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Trends and climate

How would you describe the current merger control climate, including any trends in particular industry sectors?

The Competition Commission of India reviews all transactions which meet the specified jurisdictional thresholds. No enforcement priorities are in place. All transactions – including those by private equity firms – are subject to intense scrutiny. However, the Competition Commission tends to scrutinise the pharmaceutical sector in greater detail, given the government’s eagerness to ensure that drugs remain easily accessible to the public at reasonable prices. In addition, the Competition Commission recently scrutinised the cement sector more closely, given the historical allegations of cartelisation in the industry. 

Are there are any proposals to reform or amend the existing merger control regime?

The Competition Commission has put forward the Competition Commission (Procedure in Regard to the Transaction of Business Relating to Combinations) Amendment Regulations 2015 for public comment. The draft amendments primarily seek to:

  • limit the scope of trigger documents;
  • reduce filing formalities;  
  • allow the Competition Commission to invalidate a notification where inadequate information has been provided; and
  • extend the review timetable in Phase I.

Legislation, triggers and thresholds

Legislation and authority
What legislation applies to the control of mergers?

Sections 5 and 6 of the Competition Act prohibit persons or enterprises from entering into combinations which have or are likely to have an appreciable adverse effect on competition in the relevant market in India. According to the act, these combinations are void. Section 20(4) of the act sets out the factors that the Competition Commission will consider when assessing whether a combination has or is likely to have an appreciable adverse effect on competition in India.

What is the relevant authority?
The Competition Commission is the primary authority that enforces the Competition Act. Commission decisions can be appealed to the Competition Appellate Tribunal and from there to the Supreme Court.

Transactions caught and thresholds
Under what circumstances is a transaction caught by the legislation?

Transactions that exceed the specified jurisdictional thresholds for assets and turnovers are caught by the legislation. These thresholds are set out in Section 5 of the Competition Act, as amended by the relevant government notifications.

Do thresholds apply to determine when a transaction is caught by the legislation?

Asset and turnover-based thresholds apply to determine whether a transaction is caught by the legislation. These are set out below.

Parties test:

  • Do the parties have combined assets in India of Rs15 billion ($240 million) or a combined turnover in India of Rs45 billion ($721 million)?
  • Do the parties have combined worldwide assets of Rs46.8 billion ($750 million), including combined assets in India of Rs7.5 billion ($120 million), or combined worldwide turnover of Rs140.3 billion ($2.25 billion), including combined turnover in India of Rs22.5 billion($360 million)?

Group test:

  • Does the group have assets in India of Rs60 billion ($962 million) or turnover in India of Rs180 billion ($2.9 billion)?
  • Does the group have worldwide assets of Rs187 billion ($3 billion), including assets in India of Rs7.5 billion ($120 million), or worldwide turnover of Rs561 billion ($9 billion), including turnover in India of Rs2.25 billion ($360 million)?

In this context, ‘group’ means two or more enterprises which are directly or indirectly in a position to:

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

If the parties test or group test is met, the transaction will qualify as a combination and must be notified to the Competition Commission.

The Ministry of Corporate Affairs has provided a de minimis target-based exemption under which any acquisition the target of which has Indian assets not exceeding Rs2.5 billion ($40 million) or Indian turnover not exceeding Rs7.5 billon ($120 million) need not be notified to the Competition Commission. This exemption will be in effect until March 2016. It applies only to acquisitions, not mergers or amalgamations.

Informed guidance
Is it possible to seek informal guidance from the authority on a possible merger from either a jurisdictional or a substantive perspective?

It is possible to conduct pre-notification consultations with the Competition Commission on procedural and substantive issues. Consultations are oral, informal and non-binding.

Are foreign-to-foreign mergers caught by the regime? Is a ‘local impact’ test applicable under the legislation?

Until the end of March 2014, the Combination Regulations provided an exemption for transactions between parties outside India, provided that there was insignificant local nexus and effects on markets in India. However, the Competition Commission has now withdrawn this exemption. Foreign-to-foreign transactions that satisfy the specified assets and turnover thresholds under the Competition Act which are not covered by any of the other exemptions must now be notified, even if no local nexus in India exists.

Joint ventures
What types of joint venture are caught by the legislation?

