The Merger Control Review: India
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 13 August 2019 (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 2020, the CCI had cleared approximately 642 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.
Year in review
Over the past year, the CCI has introduced a 'green channel' approval mechanism, which was intended to expedite the approval process for non-problematic transactions. The green channel was introduced through an amendment to the Combination Regulations (the 2019 Amendment) and set out that transactions that do not involve any horizontal overlaps, vertical relations or complementary business activities could be deemed to be approved on notification. As at 1 May 2020, a total of 12 combinations had been approved by the CCI under the green channel route.
Based on the CCI's guidance on eligibility for a green channel approval, the parties to the transaction are required to map overlaps by reviewing: (1) their investments in any entity exceeding 10 per cent of the total shareholding, and (2) investments in which the parties are conferred with the right to appoint a director or observer or any special rights that are not conferred upon an ordinary shareholder. If the CCI concludes that the transaction does not qualify for the green channel approval or that the self-assessment declaration is incorrect, the notice and the deemed approval shall be void ab initio and the CCI shall deal with the combination in accordance with the provisions of the Competition Act. Before coming to this conclusion, the CCI shall hear the notifying parties.
The 2019 Amendment also altered the scope of information required to be furnished in a shorter Form I filing, making it more exhaustive. For instance, the parties are now required to provide market-facing data (such as market share or competitor presence) for three years instead of one. Additionally, the parties are also required to map complementary business activities between parties to a transaction. On the other hand, if there are no horizontal or vertical overlaps, the parties are not required to provide any market-facing information.
The CCI has also adapted its merger review process to deal with the outbreak of covid-19. In light of the India-wide lockdown announced by the Prime Minister in March 2020, the CCI has started accepting filings electronically and conducting pre-filing meetings by video conference.
Over a period of time, the CCI has also introduced substantial relaxations from merger filing requirements, consistent with the present government's mandate of 'ease of doing business' in India. For instance, on 27 March 2017, the MCA issued a notification (the March 2017 Notification)3 that primarily (1) extended the scope of the de minimis exemption to mergers; this was previously only applicable to transactions structured as acquisitions, and (2) in a transaction involving transfer of a portion of an enterprise (i.e., in an asset sale), limited the applicability of jurisdictional thresholds and the de minimis exemption to account for the value of assets and turnover of the portion of the enterprise, division or business being transferred only, instead of the entire target enterprise. These changes were far-reaching and welcomed by the industry.
Subsequently, on 29 June 2017, the MCA issued another notification, which removed the requirement to necessarily notify a combination within 30 calendar days of the trigger event. The measure was taken to alleviate the concerns of stakeholders who felt constrained by the deadline stipulated under the Competition Act. 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.
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 broadly 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;
- 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.4
Even if the parties' test thresholds are not met, a notification may still 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 turnover in India of 30 billion rupees.5
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 March 2017 Notification. 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,6 venture capital funds,7 public financial institutions8 or 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.9
In terms of categories of transactions usually exempt from mandatory notification, Schedule I 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. Some of these exemptions include: (1) a minority acquisition exemption for investments of below 25 per cent shareholding in the target; (2) intra-group mergers and acquisitions; (3) acquisitions of shares pursuant to rights issues, bonus issues or buy-backs; and (4) creeping acquisitions of between 25 and 50 per cent of the total shareholding.
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 (it was previously only applicable to transactions structured as acquisitions).
iii 'Control' as per the CCI
The acquisition of control or a shift from joint to sole control is an important determinant to assess the applicability of exemptions to minority investments and intra-group reorganisations. 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'. In terms of shareholding percentage, the CCI has identified 25 per cent shareholding as akin to a controlling stake. The reason for this is that a 25 per cent shareholding confers upon the shareholder the right to block a special resolution under the provisions of (Indian) Companies Act, 2013.10
The CCI has examined the meaning of control in several cases and has consistently held that 'negative' control amounts to control for the purposes of Competition Act. By way of decisional practice,11 the CCI has consistently 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; appointment and termination of key managerial personnel (including material terms of their employment); changing material terms of employee benefit plans; approval of the business plan; approval of the annual operating plan (including budget); and discontinuing any existing line or commencing a new line of business.
