2. Jurisdiction

 2.1 Notification

The notification requirement is mandatory in nature. All transactions that meet the prescribed jurisdictional thresholds, and are not otherwise exempt, are required to be pre-notified to the CCI.

 

However, there are various exemptions available to the notification requirement, as discussed below.

 

Exemptions Under Schedule I of the Regulations

Schedule I of the Regulations identifies various categories of transactions that are ordinarily not likely to cause an appreciable adverse effect on competition (Appreciable Adverse Effect on Competition (AAEC)) in the relevant market in India and are therefore not normally required to be notified to the CCI. These categories of transactions are:

 

• an acquisition of shares/voting rights entitling the acquirer to hold less than 25% of the shares/voting rights of a target, “solely for investment purposes” or “in the ordinary course of business”, provided that this does not lead to the acquisition of “control”.

Acquisitions of less than 10% of shares/voting rights will be treated as being “solely for investment purposes” if the acquirer:

• has the ability to exercise only the rights of ordinary shareholders exercisable to the extent of their respective shareholding;
• is not a member of the board of directors of the target nor has the right or intention to nominate such members in future; and
• does not intend to participate in the management or affairs of the target.

 

In its decisional practice, the CCI has interpreted this exemption narrowly, and has held that it does not apply to transactions where the acquirer and target operate either in the same horizontal market or vertically related markets. Further, the CCI has not provided any significant guidance on the scope of the “ordinary course of business” limb of this exemption. The definition and scope of “control” (which is also critical, while examining the applicability of this exemption) is discussed separately in 2.4 Definition of “Control”.

 

• An acquisition of additional shares/voting rights by the acquirer/its group where, prior to the acquisition, the acquirer/its group already holds 25% or more shares/voting rights of the target, but does not hold 50% or more of the shares/voting rights of the target either prior to or after that acquisition. This exemption is unavailable if the transaction results in the acquisition of sole or joint control of the target by the acquirer/its group.
• An acquisition of shares or voting rights where the acquirer/its group already holds 50% or more of the shares/voting rights in the target enterprise, except where the transaction results in a transfer from joint to sole control.
• An acquisition of assets not directly related to the business of the acquirer, or made solely as an investment, or in the ordinary course of business, not leading to control over the target enterprise. This exemption does not apply to transactions where the acquired assets represent substantial business operations in a particular location or for a particular product/service of the target, irrespective of whether or not those assets are organised as a separate legal entity.
• Intra-group reorganisations, which include:
  • an acquisition of shares/voting rights or assets by an enterprise of another 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 (for definition of group, see 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds); and
  • a merger or amalgamation of two enterprises where one of the enterprises has more than 50% of the shares/voting rights of the other enterprise, or merger/amalgamation of enterprises in which more than 50% of the shares/voting rights in each merging enterprise is held by enterprises within the same group (this exemption is not available if the transaction results in a transfer from joint to sole control).
• An acquisition of stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business.
• An acquisition of shares/voting rights by a person acting as a securities underwriter or registered stockbroker on behalf of their clients, in the ordinary course of its business and in the process of underwriting or stockbroking.
• An acquisition of shares/voting rights pursuant to a buy-back or a bonus issue or a stock split or consolidation of face value of shares or subscription to rights issue, not leading to an acquisition of control. Care will need to be taken in the case of an acquisition of control through a renunciation of rights.
• An amended/renewed tender offer where a notice to the CCI has already been filed by the party making such an offer.
• An acquisition of shares/control/voting rights/assets by a purchaser approved by the CCI (in the case of a divestiture in a remedies package).

 

Additional Exemptions by Way of Government Notifications

The Government of India has also introduced the following exemptions by way of notifications.

• Target Exemption – a de minimis target-based exemption had initially been introduced for a period of five years (until 27 March 2022), pursuant to which transactions where the value of Indian assets being acquired, taken control of, merged or amalgamated is less than INR350 crores (approximately USD46 million), or Indian turnover attributable to those assets is less than INR1,000 crores (approximately USD131 million), do not need to be notified to the CCI (Target Exemption). The validity of the Target Exemption has been extended for another five years, ie, until 28 March 2027. The thresholds for the Target Exemption have remained unchanged.
• Banking Exemptions – for a period of five years (until 10 August 2022), transactions involving certain regional rural banks are not required to be notified to the CCI. Separately, for a period of ten years (until 30 August 2027), transactions involving reconstitution, amalgamations or transfer of whole/part of nationalised banks under specific banking laws do not have to be notified to the CCI (Banking Exemptions).
• Oil and Gas Exemption – for a period of five years (until 22 November 2022), all transactions involving central public sector enterprises operating in the oil and gas sectors (under specific legislations in this sector), do not have to be notified to the CCI.

 

Exemptions for Certain Financial Institutions

It is not necessary to pre-notify the CCI of any acquisitions, share subscriptions or financing facilities entered into by public financial institutions, registered foreign institutional investors, banks or registered venture capital funds, pursuant to any covenant of a loan agreement or an investment agreement. Rather, these transactions need to be notified to the CCI within seven calendar days of the completion of such a transaction. It is pertinent to note that a failure to notify such transactions post-closing does not attract penalties from the CCI.

 

 2.2 Failure to Notify

Previously, parties were required to notify reportable transactions to the CCI within 30 calendar days of the “trigger event”. However, in June 2017, the government introduced an exemption removing the 30-day filing deadline, initially for a period of five years (until 29 June 2022). This exemption was further renewed for another five years (until 29 June 2027). Therefore, parties can notify reportable transactions at any time after the trigger event, but before consummating any step of such a transaction (Trigger Exemption).

 

However, if parties fail to notify a reportable transaction prior to closing (or at all), the CCI may levy a penalty of up to 1% of the combined turnover or assets of the transaction, whichever is higher. The CCI additionally has the power to “unscramble” a reportable transaction that was not notified to it and that was subsequently found to cause an AAEC in India, although it has not done so to date.

