15 The pre-amendment position required the value of the assets and turnover of the entire target enterprise to be taken into consideration for the de minimis exemption to apply. Given that the CCI has previously penalised parties for failing to make a notification as parties had calculated assets by accounting the value of assets to be contributed,16 the March 2017 notification provides a welcome clarification. Further, the exemption is valid until 29 March 2022 unless it is further extended.
iii 'Control' as per the CCI
The acquisition of control or a shift from joint to sole control is an important determinant for whether exemptions relating to minority investments and intra-group reorganisations are applicable. 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, (2) one or more groups, either jointly or singly, over another group or enterprise'. There is no 'bright line' shareholding percentage identified as conferring control.
The CCI has examined the issue of what constitutes 'control' in several cases. In SPE Mauritius/MSM Holdings,17 the CCI held that veto rights enjoyed by a minority shareholder over certain strategic commercial decisions might result in a situation of joint control over an enterprise. These rights include engaging in a new business or opening new locations or offices in other cities; appointment and termination of key managerial personnel (including material terms of their employment); and changing material terms of employee benefit plans. In Century Tokyo Leasing Corporation/Tata Capital Financial Services Limited,18 the CCI observed that veto rights could create a situation of control over when they pertain to approval of the business plan, approval of the annual operating plan (including budget), discontinuing any existing line or commencing a new line of business, and the appointment of key managerial personnel and their compensation. In Caladium Investments/Bandhan Financial Services,19 the CCI expanded the scope of such affirmative rights to include veto rights over amendments to charter documents, changes in capital structure, changes to dividend policy and appointment of auditors in the list of rights that could be seen as leading to joint control.
As a general matter, the CCI precedent seems to suggest that where there are a number of veto rights, they should not be evaluated in isolation, and whether control exists is based upon an assessment of these rights as a whole.20
Interestingly, in the Jet/Etihad case,21 the CCI concluded that the acquistion by Etihad Airways (Etihad) of 24 per cent of the equity share capital of Jet Airways (Jet) allowed Etihad to exercise joint control over Jet's assets and operations, on account of the terms of the agreements entered into between Jet and Etihad, and Etihad's ability to appoint two of the six directors on Jet's board of directors. Notably, the Indian capital markets regulator, the Securities and Exchange Board of India (SEBI), differed on this issue, clarifying that under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011 (the Takeover Code), the definition of 'control' is narrower than under the Competition Act to conclude that the acquisition does not grant 'joint control' of Jet to Etihad under the Takeover Code. In a recent decision involving a notification to the CCI for the acquisition of shares of Telewings Communications Services Private Limited (Telenor India) by Lakshdeep Investments & Finance Private Limited22 (Telenor order), the CCI conclusively held that a shareholding of 26 per cent constitutes joint control under the Competition Act. The CCI found that regardless of affirmative voting rights, with a 26 per cent shareholding, a shareholder has the ability to block special resolutions under the (Indian) Companies Act, 2013 that is sufficient to constitute negative control.
Significantly, in another recent decision,23 the CCI penalised UltraTech Cement Limited (UltraTech) for omitting to disclose material information24 (the UltraTech order) in relation to its acquisition of the cement manufacturing plants of Jaiprakash Associates Limited (JAL). The CCI held that UltraTech was required to furnish details of the shareholding of Kumar Mangalam Birla (and his family members) (KMB/KMB Family) and the companies owned and controlled by them in Century Textiles and Industries (Century) and Kesoram Industries (Kesoram), as both these companies compete with JAL. While Ultratech contended that there was no requirement to disclose these details as Century and Kesoram did not qualify as group entities and were not controlled by a common shareholder, the CCI held that control included 'material influence' in addition to de facto and de jure control. The CCI interpreted material influence as the 'presence of factors that enable an entity to influence the affairs and management of another enterprise. These factors include: shareholding, special rights, status and expertise of an enterprise or person, Board representation, structural/financial arrangements etc.' Therefore, to the extent that KMB (1) had seats on both Century and UltraTech's boards of directors, and (2) had chaired four of Century's 20 board meetings, he had the ability to exercise 'material influence' over Century's affairs and may further distort competition on account of having access to competitively sensitive information. The CCI also noted that KMB and KMB Family had strategic shareholding in Kesoram and Century, which conferred them with negative control over both the companies. The test of material influence has expanded the scope of what the CCI considers as control from the globally recognised standard of decisive influence. This expanded definition of control may separately implicate what constitutes 'group' companies, including for determining whether asset and turnover group thresholds are satisfied for notifying the CCI, as the control test is a factor for determining whether two or more entities qualify as a 'group'.
Investors therefore need to keep in mind that even minority investments may be, and in certain instances have been, viewed as an acquisition of control requiring notification to the CCI.25 This could extend to entirely innocuous financial investments.
iv Treatment of JVs
One of the common ways in which investors choose to do business in India is by way of joint ventures (JVs) with Indian counterparts. These joint ventures may be 'greenfield' (i.e., through the setting up of an entirely new enterprise) or 'brownfield' (i.e., via an investment in an existing enterprise).
