Notification and clearance timetableFiling formalities
What are the deadlines for filing? Are there sanctions for not filing and are they applied in practice?
In a welcome move to ease doing business in India, the government in June 2017 removed the requirement on parties to notify combinations to the Competition Commission of India (CCI) within 30 calendar days of the relevant trigger event. While notifiable transactions still require approval from the CCI prior to closing and remain subject to penalties for gun jumping, the elimination of the filing deadline has removed timing pressures on the filing parties. It should be noted that the parties may have pre-filing consultations (PFC) with CCI staff or case team members on substantive and procedural matters, and this frequently helps parties decide whether they need to notify and, if so, how they should proceed. The CCI has published a PFC Guidance Note setting out the framework for such consultations.
Previously, while the CCI actively penalised parties for belated filings, it also penalised parties for failing to notify transactions. In SCM Soilfert (C-2014/05/175), the CCI fined the acquirer 20 million rupees for consummating strategic open market purchases in the target enterprise without prior approval from the CCI. The CCI imposed a penalty of 50 million rupees on Piramal Enterprises (C-2015/02/249) for failing to notify previously closed interconnected steps of a transaction. The Competition Appellate Tribunal upheld both penalties and the Supreme Court of India upheld the penalty imposed in the SCM Soilfert case.
Although the penalties imposed by the CCI in recent years have only been nominal (for example, ReNew (C-2017/11/536); Telenor (C-2012/10/87) and Intellect Design (C-2015/12/348)), the CCI has been vigilant in pursuing defaulters. Accordingly, parties are increasingly using the pre-notification consultation process before formally submitting the filing or deciding on not submitting a filing.
Which parties are responsible for filing and are filing fees required?
In the case of an acquisition, the acquirer and, in the case of a merger, both the parties jointly, are responsible for filing. Generally, the notice is filed in the (short) Form I; however, where there is a horizontal overlap of more than 15 per cent or a vertical overlap of more than 25 per cent, it is recommended that the notice is filed in the (long) Form II. A green channel filing is required to be made in a Form I.
The filing fee for Form I is 2 million rupees and for Form II 6.5 million rupees. The acquirer, in case of an acquisition, or the parties to a merger or amalgamation in case of a merger or an amalgamation, shall pay the filing fees. In the case of a joint notification, the fees are payable jointly or severally.
What are the waiting periods and does implementation of the transaction have to be suspended prior to clearance?
The merger control regime in India is suspensory and transactions subject to merger control review by the CCI cannot be consummated until merger clearance has been obtained, or a review period of 210 calendar days has passed, whichever is earlier. The suspensory effect extends to both exempt steps of interconnected transactions as well as to the closing of global transactions (even if the Indian leg has not been consummated) pending the CCI’s approval.Pre-clearance closing
What are the possible sanctions involved in closing or integrating the activities of the merging businesses before clearance and are they applied in practice?
If the parties fail to notify a notifiable combination prior to closing, the CCI has the power to impose a penalty of up to 1 per cent of the total turnover or value of assets, whichever is higher, of the proposed combination. The CCI has used these powers regularly in cases where late filings have been made though, given the trigger exemption, such proceedings are unlikely to continue. The amount of penalty levied by the CCI has been as high as 50 million rupees. Recently, however, the CCI has imposed more nominal penalties in cases of delayed, voluntary filings. In cases where parties had consummated part of the combination prior to approval by way of pre-payment of consideration, the CCI imposed a penalty of 500,000 rupees (Hindustan Colas (C-2015/08/299)) and a penalty of 1 million rupees (Chhatwal Group Trust (C-2018/01/544)). In another case, where a loan had been advanced to the seller that could be adjusted against the consideration payable for the proposed acquisition before the CCI approval, a penalty of 1 million rupees was imposed (Adani Transmission (C-2015/01/547)).
A penalty of 500,000 rupees was imposed in Cairnhill CIPF (C-2015/05/276), where the CCI held the filing to be late because the wrong agreement or document was considered as the trigger by the parties. Interestingly, in PSPIB and Grupo Isolux Corsan (C-2015/10/330), which involved a dissolution of a joint venture, the CCI decided not to impose any penalty for a belated filing, given the unique structure of the combination, and the lack of finality of key terms, which were to be determined by third parties. More recently, the CCI found that even a contractual clause in the acquisition agreement amounted to the consummation of a part of the acquisition (Bharti Airtel (C-2017/10/531)). It is not clear what the offending clause covered since material parts of the order were redacted. However, the CCI considered that the arrangement disincentivised the target from competing with the acquirer, affected the business activities in the ordinary course of the target and could not be considered as inherent and proportionate to the objective of preserving the business valuation.