 

The CCI has levied fines for a failure/delay in notifying a transaction in approximately 25 transactions to date, with fines generally ranging between INR100,000 (approximately USD1,310) and INR50 million (approximately USD655,000). However, in one recent case (as mentioned below) a fine of INR2 billion (approximately USD26 million) was imposed. This case was likely a one-off instance because of the distinct factual scenario. The CCI has also levied fines for “gun-jumping” in approximately 22 cases (discussed separately in 2.13 Penalties for the Implementation of a Transaction Before Clearance).

 

Trends for the Last Three Years

In one of its recent penalty orders (December 2021) arising from failure to notify, the CCI has imposed the highest-ever fine of INR2 billion (approximately USD26 million) on Amazon.com NV Investment Holdings LLC (Amazon) (Amazon/FCPL, C-2019/09/688) for failure to notify and other breaches. The CCI held that Amazon had: (i) failed to identify and notify all the interconnected steps of a transaction (it had identified and notified only certain select steps, and went ahead and consummated certain non-notified steps); and (ii) made false and incorrect representations, and concealed/suppressed material facts.

 

In addition to the penalty for failure to notify, the CCI also separately imposed a penalty of INR20 million (approximately USD261,000) for misrepresentation. See 3.7 Penalties/Consequences of Inaccurate or Misleading Information.

 

This is a first-of-its-kind order passed by the CCI, as CCI directed Amazon to re-notify a transaction that was approved by the CCI in 2019 and held that, until the decision on the revised notification form, the approval granted by the CCI for the already notified steps should remain in abeyance. Further, this case is also unique based on the amount of penalty, as prior to this, the maximum penalty levied by the CCI for failure to notify was INR50 million (approximately USD655,000). The penalty amount levied in the Amazon case was around 40 times the previous maximum penalty levied by the CCI.

 

Following the Amazon order, the CCI has issued five more penalty orders arising from failure to notify, with fines ranging between INR 500,000 (approximately USD6,530) and INR 2million (approximately USD26,140). The failure to notify in these cases were as a result of: (i) incorrect turnover computation (in two cases); and (ii) incorrect belief that sectoral regulator under the Electricity Act had exclusive jurisdiction to regulate combinations in the electricity sector (in three cases).

 

The CCI frequently monitors news and other public sources for non-notified transactions, and issues letters of inquiries for transactions it believes may have been notifiable.

 

Penalty Orders Available Publicly

The CCI’s (and the NCLAT/Supreme Court’s) penalty orders are public and are uploaded on their website.

 

 2.3 Types of Transactions

The Competition Act covers all acquisitions (of shares, voting rights, assets or control), mergers and amalgamations that meet the prescribed jurisdictional thresholds, and are not otherwise exempt. Therefore, apart from transfers of shares and assets, transactions involving the transfer of voting rights and/or control (for instance, through a shareholders’ agreement or changes to articles of association) may also trigger a notification requirement.

 

Further, as discussed in 2.1 Notification, while certain internal restructurings/reorganisations are exempt, other internal restructurings may trigger a notification requirement. Further, certain joint ventures may also be notifiable, as discussed in 2.10 Joint Ventures.

 

 2.4 Definition of “Control”

As explained in 2.3 Types of Transactions, transactions giving rise to a change in control may be notifiable (in addition to various other forms of notifiable transactions) if the prescribed jurisdictional thresholds are met.

 

The CCI, in its previous decisional practice, has interpreted control to mean “the ability to exercise decisive influence over the management or affairs and strategic commercial decisions” of a target enterprise, whether that decisive influence is being exercised by way of a majority shareholding, veto rights (attached to a minority shareholding) or contractual covenants (Independent Media Trust/Network 18- C-2012/03/47). However, it has also adopted a lower standard of “material influence” instead of “decisive influence”, which has blurred the lines to some extent (Ultratech/Century- C-2015/02/246) (ChrysCapital/Intas- C/2020/04/741).

 

The CCI has considered the ability to veto (or cause a deadlock in respect of) strategic commercial decisions (such as the annual business plan, budget, recruitment and remuneration of senior management, and the opening of new lines of businesses) as sufficient to confer at least joint control. Given the lack of clear guidance from the CCI (and the change in standards from “decisive influence” to “material influence”), a case-by-case approach needs to be adopted when assessing control. Parties are often required to “make a call” on whether or not their acquisition will be viewed by the CCI as an acquisition of control.

 

As discussed in 2.1 Notification, the interpretation of control is also critical from the perspective of examining whether a transaction may benefit from the relevant exemptions. For instance, Item 1 of Schedule I to the Regulations ordinarily exempts transactions that involve the acquisition of less than a 25% shareholding, solely as an investment or in the ordinary course of business, provided they do not result in an acquisition of control. As already discussed in 2.1 Notification, an acquisition of less than 10% of total shares/voting rights will be treated as being “solely as an investment” if certain prescribed conditions are satisfied.

 

Accordingly, acquisitions of minority shareholdings may be notifiable if:

• there is an acquisition of any rights amounting to “control”; or
• it is determined that the acquisition is not made solely as an investment or in the ordinary course of business (ie, strategic acquisitions).

 

As a result, several private equity deals (such as Claymore Investments-C-2018/12/623, General Atlantic Singapore Fund-C-2018/07/582, Metlife International Holdings-C-2018/06/576, Lighthouse Funds-C-2021/07/851 and Sienna Limited-C-2022/02/907) have been notified to the CCI, although it is not evident what “control” would result from the investments. Further, the CCI, through its decisional practice, has held that minority acquisitions (even without any control rights) between enterprises operating in the same horizontal market or vertically related markets, would not be able to avail of the Item I exemption (Amazon/Shoppers’ Stop-C-2017/12/538, Alibaba/Snapdeal-C-2015/08/301, and Mylan/New Moon-C-2014/08/202).

 

 2.5 Jurisdictional Thresholds

The Competition Act (read with relevant government notifications) provides jurisdictional thresholds on a parties’ basis and a group basis. If either the parties test or the group test (based on either assets or turnover) is met, and there is no applicable exemption, the transaction must be notified to the CCI. The jurisdictional thresholds are as follows.