The Competition Act does not specifically deal with JVs 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, such acquisition may require notification to the CCI, if the jurisdictional thresholds are met and are not otherwise eligible for any exemption.
A greenfield JV would involve the setting-up of a new enterprise, which by itself will not have sufficient assets or turnover to trigger a notification. Prior to the March 2017 notification, where any of the parent companies to the JV transfer assets to the JV at the time of incorporation, a merger filing may have been triggered on account of the anti-circumvention rule in Regulation 5(9) of the Combination Regulations. The anti-circumvention rule requires that where, in a series of steps or individual transactions that are related to each other, assets are being transferred to an enterprise for the purpose of such enterprise entering into an agreement relating to an acquisition or merger or amalgamation with another person or enterprise, for the purpose of Section 5 of the Act, the value of assets and turnover of the enterprise whose assets are being transferred shall also be attributed to the value of assets and turnover of the enterprise to which the assets are being transferred. In such an event, despite the fact that the newly created joint venture may not itself have any assets or turnover, the acquisition of shares, voting rights or assets in the joint venture may require a notification to the CCI. However, the March 2017 notification clarifies that when only a portion of an enterprise, division or 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 or business should be considered and not the value of assets and turnover of the entire enterprise housing the relevant business, division or portion.
The March 2017 notification therefore has created uncertainty over the application of the anti-circumvention rule. As a general matter, the principles of statutory interpretation require a harmonious construction between the substantive provisions of an enabling statute and a rule or any other form of delegated legislation. As such, any delegated legislation has to be read and construed consistent with the enabling statute. Accordingly, the anti- circumvention rule (provided under the Combination Regulations which is delegated legislation by the CCI) should be construed in light of, and consistently with, the provisions of the March 2017 notification (enacted by the government of India).
Interestingly, the Combination Regulations also contains a 'substance test' whereby the CCI can look beyond a transaction structure and assess whether the substance of the transaction would trigger a notification requirement to the CCI, and treat such a structure as the relevant structure for the purpose of merger control.
iii The merger control regime – relevant considerations to reviewing a combination
The 'appreciable adverse effect on competition' test
The Competition Act prohibits the entering into of any combination, which has or is likely to have an AAEC in the relevant market in India, and treats all such combinations as void.26
Consistent with practices in other jurisdictions, the CCI first determines the relevant market or relevant markets, and in that context considers the competitive effects of the combination. It then considers a number of non-exhaustive factors set out in the Competition Act to determine whether the combination is likely to cause an AAEC.
A relevant market is defined as the market, which may be determined with reference to the relevant product market or the relevant geographic market or with reference to both the markets.27
In turn, a relevant product market is defined as a market comprising all those products or services that are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.28 Notably, the CCI is only required to consider products or services that are interchangeable or substitutable by consumers. However, while the relevant product market has been defined from a consumer perspective, Section 19(7) of the Competition Act identifies supply-side factors (such as exclusion of in-house production and presence of specialised producers) that the CCI may also consider in defining the relevant product market.
The relevant geographic market is a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.29 The Competition Act provides the factors that the CCI needs to assess for determining the relevant geographic market.30 These are, regulatory trade barriers, local specification requirements, national procurement policies, adequate distribution facilities, transport costs, language, consumer preferences, and need for secure or regular supplies or rapid aftersales services.
The CCI has also used economic tools such as the Elzinga-Hogarty test, the Herfindahl-Hirschman Index and chains of substitution in certain cases31 to determine the scope of the relevant market and market concentration, but this is more the exception than the rule.
Upon determining the boundaries of the relevant market or markets, the CCI considers the competitive effects of the combination. The CCI is required to 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 would result in the 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 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; and
- whether the benefits of the combination outweigh the adverse impact of the combination, if any.
In the approximately 600 cases that the CCI has reviewed so far, it has typically considered factors such as the parties' and competitors' market shares, market concentration levels post-combination, the number of competitors remaining post-combination, barriers to entry, extent of growth in the market and countervailing buyer power to determine whether the combination being considered is likely to cause an AAEC. In the past, CCI has stopped short of expressly identifying an economic theory of harm to the parties or in its orders. An illustrative decision is the PVR/DT case. With respect to the acquisition by PVR Limited (PVR) of the film exhibition business of DLF Utilities Limited (DT), the CCI expressly considered that 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 there would be an absence of effective competitors and, therefore, the combination of PVR and DT would likely have an AAEC.32 However, recently, in Bayer/Monsanto, the CCI identified harm to future innovation efforts, input foreclosures, and portfolio effects such as exclusion of competitors arising out of the transaction, before approving the transaction with modifications.
The CCI's analysis focused on whether a combination is likely to cause an AAEC in India, even in cases where parties may have proposed global markets, or where markets are import-driven.