As a general matter, the CCI seems to have evaluated a bundle of veto rights to ascertain control and has not yet identified any specific rights that it considers control conferring.12
Apart from assessing the applicability of exemptions, the meaning of control assumes significant importance in mapping overlaps between the parties to a combination. The Competition Act requires the overlap assessment to be conducted between the acquirer group and target (including its subsidiaries). Accordingly, the acquirer is required to map overlaps by taking into consideration all its group companies and their controlling investments. For instance,13 the CCI penalised UltraTech Cement Limited (UltraTech) for omitting to disclose material information14 (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 its promoter group, which, inter alia, comprised Kumar Mangalam Birla and his family members (KMB/KMB Family), in competing enterprises (i.e., Century Textiles and Industries (Century) and Kesoram Industries (Kesoram)). While UltraTech contended that there was no requirement to disclose these details as Century and Kesoram did not qualify as group entities, 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, and structural and financial arrangements. 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, 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.15 This could extend to entirely innocuous financial investments.
iv Treatment of joint ventures
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. However, where any of the parent companies to the JV transfer assets to the JV at the time of incorporation, a merger filing may be triggered on account of the anti-circumvention rule in Regulation 5(9) of the Combination Regulations. The anti-circumvention rule read with the March 2017 Notification states 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 Section 5 of the Act, the value of assets and turnover of such a portion of the enterprise, division or business being transferred are required to be considered.
v 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 that has, or is likely to have, an AAEC in the relevant market in India, and treats all such combinations as void.16
Consistent with practices in other jurisdictions, the CCI first determines the relevant market or 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.
The CCI has used economic tools such as the Elzinga–Hogarty test, the Herfindahl–Hirschman Index and chains of substitution in certain cases17 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. For competitive assessment, the CCI is required to consider the following factors specified under Section 19(7) of the Competition Act: competition through imports, barriers to entry, countervailing buyer power, market shares, competitors' position in the market, extent of vertical integration, etc.
The CCI 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 in the market, nature of the products and services, existing structure of the market, extent of vertical integration, portfolio effects, possibility of a failing business and countervailing buyer power to determine whether the combination being considered is likely to cause an AAEC. For instance, 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 that there would be an absence of effective competitors and, therefore, the combination of PVR and DT would likely have an AAEC.18 In Bayer/Monsanto,19 the CCI identified harm to future innovation efforts, input foreclosures and portfolio effects arising out of the transaction, before approving the transaction with modifications.
In Schneider/Larsen and Toubro,20 the CCI noted that consumers in the electronic switchgear market have a strong preference for use of the same brand of products in building a complete switchboard. Thus, market players offering the complete portfolio of components enjoy an inherent advantage. The clustering pattern and portfolio effects unique to this sector, coupled with the consolidation of two of the largest players in this sector, were some of the main reasons for the CCI to view this combination as raising competition concerns.
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 20 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.21 In Mumbai International Airport Private Limited/Oil PSUs,22 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,23 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. In 2017, the CCI issued a Guidance Note on Non-Compete Restrictions24 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 this in its approval decision.25 This is a departure from its previous practice where it would direct parties to modify the non-compete restriction before approving 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,26 the parties offered voluntary structural remedies through divestment of assets. In China National Chemical Corporation/Syngenta AG,27 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 JFDHL/Den Networks28 and JCDHPL/Hathway,29 concerning 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 the case of technical realignment, as well as customers retaining the liberty to bundle 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 Healthcare30 involved an investment by Northern TK Venture (Northern TK) in Fortis Healthcare Hospital and Fortis Malar Hospital. Northern 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 commercially sensitive information relating to pricing data and day-to-day operations was not exchanged or disclosed.
Similarly, in Nippon Yuesen/Mitsui OSK/Kawasaki,31 three major ship liners agreed to merge their container liner shipping businesses and container terminal services businesses globally, excluding Japan. The CCI noted that the parties were engaged in certain activities that did not form part of the combination but may lead to spill-over effects. To address this concern, the parties offered voluntary commitments by implementing 'a rule of information control' (i.e., to implement strict Chinese walls between the merged business and the businesses that operate independently).
More recently, in Tata/GMR, the CCI noted that this acquisition may result in vertical integration between airlines operated by Tata Group and GMR, which was responsible for the management of various airports in India. The CCI approved the transaction after accepting the following voluntary commitments by Tata Sons: (1) Tata Sons would not appoint any director in any airport entities (existing and future) managed by GMR; and (2) there would be no exchange of commercially sensitive information between GMR and Tata Sons. Similarly, in Hyundai/Ola, the parties offered a voluntary commitment that Ola, in the radio taxi market, would not: (1) give preference to drivers using Hyundai or Kia vehicles, or (2) discriminate against any driver operating passenger vehicles manufactured by any other automobile manufacturers.