 

Parties Test

Either:

• the parties have combined assets in India of INR2,000 crores (approximately USD261 million) or a combined turnover in India of INR6,000 crores (approximately USD784 million); or
• the parties have combined worldwide assets of USD1,000 million, including combined assets in India of INR1,000 crores (approximately USD131 million) or a combined worldwide turnover of USD3,000 million, including a combined turnover in India of INR3,000 crores (approximately USD392 million).

 

Group Test

Either:

• he acquirer’s group has assets in India of INR8,000 crores (approximately USD1,046 million), or turnover in India of INR24,000 crores (approximately USD3,137 million); or
• the acquirer’s group has worldwide assets of USD4,000 million including assets in India of INR1,000 crores (approximately USD131 million) or a worldwide turnover of USD12,000 million, including turnover in India of INR3,000 crores (approximately USD392 million).

 

The relevant entities to be considered while examining these tests are discussed in 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds.

 

There are no special jurisdictional thresholds applicable to any particular sectors.

 

 2.6 Calculations of Jurisdictional Thresholds

Computation of Asset/Turnover Values

The jurisdictional thresholds are calculated based on the asset and turnover values of the relevant entities, based on the audited financial statements for the last financial year. The CCI’s FAQs clarify that if audited statements are unavailable, unaudited financial statements or best available estimates may be used (which should preferably be certified by a statutory auditor).

 

The asset value is calculated by taking the book value of the assets, as shown in the last audited financial statements. The value of assets is to include the value of the brand, goodwill, copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout design or similar other commercial rights, if any. The setting-off of current liabilities (ie, subtracting the value of current liabilities from the total asset value) is not permitted.

 

The turnover value is calculated based on the value of sale of goods or services, excluding indirect taxes, if any. Through its FAQs, the CCI has also clarified that intra-group turnover and turnover derived from operations not directly connected with the operations of the parties (ie, income from ancillary operations/”other income”) shall be excluded; however, turnover from exports shall be included when computing the turnover value.

 

The FAQs also provide some guidance on the manner of computing turnover, specifically in the banking sector and the insurance sector.

 

Where only a portion of an enterprise, division or business is being acquired, the assets/turnover values attributable to the actual portion/division/business being transferred are required to be considered. These values should be certified by a statutory auditor or based on the last available audited accounts.

 

Exchange Rate

The rate of conversion of the foreign exchange currency into INR or USD is to be based on the average spot rate of the last six months quoted by Financial Benchmark India Private Ltd from the date of the “trigger event”. This is further explained in 3.1 Deadlines for Notification.

 

 2.7 Businesses/Corporate Entities Relevant for the Calculation of Jurisdictional Thresholds

As stated in 2.5 Jurisdictional Thresholds, the Competition Act provides jurisdictional thresholds on a parties’ basis and a group basis.

 

The term “group” has been defined to mean two or more enterprises which, directly or indirectly, are in a position to:

• exercise 26% or more of the voting rights in the other enterprise;
• appoint more than 50% of the members of the board of directors in the other enterprise; or
• control the management or affairs of the other enterprise.

 

In the case of an acquisition, for the parties’ test, the entities to be considered are the acquirer and the target. For the group test, the group to which the target would belong after the acquisition is to be considered. For assessing the Target Exemption, only the target enterprise would need to be considered.

 

In the case of a merger or amalgamation, for the parties’ test, the enterprise remaining after the merger or the enterprise created as a result of the amalgamation is to be considered. For the group test, the group to which the enterprise would belong after the merger or amalgamation is to be considered. For assessing the Target Exemption, the enterprise(s) being merged or wound up would need to be considered. If two or more enterprises are being wound up to form a new entity, all such enterprises would need to be considered as the targets.

 

In the case of the acquisition/merger/amalgamation of only a portion, a division or business of an enterprise, the assets/turnover figures attributable to the actual portion/divisions/business being transferred are required to be considered. Accordingly, the seller’s asset/turnover figures need not be included with that of the target.

 

In addition, in transactions involving a series of interrelated transactions, where assets are being transferred to an enterprise for the purpose of that enterprise entering into a combination, the Regulations provide that the value of the transferring enterprise’s assets and turnover is to be attributed to the transferee enterprise.

 

Further, as stated in 2.6 Calculations of Jurisdictional Thresholds, jurisdictional thresholds are to be assessed based on the last audited financial statements. Any later material changes – for example, the acquisition of a new business after the last audited accounts – should, however, be intimated to the CCI in the notification, or at any time during the CCI’s review period.

 

 2.8 Foreign-to-Foreign Transactions

Foreign-to-foreign transactions are subject to merger control review in India if the prescribed jurisdictional thresholds are met.

 

Nevertheless, as set out in 2.5 Jurisdictional Thresholds, the jurisdictional thresholds have a minimum asset/turnover value requirement in India, and a local nexus test is therefore effectively built into the jurisdictional thresholds.

 

It should be noted that a local presence is not always required, as foreign entities may have direct sales in India (through exports by foreign subsidiaries) through which they generate turnover, which may result in the prescribed jurisdictional turnover thresholds being met. However, in transactions where the enterprise/assets being acquired/taken control of/merged/amalgamated have no sales or assets in India, the parties may avail themselves of the Target Exemption, relieving them of the obligation to notify.

 

2.9 Market Share Jurisdictional Threshold

There are no jurisdictional thresholds based on market shares in India, and accordingly, a transaction may be notifiable even in the absence of any overlap, if the thresholds are met.

 

2.10 Joint Ventures

The creation of a “greenfield” joint venture is, in itself, not required to be notified. However, joint ventures may be notifiable if one or more parent enterprises is contributing existing assets, including fixed assets, businesses, customers, contracts, intellectual property and employees (provided the jurisdictional thresholds are satisfied).