An interesting development in the Indian merger control regime has been the perceptible shift in the CCI's initial 'soft attitude' in clearing mergers. Initially the CCI did not use its powers to direct modifications to the terms of transactions or impose commitments to ensure compliance with the provisions of the Competition Act. The provisions relating to combinations came into force on 1 June 2011. Since then, the CCI has formally approved 15 different combinations subject to modifications in the form of structural and behavioural commitments, even though there are no formal guidelines on merger remedies as yet.
Voluntary commitments offered by parties during Phase I investigations
In several cases, modifications have been volunteered by the parties themselves in the Phase I stage rather than being directed by the CCI.33 In Mumbai International Airport Private Limited/Oil PSUs34 the parties offered various behavioural remedies voluntarily, on the basis of which approval was granted by the CCI. Typically, the CCI scrutinises non-compete provisions closely and where it believes the duration or scope of the restriction is 'excessive' directs parties to undertake to modify the non-compete. For example, in Elder Pharmaceutical/Torrent Pharmaceuticals,35 the CCI approved the transaction after the parties agreed to modify the scope of a non-compete clause in the agreement and reduce its scope from five to four years. Similarly, in Agila Specialities/Mylan Inc,36 Tata Capital/TVS Logistics,37 Clariant Chemicals (India) Limited/Lanxess India Private Limited38 and Advent International Corporation/MacRitchie Investments Private Limited,39 the CCI approved the transaction only after the parties undertook to reduce the term of the non-compete clause. In Orchid Chemicals and Pharmaceuticals Ltd/Hospira,40 the CCI acknowledged that a non-compete clause is essential to acquire the full value of the asset, however, the clause must be reasonable in its application. In 2017, the CCI issued a Guidance Note on Non-Compete Restrictions41 that sets out non-compete restrictions that the CCI is likely to consider 'ancillary' to a proposed transaction and therefore unlikely to be viewed as problematic. More recently, where the CCI believes that a given non-compete is not 'ancillary' to the proposed transaction, it simply records so in its approval decision.42 This is a departure from its previous practice where it would direct parties to modify the non-compete restriction in order to approve the proposed transaction. The likely objective of recording this restriction is to empower the CCI to examine the impact of such 'non-ancillary' non-competes under the post facto behavioural provisions of the Competition Act.
In addition to non-compete clauses, the CCI has also accepted voluntary commitments and approved transactions in Phase I review. For instance, in St Jude Medical Inc/Abbott Laboratories,43 the parties offered voluntary structural remedies through divestment of assets. In China National Chemical Corp/Syngenta AG,44 the CCI granted an approval subject to a remedy proposal offered by the parties wherein they voluntarily agreed to treat two of their respective Indian subsidiaries as separate independent businesses for seven years, in addition to divestment of three formulated crop protection products sold by Syngenta in India. In Dish TV/Videocon,45 the CCI granted an approval after it accepted voluntary commitments offered by the parties that included bearing the cost of (1) realigning and re-configuring antennae installed by customers to make it compatible with the transponders; and (2) the antenna and set-top box, which may be required to be changed as a result of the transaction. Similarly, in JFDHL/Den Networks46 and JCDHPL/Hathway47 that, like Dish TV/Videocon, also concerned the cable market, the CCI granted approval after accepting similar undertakings. These undertakings include (1) bearing the cost of realignment or change in customer premises equipment, in case of technical realignment as well as customers retaining the liberty to bundle any of broadband, cable TV and telephone without a 'pre-fixed' set, and (2) providing compliance reports to the CCI for five years. Northern TK Venture/Fortis Healthcare48 involved an investment by Northern TK Venture (Northern TK) in Fortis Healthcare Hospital and Fortis Malar Hospital. Norther TK/IHH had existing investments in a competing hospital, Apollo Gleneagles Hospital. The CCI approved the transaction after accepting voluntary commitments to ensure that the competing hospitals operated independently and did not have common directors, and that the commercially sensitive information relating to pricing data and day-to-day operations was not exchanged or disclosed, including through directors and the enforcement of disciplinary action. Northern TK was also directed to submit a compliance certificate, along with supporting affidavits by the respective directors, confirming compliance of the voluntary commitments, to be supplied annually.
