The CCI conducts its review of a transaction in phases. Phase I of the review process requires the CCI to form a preliminary opinion within 30 days on whether the transaction is likely to cause competition concerns. If the CCI does so in Phase I and issues a show-cause notice, an in-depth analysis of the transaction is undertaken. This detailed review of the transaction by the CCI is commonly referred to as Phase II. Given the need to expedite regulatory approvals and close transactions, transacting parties rarely want to see themselves in the midst of a Phase II inquiry by the CCI. To ensure an approval within Phase I, parties often offer modifications to the CCI when they get an indication that the CCI may identify competition risks from the transaction.

An option to propose such modifications in Phase I is only given to transacting parties under the current framework of the Competition Act. The Amendment Act empowers the CCI itself to propose such modifications in Phase I. The CCI will thus be able to propose modifications before it issues a preliminary opinion on whether a transaction is likely to cause competition concerns in India.

This is a welcome move for the M&A industry. If the CCI proposes modifications in Phase I, it will allow the parties to understand the CCI’s concerns at an early stage and address them prior to a show-cause notice. It will also enable the CCI to freely convey their views to the parties prior to issuing the show-cause notice. This could provide added certainty for the parties as they won’t be left to guess the potential concerns of the CCI and accordingly suggest appropriate remedies. It could also reduce the approval timelines even for complicated deals where the CCI may identify competition concerns.

While being a welcome change, there are some questions left unanswered. For instance, the Competition Act as well as the Amendment Act are silent on how the CCI will disclose the theories of harm arising from the transaction to parties while proposing a modification, before it has issued a show cause notice. Under the Draft Combinations Regulations proposed by the CCI, parties will have to communicate their acceptance or non-acceptance of the modifications proposed by the CCI within 7 days of receiving the CCI’s proposal. In cases where parties offer modifications, the CCI will have 12 days to evaluate the modifications. However, it is not clear whether the prescribed timelines provided for the CCI and parties to evaluate modifications would also apply in such cases.

The Draft Combinations Regulations also provide for the format in which modifications are to be proposed by parties. Parties would be required to disclose details such as identifying the likely competition concern arising out of the transaction and how the modification proposed addresses this concern. Importantly, the format prescribes parties to disclose why divestment was not considered as a modification if parties offer behavioural or other modifications. The CCI has invited comments from the public and stakeholders on the Draft Combinations Regulations which may be addressed by it in the final regulations.

Discussions around the need for modifications in a transaction typically start a little later in the review process. Usually, a dialogue will commence once the CCI’s case team, after familiarising itself with the notification form and receiving necessary clarifications sought from transacting parties, gets a sense that a modification may be warranted to approve the transaction. The shortened review timelines under which the CCI will have to review transactions puts added pressure on the case team as well as parties to initiate a dialogue on possible modifications early on in the review process.

Constant engagement and discussion with the case team—starting as early as filing, or even earlier—may give early indications of the kind of remedy that the CCI may be looking to propose or accept.

Modifications play an essential part in merger control. It is hoped that the new process under the Amendment Act will allow CCI as well as parties to benefit from more transparent and productive discussions pertaining to this critical aspect of approving problematic transactions.

This article was originally published in Financial Express on 19 December 2023 Co-written by: Aparna Mehra, Partner; Kshitij Sharma, Senior Associate; Ishaan Chakrabarti, Senior Associate. Click here for original article

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