 

Typically, only the value of the assets being contributed by the parent entities should be considered while assessing the applicability of the Target Exemption for a joint venture (and the asset attribution rule should ordinarily not apply).

 

2.11 Power of Authorities to Investigate a Transaction

If a transaction does not meet the jurisdictional thresholds, the CCI does not have the power to investigate it under its merger control provisions. However, the CCI may separately examine any agreements between the enterprises under Section 3 (anti-competitive agreements) or the conduct of the (joint) enterprise under Section 4 (abuse of dominance) of the Competition Act.

 

The CCI can exercise its power to investigate notifiable transactions and, if required, unscramble a notifiable transaction only within one year of that transaction taking effect (although the CCI has expressly held that it can still levy a penalty even after the one-year period has expired).

 

2.12 Requirement for Clearance Before Implementation

The Indian merger control regime is suspensory in nature. Accordingly, a reportable transaction (or any part/step of such a transaction) typically cannot be consummated until clearance has been obtained from the CCI or the review period of 210 calendar days has expired, whichever is earlier.

 

A relaxation to this general rule is the “green channel” route, under which a transaction will be “deemed approved” on the day of filing the complete notification form (in the prescribed format) with the CCI. Therefore, under this route, parties do not have to wait for the CCI’s approval after the filing before consummating a transaction.

 

The “green channel” route may only be used in cases where the parties, their respective group entities and/or entities in which they have: (i) direct or indirect shareholding of 10% or more; or (ii) the right or ability to exercise any right (including any advantage of commercial nature) that is not available to an ordinary shareholder; or (iii) the right or ability to nominate a director or observer to the board, have no horizontal overlaps, vertical relationships and are not engaged in any complementary businesses. The entities that cross the abovementioned thresholds are required to be mapped for ascertaining overlaps.

 

2.13 Penalties for the Implementation of a Transaction Before Clearance

The power to impose a penalty under Section 43A of the Act (discussed in 2.2 Failure to Notify) is taken by the CCI to extend to gun-jumping. Accordingly, if parties consummate a transaction (or any step of a notifiable transaction) prior to CCI approval (or expiry of the waiting period), the CCI can impose a penalty of up to 1% of the combined turnover or assets of the transaction, whichever is higher.

 

The CCI has used these powers regularly, and has penalised parties for gun-jumping in approximately 22 cases. The conduct found to be problematic has previously included:

• allowing the acquirer to provide inputs on the business of the target prior to closing;
• a valuation methodology allowing the acquirer to exercise notional control over the target even prior to closing;
• pre-payment of consideration;
• the grant of a loan to the target prior to closing;
• providing a corporate guarantee on behalf of the target, to secure a loan prior to closing;
• gaining permissions to use the target’s trade marks prior to closing; and
• closing the global leg of a deal pending CCI approval, etc.

 

Further, there have also been instances of imposition of penalties in foreign-to-foreign transactions. For instance, in Baxter/Baxalta (C-2015/07/297) and Eli Lilly/Novartis (C-2015/07/289) (which were foreign-to-foreign transactions) the CCI imposed a penalty of INR10 million (approximately USD131,000) each, as the parties had closed the global leg of the respective transactions before receiving the CCI’s clearance.

 

As previously stated, the CCI’s penalty orders are publicly available on its website.

 

2.14 Exceptions to Suspensive Effect

Presently, there are no general exceptions to the suspensory effect and the CCI is not empowered to grant any waivers or derogations.

 

2.15 Circumstances Where Implementation Before Clearance Is Permitted

As stated in 2.13 Penalties for the Implementation of a Transaction Before Clearance, no step of a notifiable transaction can close prior to the CCI’s approval (or until the expiry of 210 calendar days of the review process, whichever is earlier).

 

However, as stated in 2.1 Notification, certain limited transactions involving financial institutions do not need to be pre-notified and can be notified post-consummation.

 

Further, the CCI has made it clear that it is not possible to carve out the India-related part of a global transaction and implement the global closing prior to obtaining CCI approval (see, for example, Baxter/Baxalta and Eli Lilly/Novartis).

 

3. Procedure: Notification to Clearance

3.1 Deadlines for Notification

As set out in 2.2 Failure to Notify, parties can notify reportable transactions at any time after the trigger event, but before consummating any step of the notifiable transaction.

 

If the parties fail to notify a reportable transaction prior to closing, or at all, the CCI has the power to impose a penalty of up to 1% of the combined turnover or assets, whichever is higher, of the transaction (and the CCI has regularly relied on such powers to penalise enterprises). These penalty orders are public.

 

3.2 Type of Agreement Required Prior to Notification

In the case of acquisitions, an executed agreement or any other binding document (for instance, a term sheet, a letter of intent, a memorandum of understanding that sufficiently captures the key commercials of the transaction) can act as a trigger document. A public announcement under the relevant takeover regulations can also act as a valid trigger document.

 

For mergers/amalgamations, the final board approval approving the merger is the relevant trigger event.

 

It should be noted that a filing cannot be made when there is nothing in writing, for instance, based on good-faith intentions to reach an agreement.

 

3.3 Filing Fees

The filing fee for Form I (Short Form) (including the “green channel” route) is INR2 million (approximately USD26,500) and for Form II (Long Form) is INR6.5 million (approximately USD85,000). The filing fee is to be paid at the time of filing the notification form by the party responsible for the filing (as discussed in 3.4 Parties Responsible for Filing).

 

3.4 Parties Responsible for Filing

In an acquisition, the acquirer is responsible for the filing and payment of the filing fee. In a merger/amalgamation, the parties are jointly responsible for the filing and payment of filing fee.

 

3.5 Information Included in a Filing

Detailed information is required for both Form I and Form II.

 

In Form I, parties are required to submit information such as a description of their activities and products (worldwide and in India), transaction structure and rationale, asset and turnover values, control/shareholding and other details of their relevant groups, all investments (including minority investments) in the relevant market, sector overview, description of the relevant market (including for horizontal overlaps and vertical relationships), market shares, customer and supplier details, and structural/financial links between the parties. The documents required to be filed along with Form I include transaction documents, financial statements, proof of authorisation, declaration, market reports and documents considered by the board (for competitor deals).