Modifications directed by the CCI pursuant to Phase II investigations
In almost a decade of merger control enforcement, the CCI has directed eight modification orders following Phase II investigations, of which, save one, directed structural modifications. In Sun/Ranbaxy, Holcim/Lafarge and PVR Cinemas/DT, the CCI approved the transactions on the condition that certain assets of the parties involved in these transactions would be divested to third parties to prevent AAEC in the relevant markets identified. Interestingly, the CCI also issued a revised divestment order in Holcim/Lafarge after the original divestment process ran into regulatory hurdles. In Dow/DuPont, CCI approved the transaction, subject to the divestment of assets, cancellation of certain trademarks and a commitment that the parties would not enter the market for Flusilasole, a fungicide (the underlying active ingredient and formulations) for a certain duration, and also sell off their MAH grafted polyethylene business. In Agrium/Potash, the CCI directed the divestment of PotashCorp's shareholding in three companies (divestment assets) as well as a commitment to not acquire stake in the divested businesses for a period of 10 years. More recently, the CCI approved Linde/Praxair, subject to divestment of: (1) Linde India Limited's entire shareholding in Bellary Oxygen Company Private Limited, a joint venture between Linde India Ltd and Inox Air Products Limited; (2) Praxair's three on-site plants in the east region of India, located at Jamshedpur, and two cylinder filing stations located at Asansol and Kolkata; and (3) Linde's one on-site plant in the South Region of India, located at Bellary, Karnataka and two cylinder filing stations located at Hyderabad and Chennai. CCI also recently approved the Bayer/Monsanto transaction subject to a detailed modification plan that included divestments and voluntary commitments by Bayer. The CCI directed the divestment of two businesses of Bayer – its global glufosinate ammonium business and global broad acre crop seeds and traits business – to an approved purchaser and accepted the following voluntary commitments: (1) exercise broad licensing policies in India; and (2) not to offer clients bundled products. As with other divestments, the CCI appointed a Divestiture and Monitoring Agency to oversee the implementation of the modifications and directed Bayer to undertake to submit regular compliance reports to the Monitoring Agency every six months for the duration of the commitments. According to public reports,49 the CCI has also recently approved Schneider Electric India Pvt Ltd's acquisition of Larsen and Toubro's electrical and automation business after accepting behavioural commitments.50
Merger filing time frames
As stated above, the June 2017 notification51 does away with the requirement to necessarily notify a combination within 30 calendar days of the trigger event, which may be:
- the final approval of the merger or amalgamation by the board of directors of the enterprises concerned; or
- the execution of any agreement or other document for the acquisition of shares, voting rights, assets or control.
The term 'other document' has been defined as being any binding document, by whatever name, conveying an agreement or decision to acquire control, shares, voting rights or assets, and includes any document executed by the acquirer conveying the decision to acquire, in the case of hostile acquisitions. Interestingly, the CCI had introduced a third category of trigger event, which is the public announcement (PA) under the Takeover Code made by parties for the acquisition of shares, voting rights or control in a publicly listed enterprise. The PA was introduced as a 'trigger' by way of an amendment to the Combination Regulations in January 2016. The Combination Regulations now state that where a public announcement has been made in terms of the Takeover Code, for acquisition of shares, voting rights or control, such public announcement shall be deemed to be the 'other document'.52 Over time, the CCI also appears to have expanded the scope of trigger events to include:
- binding term sheets;53
- non-binding term sheets;54
- contract notes and collaboration agreements;55
- settlement agreements or agreed structures;56 and
- implementation agreements.57
While the 30-day filing deadline has been done away with the trigger event still marks the time from which parties' suspensory obligations kick in.
The CCI has also made it mandatory for parties to file a single notification for interconnected transactions, one or more of which qualify as a notifiable combination. While what constitutes 'interconnected' is somewhat indeterminate, and is essentially determined by the CCI on a case-by-case basis, transactions do not need to have any causal link or interdependence. The CCI's decisional practice identifies the following parameters for determining whether two or more transactions are interconnected:
- commonality of business and parties involved;
- simultaneity in negotiation, execution and consummation of transaction documents;
- commercial feasibility of isolating the two transactions – i.e., whether one would happen without the other; and
- cross-conditionalities in transaction documents or public announcement of the parties.58
Moreover, there is no time limit under the Competition Act or the Combination Regulations within which the CCI would consider transactions to be interconnected (unlike in the EU), though the CCI does not consider transactions before 1 June 2011 notifiable, as this was the date on which the Indian merger control provisions came into force. One of the most notable implications of two transactions being viewed as interconnected is the extension of CCI's review jurisdiction and standstill obligations to such transactions that may have otherwise been exempt from notification requirements.
Parties have the option of notifying the CCI in either Form I, which is the default short-form notification, or in Form II, the more detailed long-form notification, where the parties have a horizontal overlap of over 15 per cent or a vertical overlap of over 25 per cent – although more recently, where combined market shares exceed 15 per cent, the CCI requires parties to file in the longer Form II. In a recent round of amendments to the Combination Regulations, the CCI overhauled the format of Form I, streamlining it and introducing accompanying guidance notes to assist parties in filing Form I.
Once notified, the CCI is bound to issue its prima facie opinion within 30 working days of filing, not accounting for 'clock stops'; namely, when the CCI asks for additional information or directs parties to correct defects in their submissions. However, the CCI is also bound to issue its final order within 210 calendar days, even though the Combination Regulations provide that the CCI will 'endeavour' to pass relevant orders or directions within 180 days. In practice, the CCI has cleared the vast majority of all transactions within 30 working days (excluding 'clock stops'), therefore giving positive signals to the business community.
Invalidation of notifications
The CCI has enhanced powers to invalidate a notification within the 30-working-day review period in three circumstances:
- if it is not in accordance with the Combination Regulations;
- if there is any change in the information submitted in the notification, which affects the competitive assessment of the CCI; and
- if the transaction was notified in Form I, but the CCI is of the view that the transaction ought to have been notified in Form II (in this case, the CCI returns the Form I notification and directs parties to re-file in Form II).