The Competition Act does not distinguish between full-function and non-full-function joint ventures; both types will be notifiable if the jurisdictional thresholds are exceeded. Purely greenfield joint ventures do not fall within the purview of the Indian merger control regime, as the regime applies only to enterprises and an ‘enterprise’ is defined as going concern. In addition, a greenfield joint venture is unlikely to meet the thresholds under the target exemption. A brownfield joint venture in which the parent companies contribute assets to the joint venture may be notifiable if the parent companies exceed the jurisdictional thresholds.


Process and timing
Is the notification process voluntary or mandatory?

The notification process is mandatory.

What timing requirements apply when filing a notification?

The Competition Act prescribes that notifying parties must file a notification with the Competition Commission within 30 calendar days of:

  • final approval of the proposal of merger or amalgamation under Section 5(c) of the Competition Act by the board of directors of the enterprises concerned; or
  • execution of any agreement or other document for acquisition under Section 5(a) or acquisition of control under Section 5(b).

The Combination Regulations clarify that the term ‘other document’ means any binding document, by whatever name, that conveys an agreement or decision to acquire control, shares, voting rights or assets.

In Aditya Birla v Pantaloons (C-2012/07/69), the commission held that trigger documents must be of sufficient finality. The commission held that interim arrangements (eg, a memorandum of understanding) which do not conclusively determine the scope of the proposed combination – even if they are binding on the parties – are not valid triggers for filing. This is particularly relevant in the context of global transactions, where the global agreements contemplate local transaction documents. Although the transaction may have sufficient certainty at the global level, for the purposes of notification, clearance by the Competition Commission may not be forthcoming until the local documents are complete. Even binding term sheets can be used as trigger documents, as long as they contain sufficient details (Caladium v Bandhan (C-2015/01/243)).

Further, where an ‘other document’ has not been executed, but the intention to acquire is communicated to the central or state government or a statutory authority, the date of the communication will be considered the date of execution of the other document for acquisition. In Tesco Overseas Investments Limited v Trent Hypermarket Limited (C-2014/03/162), the Competition Commission held that the application to a statutory authority (ie, the Foreign Investment Promotion Board) sufficiently demonstrated Tesco’s intention to acquire and the parties were thus under an obligation to file a notification within 30 days of the application. As noted above, the proposed amendments to the Combination Regulations seek to limit the scope of ‘other documents’ as trigger documents in order to exclude filings made with regulators other than the Securities and Exchange Board of India.

What form should the notification take? What content is required?

The Combination Regulations prescribe three forms for filing a merger notification. Notifications are usually filed in Form I (ie, short form). However, the parties can file a merger notification in Form II (ie, long form). The Combination Regulations recommend that Form II notifications be filed for transactions where the parties to the combination are:

  • competitors with a combined market share in the same market of more than 15%; or
  • active in vertically linked markets, where the combined or individual market share in any of these markets is greater than 25%.

Form II requires extremely detailed information – far more than that required by the (long form) Form CO under the EU Merger Regulation or a second request pursuant to the US Hart Scott Rodino Act. This information includes detailed descriptions of products, services and the market as a whole, including:

  • the relative strengths and weaknesses of competitors;
  • estimates of a minimum viable scale required to attain cost savings;
  • the costs of entry; and
  • the impact of research and development.

Is there a pre-notification process before formal notification, and if so, what does this involve?

No pre-notification procedure exists. It is possible to conduct pre-notification consultations with the Competition Commission on procedural and substantive issues. Consultations are oral, informal and non-binding.

Pre-clearance implimentation
Can a merger be implemented before clearance is obtained?

The merger control regime has a standstill requirement and no part of a transaction can be implemented until approval has been obtained.

Guidance from authorities
What guidance is available from the authorities?

The Competition Commission has not published any rules or guidelines which could assist parties when they are evaluating proposed transactions. However, given that the commission has cleared over 250 merger transactions through reasoned decisions, the parties can rely on these decisions as guidance when they are preparing for notifications. Parties can also participate in pre-filing consultations.

What fees are payable to the authority for filing a notification?

Fees vary depending on the form that is being filed:

  • Form I – Rs1.5 million (approximately $25,000);
  • Form II - Rs5 million (approximately $83,300); and
  • Form III - no fee payable.