 

Form II requires more detailed information/documents. The CCI has recently amended Form II with effect from 1 May 2022, with the aim of removing duplication and certain information/data requirements that may have not been strictly required for the competitive assessment of the transaction. However, it has increased the level of information required to be provided for vertical relationships, and other data-related queries.

 

In addition to the information/documents required to be submitted with Form I, Form II also requires parties to submit details of all major shareholders, details of all antitrust cases in the past five years, and significantly more information on the market, such as market-facing data for the past five years (including market share of parties for horizontal overlaps and information regarding competitors, customers and suppliers), detailed analysis and market shares for vertical and complementary arrangements, details of level of concentration in terms of number of enterprise CR4 Index (in addition to the HHI), entry/exits, proportion of imports and exports, entry barriers, local specifications, list of applicable laws and R&D/pipeline products.

 

3.6 Penalties/Consequences of Incomplete Notification

If certain information that is not very significant is missing from the notification, the CCI typically issues a “request for information” to the parties during the review process to gather that missing information. However, if the notification is significantly incomplete (with key/basic details missing), the CCI has the power to invalidate the notification, and often does so. As a result of invalidation, the review clock is reset (leading to a longer overall review process) and the 210-day statutory review period restarts.

 

There are no penalties for this invalidation, and the Regulations state that the filing fees will be adjusted to the new form filed. Separate penalties/consequences may accrue for inaccurate/misleading information, as discussed in 3.7 Penalties/Consequences of Inaccurate or Misleading Information.

 

3.7 Penalties/Consequences of Inaccurate or Misleading Information

Under the Competition Act, parties may be fined between INR5 million (approximately USD65,500) to INR10 million (approximately USD131,000) for providing false information or omitting to state material information.

 

The CCI has imposed these fines in at least four cases in the past, with the latest being in the Amazon/FCPL case, discussed in 2.2 Failure to Notify. In Amazon/FCPL, the CCI imposed a fine of INR20 million (approximately USD261,000) on Amazon for suppressing the actual scope and purpose of the transaction, ie penalty of INR10 million (approximately USD131,000) each under the provisions of Section 44 and 45 of the Competition Act (in addition to the penalty imposed for failure to notify certain steps). Therefore, parties should be cautious and disclose complete facts concerning the market, related transaction steps and competitive landscape.

 

3.8 Review Process

The CCI’s review process involves two phases, namely, Phase I and Phase II. The latter is for more problematic transactions that are not cleared in Phase I.

 

Phase I Review

In its Phase I review, the CCI is required to form a prima facie opinion on whether a transaction causes or is likely to cause an AAEC within the relevant market in India, within 30 working days of the filing. This period will be extended by 15 working days if the CCI reaches out to third parties (such as customers, competitors, suppliers and government agencies). This period may be further extended by 15 calendar days if the parties offer remedies in Phase I.

 

If the CCI requests information or requires parties to remove defects, it “stops the clock”, which is restarted only after the parties have filed the complete information sought. Therefore, in practice, the Phase I review lasts between 60 and 90 days in non-problematic transactions. To date, all but eight transactions have been cleared by the CCI in Phase I.

 

Phase II Review

If the CCI forms a prima facie view that a transaction is likely to cause an AAEC in India, the CCI will issue a show-cause notice (SCN) asking the parties to explain within 30 calendar days why an in-depth investigation should not be conducted. After reviewing their response, if the CCI is still of the view that the transaction is likely to cause an AAEC in India, it will proceed with a detailed Phase II investigation.

 

If the transaction moves to Phase II, parties are required to publish details of the combination in four leading national daily newspapers and on the parties’ websites, inviting comments from the public. The public has 15 working days to furnish their comments. Thereafter, the CCI may call for additional information from the parties. After receipt of this additional information, the CCI has 45 working days to allow or block the transaction or propose modifications (ie, remedies). Therefore, in Phase II, the CCI first proposes modifications (although, informally, it allows parties to initiate this through informal discussions). The parties may then accept those modifications or propose their own amendments to the modifications, within 30 working days. If the amendments are rejected by the CCI, the parties have 30 additional working days in which to accept the original modifications proposed by the CCI. If the parties accept the proposed modifications, the combination is approved. If the parties still fail to accept the CCI’s modifications, the combination is deemed to have an AAEC in India and cannot take effect.

 

The CCI has an overall period of 210 calendar days from the date of notification to conclude its entire review. However, this 210-day period excludes two periods of 30 working days (the time taken to negotiate modifications), as well as any extensions taken by the parties to furnish additional information. Therefore, in several cases, the overall period has exceeded 210 days.

 

3.9 Pre-notification Discussions With Authorities

Parties can engage in pre-notification discussions (termed as “pre-filing consultations” in India) with the CCI, on both procedural as well as substantive issues.

 

On procedural issues, parties can seek the CCI’s guidance on various interpretational issues, such as on notifiability of certain “grey-area” transactions, computation of assets/turnover, availability of specific exemptions, or whether to file a short form or a long form. The pre-filing consultation can be done on a no-names basis and, although not statutorily protected, confidentiality is usually granted for the process.

 

In relation to substantive consultations, parties have the option of submitting draft notification forms to the CCI to ascertain gaps, and to align on relevant market definitions, etc, which will help to expedite the review once the actual notification form has been filed. Lately, the CCI has been encouraging the parties to use this tool.

 

The CCI’s advice during such consultations is informal, verbal and non-binding.

 

3.10 Requests for Information During the Review Process

Information requests are fairly common in both Phase I and Phase II. The scope of these information requests can often be burdensome, and parties are often required to file information/documents that may not be strictly relevant for the competitive assessment.

 

The time taken by parties to furnish the complete information sought for is excluded from the review timeline.