While the CCI has the discretion to grant notifying parties a hearing before it determines to invalidate a notification, it is not mandatory for the CCI to do so. Further, the time taken by the CCI to arrive at such decision is excluded from the review clock.
The CCI appears to have used this power for invalidation in a technical fashion. In BNP Paribas/Sharekhan,59 the CCI invalidated a notification on the technical ground that the individual who signed the notification on behalf of the notifying party was not properly authorised to do so. In GE/Alstom,60 the CCI directed the parties to re-file the notification entirely in Form II (even for markets where there was insignificant overlap), as they had provided more detailed Form II level information only where overlaps were in excess of the market-share thresholds prescribed under the Combination Regulations. Recently, the CCI directed parties to re-file the Bandhan/Gruh61 merger primarily because in some narrower segments the (indirect) combined market shares was greater than 15 per cent, although there was a miniscule incremental increase in market shares.62
Gun-jumping (or failure to file)
The June 2017 notification puts an end to the possibility of penalties for delayed filing. Transacting parties will no longer be constrained to decide on the strategy, collect information and make the filing within the short window of 30 calendar days. However, failure to file before implementation of the transaction or gun-jumping risks empowers the CCI to impose a penalty of up to 1 per cent of the assets or turnover of the combination, whichever is higher.63 The maximum penalty imposed to date is 50 million rupees each in Piramal Enterprises/Shriram64 and GE/Alstom65 – both penalties were much lower than the statutory upper limit. Typically, proceedings initiated by the CCI to examine gun-jumping concerns are initiated in parallel and do not hold up the substantive review of the notified combination. In Chhatwal Group Trust/Shrem Roadways Private Limited,66 the CCI levied a penalty of 1 million rupees on Chhatwal Group Trust, finding that the payment of 'token money' in advance of signing definitive transaction documents amounts to implementation of the proposed transaction and resulted in gun-jumping. While passing this order, the CCI considered its recent orders in In Re: UltraTech Cement Limited67 and In Re: Adani Transmission Limited,68 where penalty was levied on the acquirers for pre-payment of consideration, in part or full, which was construed as steps towards consummating the transactions, acting as gun-jumping.
In a recent gun-jumping decision passed by the CCI, a penalty of 1 million rupees was imposed on the acquirer for simply including an anteriority clause relating to certain conduct that identified a notional date falling before receipt of the CCI's approval (Bharti Airtel Ltd/Tata Teleservices Limited69). Although the relevant conduct took place only after the CCI's approval, the CCI found that the act of identifying a notional date that was before the CCI approval was likely to reduce the target's incentive to compete with the acquirer from such a notional date. In the Telenor order, the CCI levied a penalty of 500,000 rupees on Telenor ASA for implementing certain transaction steps, which were not explicitly notified to the CCI for approval but were nevertheless disclosed to the CCI by way of another filing. As these decisions indicate, the CCI appears to be taking a strict and somewhat narrow interpretation of gun-jumping that may not require actual conduct towards implementing the transaction, but does involve scrutinising transaction documents to ascertain if any conduct reduces competitiveness in the market.
Penalty for making false statements and non-disclosure of material information
The CCI levied penalties for omission to disclose material information70 in the UltraTech order. The CCI held that UltraTech was required to furnish details of the shareholding of KMB/KMB Family and the companies owned or controlled by them, since they had the ability to exercise 'material influence' and negative control over competitors of JAL, namely, Century and Kesoram.
Confidentiality of submitted information
Confidential information and documents contained in merger filings and subsequent submissions are not automatically granted confidential treatment by the CCI. The notifying parties are required to specifically identify such information and make a request for confidential treatment for an identified time period. The CCI usually grants confidential treatment only over commercially sensitive or price-sensitive information or business secrets, the disclosure of which would cause commercial harm to the notifying parties and typically for not more than three years. However, it should be noted that the CCI, being a statutory body, is subject to the (Indian) Right to Information Act 2005 (the RTI Act), through which citizens can secure access to information in control of public authorities. While, legally, the CCI is required to provide access to citizens, confidential information provided by parties falls within an exemption under the RTI Act and it is therefore likely that these in-built safeguards in the RTI Act, coupled with the CCI's own confidentiality regime, will be sufficient to assuage industry concerns in this regard.
Judicial review of mergers and the appellate process
On 26 May 2017, all the powers and duties of the COMPAT, were transferred to the NCLAT. As a result, decisions of the CCI may be challenged before the NCLAT, by any person aggrieved by that decision, including the central government, state government, a local authority or an enterprise. A further appeal from any order of the NCLAT lies to the Supreme Court of India.