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, seven of which 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 period of time, and would also sell off their maleic anhydride 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 a stake in the divested businesses for a period of 10 years. The CCI approved Linde/Praxair subject to divestment of Linde India Ltd's shareholding in a joint venture as well as some of the on-site plants and cylinder filling stations, separately owned by Linde and Praxair.
The CCI also 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 of Bayer's businesses – its global glufosinate ammonium business and its global broad acre crop seeds and traits business – to an approved purchaser and accepted the following voluntary commitments: (1) to 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.
The CCI also approved Schneider/Larsen and Tubro based on certain behavioural commitments offered by the parties, which included (1) Schneider reserving a part of Larsen and Tubro's (L&T) installed capacity to offer white labelling services to third-party competitors for a period of five years (these white labelling services would enable third-party competitors to procure L&T products at reasonable prices to sell under their own brands); (2) Schneider opening up its distribution policies and removing the de facto exclusivity present in its distribution agreements; and (3) Schneider committing to not discontinue L&T products and not increase its average selling price for a period of five years.
vi Merger filing time frames
The CCI accepts a merger filing pursuant to 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.
Over time, the CCI also appears to have expanded the scope of trigger events to include:
- binding term sheets;32
- non-binding term sheets;33
- contract notes and collaboration agreements;34
- settlement agreements or agreed structures;35 and
- implementation agreements.36
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.37
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). One of the most notable implications of two transactions being viewed as interconnected is the extension of the CCI's review jurisdiction and standstill obligations to such transactions that may have otherwise been exempt from notification requirements.
Parties with overlapping business activities 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 it.
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.
vii 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 refile 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 Combination Regulations also allow the parties to withdraw the notification during the review process and refile a fresh notification to ensure completeness instead of having the notification invalidated later by the CCI.
The CCI appears to have used this power for invalidation in a technical fashion. In BNP Paribas/Sharekhan,38 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. Recently, the CCI directed parties to refile the Bandhan/Gruh39 merger primarily because in some narrower segments the (indirect) combined market shares were greater than 15 per cent, although there was a miniscule incremental increase in market shares.
Similarly, in RIL/Alok,40 the CCI invalidated the notification in Form I, following a similar approach, as the combined market share of the parties in narrower market segments exceeded the thresholds. In Hyundai/Ola,41 the CCI invalidated an earlier notification submitted in Form I and later approved the combination after a fresh notification was filed in Form II.
viii Gun-jumping (or failure to file)
Failure to file before implementation of the transaction or gun-jumping empowers the CCI to impose a penalty of up to 1 per cent of the assets or turnover of the combination, whichever is higher.42 The maximum penalty imposed to date is 50 million rupees each in Piramal Enterprises/Shriram43 and GE/Alstom44 – 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,45 the CCI levied a penalty of 1 million rupees on Chhatwal Group Trust, finding that the pre-payment of consideration, in the form of 'token money' in advance of signing definitive transaction documents amounted 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 Limited46 and In Re: Adani Transmission Limited.47
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 Limited).48 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 another instance, the CCI imposed a penalty of 5 million rupees on CPPIB49 for not notifying an interconnected step. According to the CCI, CPPIB's acquisition of 16.33 per cent of equity shareholding in ReNew, which was notified to the CCI, was interconnected to ReNew's acquisition of Ostro. However, CPPIB did not disclose the Ostro investment in its notification for acquisition of shares in ReNew. Placing reliance on an internal email correspondence and press releases issued by ReNew and CPPIB, the CCI noted that CPPIB was not only aware of ReNew's acquisition in Ostro but also considered it as a key consideration and business rationale for its investment in ReNew.