 

3.11 Accelerated Procedure

The short form (Form I) is the default notification form and can be filed where:

• the parties are competitors and have a combined market share in the same market of less than 15%; or
• the parties are in vertically linked markets and the combined/individual market share in any of these markets is less than 25%.

 

The short form is itself quite burdensome and requires more detailed information than comparable short-form filings in other jurisdictions.

 

As also mentioned in 2.12 Requirement for Clearance Before Implementation, the CCI has introduced a “green channel” route, under which transactions with no horizontal overlaps, vertical or complementary relationships may be deemed approved on the same day of filing the complete notification form with the CCI.

 

There are no other formal provisions to expedite the CCI review process, although parties can informally engage with the CCI to ascertain what additional information they should submit to accelerate their review process.

 

4. Substance of the Review

4.1 Substantive Test

The substantive test employed by the CCI is whether the transaction causes or is likely to cause an AAEC in the relevant market in India. While undertaking such an assessment, the CCI is required to consider various factors provided under Section 20(4) of the Competition Act, including market shares, barriers to entry, ability to raise prices post-transaction, countervailing buyer power, etc.

 

In practice, the CCI relies heavily on market shares for its assessment.

 

4.2 Markets Affected by a Transaction

The CCI’s review is primarily focused on:

• horizontal markets where the parties have overlapping activities;
• vertically related markets, where the parties have an actual or potential vertical relationship; and
• complementary activities between the parties.

 

The CCI defines both relevant product and geographic markets.

 

While defining relevant product markets, the CCI considers both demand and supply-side substitutability along with other relevant factors. While defining a relevant geographic market, the CCI considers various factors such as regulatory trade barriers, local specification requirements, transport costs, etc.

 

In cases where the CCI defines the relevant market broadly (or ultimately does not define a relevant market), it typically still requires parties to submit data at the narrowest level.

 

There are no pre-defined market share thresholds above which a transaction is considered problematic. This will need to be determined on a case-by-case basis, based on various factors including the market shares of the remaining competitors, nature and structure of the markets, pricing power of the parties following the transaction, etc.

 

Typically, cases where the parties have combined market shares below 35%, along with the presence of strong competitors in the market, would not be considered problematic.

 

4.3 Reliance on Case Law

The CCI frequently relies on its own past precedents and in the absence of any CCI precedents, it will often look at case law in other jurisdictions, particularly those of the EU and the USA. To a lesser extent, it also relies on precedents from jurisdictions such as Brazil, China, Russia, South Africa and the UK.

 

4.4 Competition Concerns

The CCI focuses more on unilateral effects. Typically, the CCI relies on a market share analysis as a starting point for this assessment.

 

With the CCI becoming more experienced, it has also started to examine closely co-ordinated effects and vertical concerns, as well as portfolio effects (which has lately become a hot topic for the CCI).

 

4.5 Economic Efficiencies

The Competition Act prescribes various efficiency-related factors that the CCI may consider while reviewing a transaction, including potential innovation, economic development, and whether the benefits of the transaction outweigh any adverse impact.

 

In its limited decisional practice on efficiencies, the CCI has indicated that any efficiencies claimed by the parties should be:

• merger-specific;
• verifiable;
• quantifiable (including what will be passed on to consumers); and
• outweigh competition concerns.

 

To date, the CCI has not unconditionally cleared any transaction that was likely to cause an AAEC in India, solely on the grounds that the efficiencies outweighed the competition concerns.

 

4.6 Non-competition Issues

The Competition Act does not mandate the CCI to consider any non-competition issues in its review process and it has not done so in practice. In fact, in Walmart/Flipkart (C-2018/05/571), the CCI expressly held that it would not consider any non-competition issues.

 

However, it should be noted that the CCI is able to take account of the relative advantage through economic development, and, to that extent, a limited non-competition issue may be taken into account (although this does not appear to have happened in practice).

 

There are also separate laws governing foreign direct investments (FDI) into India, prescribed under the FDI Policy (separate from the merger control laws in India). Separate filings may be required with the Foreign Investment Promotion Board depending on the sector involved.

 

4.7 Special Consideration for Joint Ventures

The CCI does not appear to give any special considerations in its substantive review of joint ventures.

 

The CCI’s decisional practice has suggested that it may consider co-ordination issues between parent entities, their groups and their other joint ventures. In at least two cases, the CCI has required remedies in the form of information-sharing and other restrictions, to prevent any “spill-over” effects and potential co-ordination in relation to the other businesses of the parent entities (not forming part of the joint venture). Further, the CCI may also examine co-ordination issues between joint-venture parents outside its merger review, under its enforcement provisions (ie, anti-competitive agreements).

 

5. Decision: Prohibitions and Remedies

5.1 Authorities’ Ability to Prohibit or Interfere With Transactions

The CCI is able to prohibit or require modifications to a transaction if it is of the view that the transaction is likely to cause an AAEC in the relevant market in India.

 

The CCI has cleared a number of cases in Phase I, where parties have voluntarily offered a number of modifications. These include the scope of non-compete obligations, undertakings to comply with competition law, giving access to infrastructure, divestments and ring-fencing commitments.

 

During the course of its Phase II investigation, the CCI may propose appropriate modifications if it is of the view that a transaction causes or is likely to cause an AAEC in India, but such concerns can be eliminated through modifications. The parties then have an opportunity to accept those modifications or propose their own (which may or may not be accepted by the CCI). If the CCI believes that the adverse effect cannot be eliminated by suitable modifications, it can prohibit the transaction, although in practice it has never done so.

 

The CCI also has the ability to initiate inquiries on its own motion into reportable transactions that were not notified to it.

 

5.2 Parties’ Ability to Negotiate Remedies

The Regulations allow the parties to offer remedies first in Phase I, in order to avoid the transaction moving to a Phase II review.

 

In Phase II, it is the CCI that first proposes remedies (and the parties have a right thereafter to file a counter-offer, which may or may not be accepted by the CCI). The detailed remedy process has been set out in 3.8 Review Process.