In a decision that would have had wide-ranging implications, the COMPAT previously stayed the operation of the revised divestment order of the CCI in Holcim/Lafarge upon the application of a prospective bidder for the divested assets; however, this appeal was subsequently withdrawn by the appellant.71
Other COMPAT decisions in the context of merger reviews include the challenge in the case of the CCI's order in Jet/Etihad,72 which allowed Etihad to acquire a certain percentage of the equity share capital of Jet. The complainant alleged that the CCI allowed the combination without correctly appreciating the facts of the case or carrying out a detailed assessment. The COMPAT, however, dismissed the matter, ruling that the complainant was not an 'aggrieved party' within the meaning of the Competition Act and hence had no locus standi to challenge the order of the CCI.73 Similarly, in Piyush Joshi v. CCI,74 the COMPAT dismissed the appeal against the approval of the merger of Royal Dutch Shell Plc and BG Group Plc, stating that the appeal was premature. However, this appeal now lies before the NCLAT and the final order is still pending.75
Regarding gun-jumping and belated filing penalties, the COMPAT upheld the penalty imposed by the CCI on Piramal for failing to notify three interconnected transactions.76 In CCI v. Thomas Cook, the Supreme Court recently dismissed the order of the COMPAT that had overturned the penalty imposed by the CCI on Thomas Cook for alleged gun-jumping.77 The Supreme Court held that there was no requirement of mens rea under Section 43A of the Competition Act or intentional breach as an essential element for levying penalties. The Supreme Court further emphasised that technical interpretation to isolate two different steps of transactions of a composite combination was against the spirit and provisions of the Competition Act. Notably, Eli Lilly & Company's appeal to the COMPAT against the penalty imposed by the CCI for belated filing now lies before the NCLAT.78 The penalty was imposed on Eli Lilly on the basis that the relevant trigger document in the transaction was the global sale agreement, and not the local sale agreement that was signed after the global sale agreement. The final decision in this appeal is still pending.
IV OTHER STRATEGIC CONSIDERATIONS
Since the coming into force of the Indian merger control regime, the CCI has entered into cooperation agreements and memoranda of understanding with several of its overseas counterparts, including the FTC, the EC, the Australian Competition and Consumer Commission and the Russian Federal Anti-Monopoly Service. Through such agreements, the CCI has sought to strengthen international cooperation and share information related to fair trade practices. The CCI has demonstrated its intention to reach out to and coordinate with global regulators in the recent past, especially in multi-jurisdictional filings. Given the multi-jurisdictional nature of global transactions, the CCI has become an important regulator to consider, given its length of review and substantive assessment of the filings made before it. One of the key features of the CCI's review in the past year is that it has considered transactions in the context of consolidation in the sector in which a transaction has taken place and this has generally entailed a more detailed review of all filings notified in the sector. As evident from the CCI's decisional practice in the pharmaceutical, agro-chemical and industrial gas sectors,79 the CCI is increasingly examining transactions in sectors that are sensitive to the Indian political economy with greater scrutiny. Further, parties to competitively significant global transactions should factor in longer review timelines and the possibility of divestitures to attain the CCI's approval. For example, the Linde/Praxair merger was filed three times with the CCI (the parties' notification was withdrawn once and invalidated subsequently) before it was finally approved.
With the introduction of the Insolvency and Bankruptcy Code 2016 (IBC), the new legislation aimed at streamlining insolvency procedures, the CCI has had to deal with transactions executed pursuant to the IBC process that must adhere to accelerated completion timelines. Transactions approved by the CCI pursuant to the IBC process so far, primarily involve the steel and cement sectors. Further, the CCI has in the past year approved about 11 transactions filed pursuant to a resolution plan filed under the IBC Code to the Committee of Creditors (CoC), including, Tata Steel Ltd /Bhushan Steel Ltd,80 AION Investments Pvt II Ltd/JSW Steel Ltd,81 Tata Steel/Bhushan Power and Steel Ltd,82 JSW Steel Limited/Bhushan Power and Steel Ltd,83 Arcelor Mittal/Essar Steel India Ltd,84 Ultratech Cement Ltd/Binani Cement Ltd,85 Rajputana Properties Pvt Ltd/Binani Cement Ltd,86 Adani Wilmar Ltd/Ruchi Soya Industries Ltd,87 Patanjali Ayurved Limited/Ruchi Soya Industries Limited88 and UV Asset Reconstruction Company Limited/Aircel Limited,89 among others. To its credit, even in the absence of any formal obligation to do so, the CCI appears to have prioritised the review of such transactions, having taken one month on an average in deciding such complex transactions.
V OUTLOOK and CONCLUSIONS
The CCI has been faced with complex transactions in the telecommunications and agrochemical sectors but has proved itself to be a proactive and important regulator despite being critically understaffed. The amendments to the Combination Regulations have been a significant and welcome development in the past year. These amendments will likely mean that the CCI will not review 'no issues' cases that were previously notifiable and will focus its attention on only those transactions that involve more in-depth competition law analysis. Also, transacting parties will be able to provide complete notifications to the CCI without the pressure of filing in 30 working days. Further, with the objective of easing business and to address regulatory challenges arising from the digital economy, the government of India constituted the CLRC on 30 September 2018 to review and update the Competition Act and its subordinate rules and legislations. To do this, the CLRC Committee is carrying out an assessment of international competition best practices, especially in relation to antitrust, merger control and cross-border issue management, and studying other regulators, government policies and institutional mechanisms that overlap with the Competition Act.