The power to impose a penalty also extends to the consummation of any part of the proposed transaction prior to obtaining CCI clearance. In Etihad Airways/Jet Airways (C-2013/05/122), the CCI penalised Etihad Airways 10 million rupees for completing one leg of the composite transaction notified for clearance. Parties, therefore, need to be conscious that they are not deliberately or inadvertently taking steps to give effect to parts of the transaction or aligning their commercial behaviour or completing any leg of a notified transaction until approval for the entire transaction has been received. In LT Foods (C-2016/04/387), the CCI made it clear that any coordination between parties before approval – such as handing over inventory, making introductions to suppliers and restrictions on promotional selling – was prohibited, and accordingly imposed a ‘nominal’ penalty of 500,000 rupees.
In May 2018, the CCI penalised telecommunications companies for failing to notify acquisitions of telecommunication spectrum (Bharti Airtel (C-2017/05/509); Bharti Airtel and Bharti Hexagon (C-2017/06/516); and Reliance Jio Infocomm (C-2017/06/516)). Notably, the CCI held that guidelines issued by the sectoral regulators setting caps on market shares and spectrum holdings did not replace the competition mandate of the CCI; spectrum constituted an asset, the acquisition of which amounted to a combination under the Competition Act; and the exemption for the acquisition of assets made solely as an investment or in the ordinary course of business did not apply. In line with the trend of imposing ‘nominal’ penalty, the acquirer in each case was required to pay 500,000 rupees for gun jumping.
Most recently, in January 2020, the CCI penalised CPPIB (C-2017/11/536) in relation to its failure to disclose an interconnected transaction as part of the transaction notified to the CCI. Even though the transaction documents did not capture any such interconnectedness between the two transactions, the CCI relied on press releases of the parties to establish that CPPIB was aware of the interconnected transaction and thus should have disclosed or notified it. CPPIB was required to pay 5 million rupees for gun jumping and non-disclosure.
Are sanctions applied in cases involving closing before clearance in foreign-to-foreign mergers?
Yes, sanctions are applied in cases involving closing before clearance in foreign-to-foreign mergers. In Titan International Inc/Titan Europe PLC (C-2013/02/109), the parties sought to justify a lengthy delay in filing on the grounds that the transaction was foreign-to-foreign, they were not aware of the filing requirement, the delay was unintentional and there was no bad faith. However, the CCI pointed to a 147-day delay and the fact that the combination had been completed by the time the filing had been made. The CCI could have imposed a maximum penalty of 1.45 billion rupees. 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 CCI accepted these as mitigating factors and imposed a lower penalty of 10 million rupees. In Etihad Airways/Jet Airways, the CCI imposed a penalty of 10 million rupees on Etihad Airways for completing one limb of the notified transaction before receiving clearance. In Baxter/Baxalta (C-2015/07/297), the CCI imposed a penalty of 10 million rupees on the parties for closing the global limb of the transaction before receiving clearance in India.
What solutions might be acceptable to permit closing before clearance in a foreign-to-foreign merger?
There is currently no precedent in India in relation to this issue and the CCI has not given any guidance. However, the Competition Act is worded in a manner where it may be arguable that hold-separate arrangements might be legitimate in India. If the CCI initiates proceedings against the parties for failure to notify before closing a global transaction, the parties will have to satisfy the CCI that the assets that relate to India have been kept separate until such time as the clearance from the authority is received and there is no appreciable adverse effect on competition (AAEC) in India. This approach, however, is untested and the CCI might take a different approach.
What is clear, however, is that the actual combination must not be given effect to until CCI approval is received. In Baxter/Baxalta, the parties gave effect to a global agreement; however, the transfer of the Indian operations was subject to local implementation agreements. The CCI held that the global transaction was the notification trigger and could not be given effect to (even if, in practice, the transfer of the local entities required separate agreements).Public takeovers
Are there any special merger control rules applicable to public takeover bids?
At present, there are no special merger control rules under the Competition Act applicable to public takeover bids.Documentation
What is the level of detail required in the preparation of a filing, and are there sanctions for supplying wrong or missing information?