The filing fee must be paid by the acquirer in the case of an acquisition or by all parties to a merger or amalgamation, as the case may be. However, where a notification is made jointly, the fee can be paid jointly or severally, depending on the parties’ agreement.

Publicity and confidentiality
What provisions apply regarding publicity and confidentiality?

Transactions are kept confidential until approval is granted or a Phase II review process is initiated. An amendment to the draft amendment regulations provides for a non-confidential summary of any transaction to be published on the Competition Commission’s website during the review process. This must also be presented for public consultation.

Are there any penalties for failing to notify a merger?

If the parties fail to notify the Competition Commission of a notifiable combination within 30 days of the trigger event or at all, the Competition Commission can impose a penalty of up to 1% of the total worldwide turnover or the value of the assets of the proposed combination – whichever is higher. In addition, if the commission believes that the transaction will have or is likely to have an appreciable adverse effect on competition in India, it will be treated as void and all actions taken in pursuance of the void transaction will also be void. In such cases, the commission can unwind the transaction, although this has not happened to date.

While the commission took a lenient view in the first year of enforcement and levied no penalties, it has since not hesitated to levy penalties.

In Titan International Inc/Titan Europe PLC, the parties sought to justify a lengthy delay in filing on the grounds that:

  • the transaction was foreign to foreign;
  • they were unaware of the filing requirement;
  • the delay was unintentional; and
  • there was no bad faith.

The commission pointed to the 147-day delay and the fact that the combination had been completed by the time the filing had been made. The commission could have imposed a maximum penalty of Rs1.45 billion (approximately $26.3 million). However, since the transaction was a foreign-to-foreign acquisition, the parties were based outside India and, notwithstanding the delay, they had voluntarily filed the notification, the commission imposed a lower penalty of Rs10 million ($181,620).

In Temasek v DBSH, while imposing a penalty of Rs5million (approximately $90,810), the commission noted that the failure to file on time was extremely serious, regardless of the fact that the underlying transaction (the basis of which established the commission’s jurisdiction) was called off. In contrast, in Uttam Galva Steels Limited, the commission imposed no penalty where there was an inadvertent delay of less than a week, coupled with the fact that the parties were in discussions with the commission over clarifications on the procedural requirements for filing their notification.

The power to impose a penalty under Section 43A extends to consummation of any part of the proposed transaction before obtaining the commission’s clearance. In Etihad Airways v Jet Airways, the commission imposed a penalty of Rs10 million ($181,620) on Etihad Airways for completing one part of the notified transaction before receiving clearance. Therefore, the parties must ensure that they are not deliberately or inadvertently taking steps to give effect to parts of the transaction, align their commercial behaviour or complete any part of a notified transaction until approval for the entire transaction has been received (Zuari Fertilisers (C-2014/06/181)).

Procedure and test

Procedure and timetable
What procedures are followed by the authority? What is the timetable for the merger investigation?

On receipt of a notification, the Competition Commission has 30 calendar days to form a prima facie opinion on whether the combination has or is likely to have an appreciable adverse effect on competition within the relevant market in India. This is Phase I of the review process. If the commission requires the parties to remove defects in the notification or provide additional information, it will suspend the notification period until the additional information is provided. This means that it can take much longer than 30 days for the commission to form a prima facie opinion.

The Combination Regulations also allow the parties to a combination to propose modifications upfront during Phase I in order to satisfy the commission’s requirement that the combination not cause an appreciable adverse effect on competition in the relevant market in India. If modifications are provided, the commission will have an additional 15 calendar days to form a prima facie opinion.