The CCI has taken steps towards adapting its processes to best practices and applying lessons learned in more mature merger control jurisdictions. Although the Indian merger control regime remains relatively new, the CCI's evolution over the past few years shows a propensity for continuous development, in keeping with an overall objective to facilitate the concerns of notifying parties while asserting its role in developing competition law jurisprudence.
1 Hemangini Dadwal is a partner, and Rajshree Sharma and Shreya Singh are associates, at AZB & Partners.
2 The CCI has passed orders directing structural modifications in combinations relating to diverse sectors. These are: (1) Linde/Praxair,C-2018/01/545, dated 6 September 2018, in the gas and energy sector; (2) Bayer/Monsanto, C-2017/08/523, dated 14 June 2018, Agrium/Potash, C-2016/10/443, dated 27 October 2017, Dow/DuPont, C-2016/05/400, dated 8 June 2017 and ChinaChem/Syngenta, C-2016/08/424, dated 16 May 2017, in the agro-chemical sector; (3) PVR/DT Cinemas, C-2015/07/288, dated 4 May 2016 in the film exhibition and distribution sector; (4) Holcim/Lafarge, C-2014/07/190, dated 30 March 2016, in the cement sector; and (5) Sun/Ranbaxy, C-2014/05/170, dated 5 December 2014, in the pharmaceutical sector.
3 Government of India Notification dated 27 March 2017, S.O. 988(E). These are effective from 29 March 2017.
4 (1) Eli Lilly & Company's appeal to the (erstwhile) COMPAT against the penalty imposed by the CCI for belated filing is now before the NCLAT (Transfer Appeal (AT) (Competition) No. 3 Of 2017 (Old Appeal No. 44 Of 2016), and (2) ITC Limited's appeal (Competition Appeal (AT) No. 11 of 2018) to the NCLAT is against the CCI's decision to impose penalty on ITC for a failure to notify its acquisition of 'Savlon' and 'Shower to Shower' trademarks from the Johnson & Johnson Group.
7 Sections 5(a)(i), Section 5(b)(i) and Section 5(c)(i) of the Competition Act, read with the notification SO 675(E) dated 4 March 2016 issued by the MCA.
8 Section 5(a)(ii), Section 5(b)(ii) and Section 5(c)(ii) of the Competition Act, read with the notification SO 675(E) dated 4 March 2016 issued by the MCA.
9 Government of India Notification dated 27 March 2017, S.O. 988(E).
10 As defined under Regulation 2(f) of the SEBI (Foreign Portfolio Investors) Regulations, 2014 introduced under the Securities and Exchange Board of India Act, 1992 (SEBI Act).
11 As defined in Regulation 2(m) of the Securities and Exchange Board Of India (Venture Capital Funds) Regulations, 1996 introduced under the SEBI Act.
12 As defined in Section 2(72) of the Companies Act, 2013.
13 As defined in Section 6(4) of the Competition Act.
14 Explanation to Schedule 1(I):
The acquisition of less than 10 per cent of the total shares or voting rights of an enterprise shall be treated as solely as an investment:
Provided that in relation to the said acquisition,
(A) the acquirer has ability to exercise only such rights that are exercisable by the ordinary shareholders of the enterprise whose shares or voting rights are being acquired to the extent of their respective shareholding; and
(B) the acquirer is not a member of the board of directors of the enterprise whose shares or voting rights are being acquired and does not have a right or intention to nominate a director on the board of directors of the enterprise whose shares or voting rights are being acquired and does not intend to participate in the affairs or management of the enterprise whose shares or voting rights are being acquired.
15 Government of India Notification dated 27 March 2017, S.O. 988(E).
16 See the CCI's decisions in ITC Limited (C-2017/02/485, dated 11 December 2019) and SRF-DuPont (C-2015/12/347, dated 16 August 2016).
17 C-2012/06/63, dated 9 August 2012.
18 C-2012/09/78, dated 4 October 2012.
19 C-2015/01/243, dated 5 March 2015.
20 C-2012/06/63, dated 9 August 2012.
21 C-2013/05/122, dated 12 November 2013.
22 Order under Section 43A of the Competition Act, dated 3 July 2018.
23 UltraTech Cement Limited (C-2015/02/246, dated 12 March 2018).
24 Under Section 44(b) of the Competition Act.
25 See, for example, Piramal Enterprises Limited/ Shriram Transport Finance Company/Shriram Capital Limited/Shriram City Union Finance Limited (C-2015/02/249, dated 2 May 2016), and Cairnhill CIPEF Limited/Mankind Pharma Limited (C-2015/05/276 dated 13 April 2017).