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.
ix Penalty for making false statements and non-disclosure of material information
The CCI levied penalties for omission to disclose material information50 in the UltraTech case. 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. Similarly, while levying a penalty on CPPIB, the CCI observed that ReNew's acquisition of Ostro was a material fact for the purpose of the ReNew investment, and that CPPIB was aware of this materiality. Accordingly, the non-disclosure of ReNew's acquisition of Ostro in the notification for the ReNew investment amounted to a material non-disclosure.
x Pre-notification consultation
The CCI provides for a pre-notification consultation (including for filings proposed to be made under the green channel route) under which the parties to a proposed combination have the option to consult with the officers of the CCI. The pre-filing consultation mechanism helps parties secure the CCI's informal views on the applicability of exemptions, determination of type of filing or the extent of market-facing data required in an untested market. The views of the CCI discussed at such pre-merger consultation are not binding on the CCI.
xi 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 only grants confidential treatment 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.
xii Judicial review of mergers and the appellate process
On 26 May 2017, all the powers and duties of the Competition Appellate Tribunal (COMPAT) were transferred to the National Competition Law Appellate Tribunal (NCLAT). As a result, decisions of the CCI may be challenged before the NCLAT. A further appeal from any order of the NCLAT lies to the Supreme Court of India.
COMPAT decisions in the context of merger reviews include the challenge in the case of the CCI's order in Jet/Etihad,51 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 CCI's order.52
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.53 In CCI v. Thomas Cook, the Supreme Court dismissed the COMPAT's order that had overturned the penalty imposed by the CCI on Thomas Cook for alleged gun-jumping.54 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.
More recently, on 12 March 2020, the CCI's order imposing a penalty on Eli Lilly & Company for gun-jumping was set aside by the NCLAT.55 The CCI had previously penalised Eli Lilly for not notifying its acquisition of Novartis' animal health business division in India. Eli Lilly argued that the asset value and turnover of the animal health business division were below the de minimis exemption threshold. The CCI disagreed and held that the thresholds of the de minimis exemption did not apply to the business division being acquired but the target entity in which such business division is housed (i.e., Novartis India Ltd). The NCLAT dismissed the CCI's order, noting that the de minimis exemption always intended to apply to the 'true' target (i.e., the relevant asset in the case of a business transfer). This decision suggests that the appellate authorities are willing to take a holistic and practical view of the exemptions provided under the Competition Act.
Further, in CAIT v. CCI,56 the NCLAT upheld the CCI's order approving Walmart's acquisition of Flipkart. In this appeal, CAIT57 had argued that this acquisition would enable Walmart to undertake business-to-consumer (B2C) sales by selling its own inventory to end-consumers on Flipkart's website.58 According to CAIT, the CCI did not assess Walmart's entry into the B2C segment and instead focused on the existing horizontal overlaps in the business-to-business (B2B) segment only. The NCLAT held that the CCI had correctly examined the horizontal overlaps in the B2B segment through this acquisition. Making reference to the foreign direct investment policy, the NCLAT noted that Walmart's business activities would be restricted to carrying out B2B sales only. Lastly, the NCLAT observed that this acquisition would not only preserve a successful e-commerce platform but would also enhance its financial strength.
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 Federal Trade Commission, the European Commission, 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 reviews in the past year is that it has considered transactions in the context of consolidation in the sector 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, agrochemical and industrial gas sectors,59 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 to date primarily involve the steel and cement sectors. Further, the CCI has approved approximately 16 transactions filed pursuant to a resolution plan under the IBC Code to the Committee of Creditors. 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 an average of one month to decide such complex transactions.
Outlook and conclusions
The CCI has been faced with complex transactions in various 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. The newly implemented green channel regime allows automatic approval for 'no issue' transactions and will allow the CCI to focus its attention on only those transactions that involve more in-depth competition law analysis. The introduction of the green channel regime reflects the CCI's responsive attitude towards business needs. Further, the CCI has easily adapted to challenges posed by covid-19 by moving the entire merger filing process to electronic means, to ensure continued functioning.
The CCI has taken steps towards adapting its processes to best practices and applying lessons learned in more mature merger control jurisdictions. For instance, the revisions introduced to Form-I, as well as the revised guidance notes, are intended to bring greater clarity and certainty to the notifying parties. 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 Aditi Gopalakrishnan is a partner, Gaurav Bansal is a senior associate, Pranav Mody and Varun Thakur are associates, at AZB & Partners.
2 The CCI has passed orders directing structural modifications in combinations relating to diverse sectors. These are: (1) Schneider/Larsen and Toubro C-2018/07/586, dated 18 April 2018, in the electrical and automation sector; (2) Linde/Praxair,C-2018/01/545, dated 6 September 2018, in the gas and energy sector; (3) Bayer/Monsanto, C-2017/08/523, dated 14 June 2018, Agrium/Potash, C-2016/10/443, dated 27 October 2017 and Dow/DuPont, C-2016/05/400, dated 8 June 2017, in the agrochemical sector; (4) PVR/DT Cinemas, C-2015/07/288, dated 4 May 2016, in the film exhibition and distribution sector; (5) Holcim/Lafarge, C-2014/07/190, dated 30 March 2016, in the cement sector; and (6) 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), effective from 29 March 2017.