Both Form I and Form II require extensive information – far more than that required by the equivalent notifications under the EU Merger Regulation or the US Hart-Scott-Rodino Act. The CCI has also recently modified the existing Form I, making it generally more onerous. The filing process is complex, and the parties need to prepare filings with the utmost care and well in advance, including detailed overlaps analysis and related information for the narrowest possible market definitions. The documentation to be filed include the trigger document, financial statements of the parties, market data (market share, market size to the extent possible and based on independent third-party data sources and sales) and competitive assessment of the relevant market. A lack of complete information has resulted in the CCI invalidating the notification forms, requiring the parties to file afresh and also resetting the review clock. Further, a penalty of not less than 500,000 rupees, which may extend to 10 million rupees, may be imposed for making a false statement or omitting a material particular in the notification form.Investigation phases and timetable
What are the typical steps and different phases of the investigation?
The investigation into combinations by the CCI is in two phases.
The CCI is required to form its prima facie opinion on whether the combination is likely to cause or has caused an AAEC within the relevant market in India within 30 working days of receipt of the notice. However, if the CCI reaches out to third parties or statutory authorities during Phase I, this time period may be extended by up to 15 working days. Further, where modifications are offered in Phase I itself, the time period is further extended by 15 calendar days. The clock will also stop if a formal request for information is made and restart only when the CCI has received a satisfactory response to all its queries. If the CCI is satisfied that the combination does not cause nor is likely to cause an AAEC or that its concerns can be addressed through remedies or modifications offered by the parties, it will clear the transaction at the end of Phase I.
If the CCI forms a prima facie opinion that a combination is likely to cause, or has caused, an AAEC within the relevant market in India, it shall issue a show cause notice to the parties asking for an explanation as to why an investigation into the combination should not be conducted. The parties are given 30 calendar days to reply to this notice. After the reply has been filed by the parties, the CCI may either direct the Director General to conduct a detailed investigation or do so on its own and this heralds the formal beginning of Phase II. The parties shall also be directed to publish details of the combination in four leading daily newspapers (including at least two business newspapers), the parties’ websites and the CCI’s website within 10 days of the CCI’s decision to investigate further. Until the date of writing, the CCI has never directed the Director General to conduct a detailed investigation into a combination and all Phase II inquiries have been conducted by the combinations division of the CCI.
The objective of this publication is to invite comments from the public in relation to the proposed combination. Once the comments are received by the CCI, it may request further information or seek clarifications from the parties. At this stage, the CCI may invite any person or member of the public, affected or likely to be affected by the combination, to file their written objections before the CCI within 15 working days from the date on which the details of the combination are published. Thereafter, within 15 working days from the expiry of the period mentioned above, the CCI may call for additional information from the parties to the combination to be furnished by the parties within a further 15 days. Following the submission of the information and clarifications by the parties, the CCI will proceed to review the transaction and arrive at its final determination, including proposing remedies to the parties, where it is of the view that the transaction will cause or be likely to cause an AAEC.
After receipt of all the information, the CCI will pass orders either approving or prohibiting or suggesting modifications to the combination.
What is the statutory timetable for clearance? Can it be speeded up?
The CCI has up to 210 calendar days from the date of notification to approve or prohibit a notified combination. The 30-working-day periods for the parties to submit amendments to proposed modifications, and for them to accept the CCI’s original modifications if the modifications are not accepted, are excluded from this 210-day time period. Further, the CCI follows a practice of excluding any time extensions sought by parties for responding to the CCI’s additional requests for information from the 210-day time period (although the Competition Act and the CCI (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations 2011 are silent on this aspect).
There are no provisions to speed up the review timetable, and parties who wish to gain early clearance should comply with all information requests expeditiously. In practice, CCI clearance can take anywhere between 60 and 90 days even for no-issues transactions. Transactions with substantial overlaps can take significantly longer. For example, both in the case of Agrium/PotashCorp (C-2016/10/443) and Holcim/Lafarge (C-2014/07/190), the conditional clearance decisions were adopted nearly at the end of the entire 210-day review period. The CCI in Dow/Dupont (C-2016/05/400) and Bayer/Monsanto (C-2017/08/523) took over 500 days (including all-time ‘exclusions’) to clear and approve the transaction subject to modifications.