 

The CCI typically tailors remedies to the specific circumstances of each case, after considerable negotiations.

 

5.3 Legal Standard

The remedies offered must be sufficient to address the specific AAEC concerns identified in a particular transaction in India. The CCI has made it clear that it will tailor remedies to the facts of each case and that it will not follow a “one-size-fits-all” approach. In addition, the remedies should be such that they can be monitored and implemented effectively.

 

5.4 Typical Remedies

To date, the CCI has imposed:

• structural remedies in approximately 12 cases;
• hybrid remedies (ie, a mix of structural and behavioural) in approximately three cases; and
• behavioural/non-structural remedies in approximately seven cases.

 

While the CCI has been receptive towards behavioural/hybrid remedies in certain cases, it typically prefers structural remedies, given that it is a “one-time fix”.

Some of the key decisions pertaining to structural remedies are:

• divesture of the business of the target (Abbott C-2016/08/418);
• divesture of the relevant products sold by the target in India (China National Agro/Sygenta C-2016/08/424);
• divesture of specified products of each party (Sun/Ranbaxy C-2014/05/170);
• divesture of one of the parties’ stake in a joint venture with a competitor (Linde/Praxair C-2018/01/545);
• divestiture of the business in India through an exclusive and irrevocable licence of the technology in India (Metso/Outotec C-2020/03/735); and
• divesture of shareholding in companies involved in the same relevant market and a commitment not to acquire a stake in such companies for a specified period (Agrium/Potash C-2016/10/443) (ZF/WABCO C-2019/11/703).

 

The CCI has also accepted hybrid or non-structural remedies in various cases (PVR/DT C-2015/07/288, Bayer/Monsanto C-2017/08/523, L&T/Schneider C- 2018/07/586, ChrysCapital/Intas C-2020/04/741, etc). Non-structural remedies have largely been accepted to address concerns in relation to access, spill-over effects, consumer protection and structural links. However, in one case (L&T/Schneider), the CCI has also accepted behavioural remedies to address unilateral effects where the parties were direct competitors (remedies including price-caps, white-labelling, grant of technology licence, amendments to distribution agreements, etc, were accepted).

 

In ChrysCapital/Intas (2020), for the first time, the CCI imposed a remedy in a minority acquisition by a private equity fund. The CCI approved the transaction on the condition that the acquirer will remove its nominee director on the board of a competing portfolio entity and will not exercise its veto rights on certain strategic matters in that entity. This represents a shift in the CCI’s approach to transactions involving common minority ownership.

 

As the CCI’s concerns are restricted to AAEC in India, remedies are not required to address non-competition issues.

 

5.5 Negotiating Remedies With Authorities

As previously stated, parties can voluntarily offer remedies during Phase I to address any AAEC concerns and avoid the transaction moving to a Phase II review. In Phase II, it is the CCI that will first propose remedies (although it allows the parties to set the ball rolling themselves through informal discussions), and parties may thereafter submit a counter-offer, which may or may not be accepted by the CCI. See 3.8 Review Process for the detailed steps/process on remedy negotiations.

 

5.6 Conditions and Timing for Divestitures

The necessary condition for the CCI to propose remedies is a prima facie finding that the transaction causes an AAEC in India. The timing of the remedy process has been set out in 3.8 Review Process.

 

Parties may be able to consummate a transaction prior to the remedies being implemented, if a “fix-it-later” divestiture (rather than a “fix-it-first”, where a buyer is required to be found before consummating the transaction) is imposed by the CCI. A “fix-it-first” divestment has only been required in one case, and in all others the CCI has allowed a “fix-it-later”.

 

If the remedies are not implemented, the CCI has the power to revoke the approval order and/or impose penalties of up to INR100,000 per day (approximately USD1,300), subject to a maximum of INR100 million  (approximately USD1.3 million). A term of imprisonment may also be imposed in certain cases.

 

5.7 Issuance of Decisions

A formal decision permitting or prohibiting the transaction is issued to the parties. A public version of the decision (which does not contain any confidential information) is also uploaded on the CCI’s website.

 

5.8 Prohibitions and Remedies for Foreign-to-Foreign Transactions

As stated in 5.4 Typical Remedies, the CCI has required remedies in a number of transactions. While several of these were transactions between two foreign entities (for instance, Holcim/Lafarge, Linde/Praxair, ChemChina/Syngenta, ZF/WABCO), both companies had a substantial presence in India.

 

To date, the CCI has not prohibited a transaction.

 

6. Ancillary Restraints and Related Transactions

6.1 Clearance Decisions and Separate Notifications

The CCI requires parties to file all ancillary arrangements along with the notification form. The CCI’s approval of the transaction also typically covers ancillary restraints, and separate notifications are not possible for them.

 

If these arrangements are not covered by the clearance, the CCI may review such arrangements separately under its enforcement provisions.

 

7. Third-Party Rights, Confidentiality and Cross-Border Co-operation

7.1 Third-Party Rights

Third parties may be involved in both Phase I and Phase II of the review process.

 

In Phase I, the CCI can reach out to third parties for their comments and observations on the transaction (this typically happens through written questionnaires and interviews). The CCI is increasingly contacting third parties during the Phase I review period. Third parties have no right to be formally involved in the Phase I process, and it is at the CCI’s discretion whether to reach out to such third parties.

 

If the review goes into the detailed Phase II process, public consultation is a mandatory requirement. Any member of the public may file written objections within 15 working days from the date of publication of the details of the combination. In various cases (for instance, PVR/DT, Bayer/Monsanto, L&T/Schneider, etc), numerous third parties filed their objections to the transaction.

 

Third parties can only present their submissions/objections in writing to the CCI and there is no provision for an oral hearing for third parties before the CCI.

 

7.2 Contacting Third Parties

The detailed framework for contacting third parties is discussed in 7.1 Third-Party Rights.

 

7.3 Confidentiality

The fact of the notification and description of the transaction is made public when the CCI publishes a non-confidential summary of the transaction on its website, after the parties have filed the notification form. Separately, the CCI’s final order (which does not contain any confidential information relating to the transaction) is made public. These decisions are published on the CCI’s website.