26 Section 6(1) of the Competition Act.
27 Section 2(r) of the Competition Act
28 Section 2(t) of the Competition Act.
29 Section 2(s) of the Competition Act.
30 Section 19(6) of the Competition Act.
31 Holcim/Lafarge, Linde/Praxair and Bayer/Monsanto.
32 C-2016/07/414, dated 9 August 2016.
33 Regulation 19(3) of the Combination Regulations.
34 C-2014/04/164, dated 29 September 2014.
35 C-2014/01/148, dated 26 March 2014.
36 C-2013/04/116, dated 20 June 2013.
37 C-2015/06/286, dated 29 July 2015.
38 C-2016/02/373, dated 11 May 2016.
39 C-2015/05/270 dated 12 June 2015.
40 C-2012/09/79, dated 21 December 2012.
42 BCP Topco VI Pte Ltd/Sona BLW Precision Forgings Ltd, C-2018/11/611, dated 19 December 2018; SVF Doorbell (Cayman) Ltd/Delhivery Pvt Ltd, C-2019/01/633, 21 February 2019; Tirumula Milk Products Pvt Ltd/Sunfresh Agro Industries Pvt Ltd, C-2019/02/644, dated 22 March 2019.
43 C- 2016/08/418, dated 13 December 2016.
44 C-2016/08/424, dated 16 May 2017.
45 C-2016/12/463, dated 4 May 2017.
46 C-2018/10/609, dated 21 January 2019.
47 C-2018/10/610, dated 21 January 2019.
48 C-2018/09/601, dated 29 October 2018.
50 C-2018/05/573, the detailed order is not public yet.
51 Government of India Notification dated 29 June 2017, S.O. 2039(E).
52 Regulation 5(8) of the Combination Regulations.
53 Caladium Investment Pte Ltd/Bandhan Financial Services Limited (C-2015/01/243), dated 5 March 2015.
54 NBCC (India) Limited/Hindustan Steel Works Construction Limited (C-2017/03/491), dated 31 March 2017.
55 Piramal Enterprises Limited/Shriram Transport Finance Company (C-2015/02/249), dated 26 May 2015.
56 Public Sector Pension Investment Board/ Grupo Isolux Corsán SA (C-2015/10/330), 3 December 2015.
57 Ultratech Cement Limited/Jaypee Cement Corporation Limited (C-2013/10/135) dated 20 December 2013.
58 Orders passed under Section 43A in Thomas Cook, C-2014/02/153 dated 21 May 2014 and Piramal Enterprises Limited, C-2015/02/249 dated 2 May 2016; Mandala Rose Co-Investment Limited/Jain Irrigation Systems Limited, C-2015/12/356 dated 28 March 2016.
59 C-2015/12/354, dated 22 December 2015.
60 C-2015/01/241, dated 5 May 2015.
61 C-2019/03/651, approved on 15 April 2019 (detailed order not available yet).
62 C-2019/03/651, approved on 15 April 2019 (detailed order not available yet).
63 Under Regulation 8 of the Combination Regulations where the parties to the combination fail to file notice under Section 6(2) of the Competition Act, the CCI may, either upon its own knowledge or Information Inquire into whether such a combination has caused AAEC on competition within India and accordingly direct the parties to file a notice under either Form I or Form II. Section 43A of the Competition Act provides for penalty leviable for failure to comply with directions of Commission and Director General, including failure to file notice.
64 C-2015/02/249, penalty order dated 26 May 2015.
65 C-2015/01/241, penalty order dated 16 February 2016.
66 C-2018/01/544, penalty order dated 8 August 2018.
67 C-2015/02/246, penalty order passed on 12 March 2018.
68 C-2018/01/547, penalty order passed on 30 July 2018.
69 C-2017/10/531, penalty order passed on 27 August 2018.
70 Under Section 44(b) of the Competition Act.
71 Appeal No. 26 of 2016, order dated 13 April 2016.
72 C-2013/05/122, dated 12 November 2013.
73 Appeal No. 44 of 2013, dated 27 March 2014.
74 Appeal No. 06 of 2016, dated 27 January 2016 and Appeal No. 43 of 2016, dated 5 September 2016.
75 TA (AT)(Competition) No. 32 of 2017 (Old Appeal No. 43/2016).
76 Appeal No. 37 of 2016, order dated 16 November 2016.
77 Civil Appeal No. 13578 of 2015, dated 17 April 2018.
78 Transfer Appeal (AT) (Competition) No. 3 Of 2017 (Old Appeal No. 44 Of 2016).
79 See ChinaChem/Syngenta, Dow/Dupont, Linde/Praxair.
80 C-2018/07/562, dated 25 April 2018.
81 C-2018/03/561, dated 11 May 2018.
82 C-2018/07/581, dated 6 August 2018.
83 C-2018/07/594, dated 18 September 2018.
84 C-2018/08/593, dated 18 September 2018.
85 C-2018/02/558, dated 27 March 2018.
86 C-2018/02/557, dated 7 March 2018.
87 C-2018/06/580, dated 10 August 2018.
88 C-2019/01/631, dated 6 March 2019.
89 C-2019/02/642, dated 7 March 2019.