If the commission finds that a proposed combination has or is likely to have an appreciable adverse effect on competition, a detailed investigation will follow and the standstill obligation will continue until the commission reaches a final decision or a review period of 210 calendar days from the date of notification has passed – whichever is earlier. This is Phase II of the investigation process. During Phase II, the commission will ask the parties to explain within 30 days why an in-depth investigation in respect of the combination should not be conducted. After receiving their responses, the commission may request that the director general of investigations reviews the combination. Within seven days of receipt of the parties’ responses or the director general’s report (if requested), the commission will direct the parties to publish certain details of the combination in four leading national daily newspapers (including at least two business newspapers) and on the parties’ websites, inviting anyone that is likely to be affected by the combination to file written objections within 15 working days of the date of publication. The commission may request additional information from the parties within 15 working days of the expiry of this period. Information must be furnished within a further 15 days. After receipt of additional information, the commission has 45 working days to allow or block the transaction or propose modifications. During the course of a Phase II investigation, if the commission finds that the combination has or is likely to have an appreciable adverse effect on competition, but the adverse effect can be eliminated by modifying the combination, it may propose appropriate modifications to address its concerns. The time taken to go through and agree to commitments during a Phase II investigation does not include the time that the commission takes to review the amendments proposed by the parties. It is unclear whether the commission is bound by the 210-day review period or whether it can be extended. Thus far, the commission has initiated detailed Phase II investigations in two cases. In both cases, approval was granted on the condition that substantive divestments be completed in order to alleviate competition concerns.

What obligations are imposed on the parties during the process?

The primary obligation on the parties is the standstill obligation imposed to ensure that no steps of a transaction are completed until approval is received or 210 days have passed – whichever is earlier. In addition, parties must generally respond to numerous formal and informal information requests from the Competition Commission, seeking clarification in relation to the data and information submitted by the notifying parties.

What role can third parties play in the process?

Regulation 19 of the Combination Regulations provides the Competition Commission with the power to require information from any third party while assessing whether a combination may have an appreciable adverse effect on competition in India.

This power has been exercised in both Phase I and Phase II of the review process. In Phase I, the commission approaches third parties; whereas in Phase II, a formal public process is initiated.

Section 29(2) provides that if the commission is of the prima facie opinion that the proposed combination has or is likely to have an appreciable adverse effect on competition, it will direct the parties to file Form IV, which brings the combination to the public’s attention and invites comments.

While the Competition Commission has formally invited comments on only two occasions as part of the Phase II review process, it has increasingly reached out to customers, competitors and suppliers of combining parties to seek their views on the transaction. The Competition Commission has also requested opinions from industry associations and experts when reviewing transactions during Phase I.

Substantive test
What is the substantive test applied by the authority?

Section 6(1) of the Competition Act prohibits any combination which has or is likely to have an appreciable adverse effect on competition in India. In determining whether a particular transaction has an appreciable adverse effect on competition, the commission must consider the various factors listed under Section 20(4) of the Competition Act, including:

  • actual and potential level of competition through imports in the market;
  • entry barriers to the market;
  • the level of combination in the market;
  • the degree of countervailing power in the market;
  • the likelihood that the combination will result in the parties to the combination being able to increase prices or profit margins significantly and sustainably;
  • the extent to which effective competition is likely to remain in the market;
  • the extent to which substitutes are available or are likely to be available in the market;
  • the market share in the relevant market of the persons or enterprises, both individually and as a combination;
  • the likelihood that the combination will result in the removal of a vigorous and effective competitor or competitors in the market;
  • the nature and extent of vertical integration in the market;
  • the possibility of a business failing;
  • the nature and extent of innovation;
  • the relative advantage of any combination that has or likely to have an appreciable adverse effect on competition; and
  • whether the benefits of the combination outweigh the adverse effect of the combination, if any.

Although the commission refers to these factors when assessing whether an appreciable adverse effect on competition exists, it has not always provided detailed reasons for its conclusions.

In practice, the commission has focused on horizontal overlaps (ie, where the parties compete in one or more relevant markets) and vertical relationships. In relation to horizontal overlaps, the commission will consider the individual and combined market shares of the parties to assess whether they will be able to exercise market power in the relevant market post-combination. The higher the individual and combined market shares of the parties, the more likely it is that the commission will view the proposed combination as likely to cause concern. In markets which have high entry barriers (eg, sunk costs, regulatory barriers or strong IP rights protection), a combination of two enterprises may result in them being able to increase prices or profit margins sustainably or significantly without being adequately constrained by competitors, customers or suppliers.

If the markets in which the parties to the proposed combination operate are large and the parties have a strong bargaining position compared to their suppliers or buyers, this could indicate that the combination will allow them to increase prices and thus warrants further investigation. The commission is likely to be concerned with combinations which appreciably decrease competition post-combination. Markets with fewer competitors, homogenous products and low innovation levels are likely candidates for further scrutiny, as the commission will likely want to ensure that competition in the market is not affected post-combination.