 

The CCI allows requests for confidentiality to be made in writing by parties. Parties are permitted to claim confidentiality of information in cases where disclosure:

 

• would result in disclosure of trade secrets;
• would result in destruction or appreciable diminution of the commercial value of any information; or
• can reasonably be expected to cause serious injury.

 

The CCI has recently amended its confidentiality framework, including the introduction of a “self-certification” requirement, pursuant to which parties have to certify that their confidentiality claims are consistent with the CCI’s prescribed requirements.

 

7.4 Co-operation With Other Jurisdictions

The CCI can and does reach out to competition authorities in other jurisdictions, especially the EU, the USA, Brazil, Russia and South Africa. However, before exchanging information on specific transactions with other competition authorities, the CCI typically seeks a specific waiver from the parties.

 

On general policy matters, the CCI has signed MOUs with several foreign competition authorities, including authorities in the EU, the USA, Brazil, Russia, South Africa, Canada, Japan and Australia.

 

8. Appeals and Judicial Review

8.1 Access to Appeal and Judicial Review

Any person aggrieved by an order of the CCI approving/prohibiting a transaction, or imposing fines for gun-jumping/delayed filing, may file an appeal with the National Company Law Appellate Tribunal (NCLAT) within 60 days. Orders of the NCLAT can be further appealed to the Supreme Court.

 

8.2 Typical Timeline for Appeals

The Competition Act provides that appeals before the NCLAT must be dealt with expeditiously and the NCLAT must endeavour to dispose of appeals within six months. An appeal before the Supreme Court may take two to three years or even longer.

 

The appellate authorities have generally upheld the CCI’s order on merits, or have refrained from interfering on the grounds of absence of locus standi of the appellant.

 

8.3 Ability of Third Parties to Appeal Clearance Decisions

Under the Competition Act, only an “aggrieved party” may file an appeal against the CCI’s decisions (including clearance decisions). Previously, in Jet/Etihad, the appellate authority held that a third party was not an “aggrieved party” and the appeal was dismissed. However, in the Walmart/Flipkart case, the NCLAT adjudicated an appeal filed by a third party on its merits. It therefore appears that third parties may have a right to appeal merger decisions in certain limited cases.

 

9. Recent Developments

9.1 Recent Changes or Impending Legislation

Recent Amendments

• As highlighted in 2.1 Notification and 2.2 Failure to Notify, the CCI has extended the validity of: (i) the Target Exemption; and (ii) the Trigger Exemption.
• As highlighted in 3.5 Information Included in a Filing, the CCI has amended Form II with effect from 1 May 2022, with the aim of streamlining the information requirement.
• As highlighted in 7.3 Confidentiality, in April 2022, the CCI amended the confidentiality regime to include the “self-certification of confidentiality claims”.

 

Proposed Amendments

The Government of India had launched a public consultation on a new draft Competition Amendment Bill (dated 12 February 2020). Proposed amendments included revisions in the process for setting thresholds (including introduction of deal-value based thresholds), changes to the definition of “control”, reducing the review timeline, and introducing the possibility of seeking waivers of the standstill obligation. The bill has yet to be reviewed and approved by Parliament.

 

The CCI had previously (in November 2019) sought to introduce provisions allowing waivers of the standstill obligations, through an amendment to the Regulations itself, and had sought public comments on its draft amendments. It remains to be seen whether these proposed amendments will be implemented.

 

9.2 Recent Enforcement Record

The CCI has regularly imposed fines for failure to file, and for gun-jumping, with fines ranging between INR100,000 (approximately USD1,300) to INR50 million (approximately USD655,000), barring the Amazon order, which seems to be a one-off case.

 

As highlighted previously, in the past three years (2020-2022), the CCI has imposed fines for gun-jumping in around seven transactions, with the fine ranging from INR500,000 (approximately USD6,530) to INR50 million (approximately USD655,000), barring the Amazon order.

 

The CCI has imposed structural, behavioural and hybrid remedies in a number of cases (including foreign-to-foreign transactions, which had a strong impact in the Indian market).

 

As further highlighted in 5.4 Typical Remedies, in April 2020, the CCI imposed for the first time a remedy in a minority acquisition by a private equity fund in order to address its concerns in relation to common minority shareholdings (ChrysCapital/Intas). Further, in June 2020, the CCI accepted a remedy pursuant to which the target would effectively transfer its business in India through an exclusive and irrevocable licence of the technology in India (Metso/Outotec).

 

Therefore, the CCI has not followed a “one-size-fits-all” approach to remedies and has tailored remedies to the specific facts of a case.

 

The CCI has not blocked any transaction to date.

 

9.3 Current Competition Concerns

Greater Scrutiny for Private Equity (PE) Deals/Minority Investments

Of late, the CCI has been scrutinising private equity (PE)/minority investment deals more closely. It is seeking a greater level of information/details regarding a PE firm’s other investments (including minority investments) in the same sector.

 

The CCI has also announced that it is conducting a market study on the private equity investments landscape in India.

 

More Holistic Competitive Analysis

The CCI’s competitive assessment has become much more detailed and granular over the years. The CCI no longer focuses only on unilateral effects; rather, it is also focusing on vertical and portfolio effects, as seen in Siemens/Varian, Bayer/Monsanto and L&T/Schneider.

 

Review of Internal Documents

The CCI is increasingly relying on internal documents (including board agendas, studies, internal analysis, research data) while examining transactions (Adani/SB Energy, Amazon/Future, CPPIB/ReNew, Adani Ports/SEZ). Therefore, parties should ensure that nothing contained in these documents could potentially be used against them in current or future deals.

 

This article was originally published in Chambers and Partners on 5 July 2022 Co-written by: Shweta Shroff Chopra, Partner; Aparna Mehra, Partner; Ritwik Bhattacharya, Principal Associate; Kshitij Sharma, Associate. Click here for original article

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