4 Sections 5(a)(i), 5(b)(i) and 5(c)(i) of the Competition Act, read with the notification SO 675(E), dated 4 March 2016 issued by the MCA.
5 Sections 5(a)(ii), 5(b)(ii) and 5(c)(ii) of the Competition Act, read with the notification SO 675(E), dated 4 March 2016 issued by the MCA.
6 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 (the SEBI Act).
7 As defined in Regulation 2(m) of the Securities and Exchange Board Of India (Venture Capital Funds) Regulations, 1996 introduced under the SEBI Act.
8 As defined in Section 2(72) of the Companies Act, 2013.
9 As defined in Section 6(4) of the Competition Act.
10 See Paragraph 17 of the CCI's order dated 3 July 2018 under Section 43A of the Competition Act passed against Telenor ASA.
11 See C-2012/06/63, dated 9 August 2012 and C-2012/09/78, dated 4 October 2012.
12 C-2012/06/63, dated 9 August 2012.
13 UltraTech Cement Limited (C-2015/02/246, dated 12 March 2018).
14 Under Section 44(b) of the Competition Act.
15 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).
16 Section 6(1) of the Competition Act.
17 Holcim/Lafarge, Linde/Praxair and Bayer/Monsanto.
18 C-2016/07/414, dated 9 August 2016.
19 See footnote 2.
20 C-2018/07/586, dated 18 April 2019.
21 Regulation 19(3) of the Combination Regulations.
22 C-2014/04/164, dated 29 September 2014.
23 C-2014/01/148, dated 26 March 2014.
25 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; and Tirumula Milk Products Pvt Ltd/Sunfresh Agro Industries Pvt Ltd, C-2019/02/644, dated 22 March 2019.
26 C- 2016/08/418, dated 13 December 2016.
27 C-2016/08/424, dated 16 May 2017.
28 C-2018/10/609, dated 21 January 2019.
29 C-2018/10/610, dated 21 January 2019.
30 C-2018/09/601, dated 29 October 2018.
31 C-2016/11/459, dated 29 June 2017.
32 Caladium Investment Pte Ltd/Bandhan Financial Services Limited (C-2015/01/243), dated 5 March 2015.
33 NBCC (India) Limited/Hindustan Steel Works Construction Limited (C-2017/03/491), dated 31 March 2017.
34 Piramal Enterprises Limited/Shriram Transport Finance Company (C-2015/02/249), dated 26 May 2015.
35 Public Sector Pension Investment Board/Grupo Isolux Corsán SA (C-2015/10/330), dated 3 December 2015.
36 UltraTech Cement Limited/Jaypee Cement Corporation Limited (C-2013/10/135), dated 20 December 2013.
37 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.
38 C-2015/12/354, dated 22 December 2015.
39 C-2019/03/651, dated 15 April 2019.
40 C-2019/03/648, dated 15 April 2019.
41 C-2019/09/682, dated 30 October 2019.
42 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 a penalty that can be levied for failure to comply with directions of the Commission or Director General, including failure to file notice.
43 C-2015/02/249, penalty order dated 26 May 2015.
44 C-2015/01/241, penalty order dated 16 February 2016.
45 C-2018/01/544, penalty order dated 8 August 2018.
46 C-2015/02/246, penalty order dated 12 March 2018.
47 C-2018/01/547, penalty order dated 30 July 2018.
48 C-2017/10/531, penalty order dated 27 August 2018.
50 Under Section 44(b) of the Competition Act.
51 C-2013/05/122, dated 12 November 2013.
52 Appeal No. 44 of 2013, dated 27 March 2014.
53 Appeal No. 37 of 2016, order dated 16 November 2016.
54 Civil Appeal No. 13578 of 2015, dated 17 April 2018.
55 Competition Appeal (AT) No. 3 of 2016.
56 Competition Appeal No. 62 of 2018.
57 CAIT is a major trade association comprising of retailers all across India.
58 It was alleged that Flipkart had a web of preferred sellers with whom it had associational links through common shareholders, directors, etc., and which were given a preferential listing on the Flipkart website.
59 See ChinaChem/Syngenta, Dow/Dupont and Linde/Praxair.