An unacceptable reduction in competition could result from the removal of a vigorous and effective competitor or the elimination of a maverick in the market. In addition, the buy-out of a potential competitor that has plans to enter the relevant market could result in a finding of an appreciable adverse effect on competition. This issue was addressed by the commission in Nestlé v Pfizer; the commission concluded that Pfizer was not a potential competitor of Nestlé in India, so no appreciable adverse effect on competition arose.

In relation to vertical relationships, the commission will consider the extent to which the parties to the combination are at different levels of the production and supply chain and which parties are vertically integrated. Appreciable adverse effect on competition concerns may arise where a combination will result in foreclosure of a market, with suppliers being unable to get their products or services to the market or customers being unable to obtain relevant products or services.

To assess the appreciability of any adverse effect, the commission may consider the benefits of the combination. Combinations which at first glance may appear to be anti-competitive could be cleared if they:

  • result in verifiable and quantifiable efficiencies which will be passed to consumers;
  • rescue a failing business which would otherwise exit the market; or
  • result in a high degree of innovation.

Parties to the combination must highlight efficiencies upfront and demonstrate how these benefits will be passed on to consumers.

The commission has adopted a pragmatic approach to market definition so that it does not reach a final view on the relevant product or service market and its precise geographic scope where it concludes that the combination is unlikely to affect competition irrespective of the market definition. Since the commission seeks to determine whether the combination has an appreciable adverse effect on competition in India, it examines the impact of most transactions in India as a whole, while leaving the exact geographic market definition open. 

The commission’s approval of a transaction does not give the parties a blanket clearance or immunity from investigation under Section 3 (anti-competitive agreements) or Section 4 (abuse of dominance) of the Competition Act for subsequent violations.

Does the legislation allow carve-out agreements in order to avoid delaying the global closing?

The Competition Act does not explicitly allow for carve-outs. While no precedent on whether a specific carve-out can be made in respect of Indian assets exists, since the assessment under the Competition Act is in relation to an “appreciable adverse effect on competition within the relevant market in India”, it may be possible to carve out Indian assets pending Competition Commission clearance. However, this is untested to date.

Test for joint ventures
Is a special substantive test applied for joint ventures?

No special substantive test is applied for joint ventures.


Potential outcomes
What are the potential outcomes of the merger investigation? Please include reference to potential remedies, conditions and undertakings.

The outcomes of a Competition Commission review are:

  • prohibition;
  • unconditional approval; or
  • approval conditional on behavioural or structural remedies.

Remedies include rectifications of non-competition terms, behavioural commitments and even divestitures.

The commission was initially concerned about three cases in the pharmaceutical sector. Its concerns related to the duration and scope of non-competition obligations. In addition, it was concerned with two cases involving the infrastructure sector; the issue was essentially one of third-party access. However, in a more recent case in the pharmaceutical sector, the commission concluded that the high combined market shares of the parties in seven relevant product markets meant that significant competitors would be eliminated and that this was likely to result in an appreciable adverse effect on competition. Finally, in a case in the cement sector, the commission found that the high combined market shares of the parties, the high levels of concentration and the coordinated effects resulting from the oligopolistic nature of the market would lead to an appreciable adverse effect on competition. In each of these cases, the modifications accepted by the parties reduced the commission’s concerns and it eventually approved the combinations.


Right of appeal
Is there a right of appeal?

Any person aggrieved by a Competition Commission decision can appeal before the Competition Appellate Tribunal.

Do third parties have a right of appeal?

Third parties can appeal Competition Commission decisions before the Competition Appellate Tribunal (COMPAT). For example, a former Air India director appealed the acquisition by Etihad Airways of 24% of Jet Airways. COMPAT held that the former director was not aggrieved by the commission’s decision and thus had no grounds for appeal.

Time limit
What is the time limit for any appeal?

The limitation period for an appeal is 60 days from the date on which the order is received.

Law stated date

Correct as of
Please state the date as of which the law stated here is accurate.

The information provided is accurate as of June 8 2015.