Legislation and jurisdiction

Relevant legislation and regulators

What is the relevant legislation and who enforces it?

Competition law in India is governed by the Competition Act 2002 (the Competition Act) and regulations and guidance notes issued thereunder. Sections 5 and 6 of the Competition Act require the mandatory pre-notification of all acquisitions, mergers and amalgamations that cross specified asset or turnover thresholds (collectively described as ‘combinations’) to the Competition Commission of India (CCI), which is the enforcement agency.

Scope of legislation

What kinds of mergers are caught?

Section 5 of the Competition Act covers three broad categories of combinations:

  • First, the acquisition by one or more persons of control, shares, voting rights or assets of one or more enterprises, where the parties, or the group to which the target will belong post-­acquisition, meet specified assets or turnover thresholds (see below). Acquisitions not involving a change of control are also caught in this category.
  • Second, the acquisition by a person of control over an enterprise where the person acquiring control already has direct or indirect control over another enterprise engaged in the production, distribution or trading of similar or identical or substitutable goods, or in the provision of a similar or identical or substitutable service, where the parties, or the group to which the target will belong post-acquisition, meet specified assets or turnover thresholds (see below).
  • Third, mergers or amalgamations, where the enterprise remaining, or enterprise created, or the group to which the enterprise will belong after the merger or amalgamation, meets specified assets or turnover thresholds (see below).

To prevent the merger control regime from becoming unduly onerous, the CCI introduced, in Schedule I of the CCI (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations 2011 (the Regulations), categories of transactions that are ‘ordinarily’ not likely to cause an appreciable adverse effect on competition (AAEC) in the relevant market in India and, therefore, are not ‘normally’ required to be notified to the CCI. These transactions are:

  • direct or indirect acquisitions of shares or voting rights entitling the acquirer to hold less than 25 per cent of the shares or voting rights of a target company (including through a shareholders’ agreement or articles of association), solely for investment purposes or in the ordinary course of business, provided that this does not lead to the acquisition of control. The acquisition of less than 10 per cent of total shares or voting rights will be treated solely as an investment if:
    • the acquirer is able to exercise only the rights of ordinary shareholders exercisable to the extent of their respective shareholding;
    • the acquirer does not have, or have a right to have, or intend to have a seat on the board of the target enterprise; and
    • the acquirer does not intend to participate in the management or affairs of the target enterprise;
  • an acquisition of additional shares or voting rights of an enterprise by the acquirer or its group, where the acquirer or its group, prior to the acquisition, already holds 25 per cent or more shares or voting rights of the enterprise, but does not hold 50 per cent or more of the shares or voting rights of the enterprise, either prior to or after such acquisition. This exemption is not available if the acquisition results in the acquisition of sole or joint control of such enterprise by the acquirer or the group;
  • acquisition of shares or voting rights where the acquirer already holds 50 per cent or more of the shares or voting rights in the target enterprise, except in the cases where the transaction results in a transfer from joint control to sole control;
  • 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 of the target enterprise, except where the assets represent substantial business operations of the target enterprise in a particular location or for a particular product or service, irrespective of whether such assets are organised as a separate legal entity or not;
  • intra-group reorganisations. These include:
    • an acquisition of shares or voting rights or assets by one person or enterprise of another person or 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; and
    • a merger or amalgamation of two enterprises where one of the enterprises has more than 50 per cent shares or voting rights of the other enterprise, or a merger or amalgamation of enterprises in which more than 50 per cent shares or voting rights in each of such enterprises are held by enterprises within the same group. This exemption is not available if the transaction results in transfer from joint control to sole control;
  • acquisitions of stock-in-trade, raw materials, stores and spares, trade receivables and other similar current assets in the ordinary course of business;
  • acquisition of shares or voting rights pursuant to a buyback 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 case of an acquisition of control through a renunciation of rights;
  • amended or renewed tender offer where a notice has been filed by the party making such an offer;
  • acquisition of shares, control, voting rights or assets by a purchaser approved by the CCI (for instance, in case of a divestiture); and
  • acquisition of shares or voting rights by a person acting as a securities underwriter or a registered stock broker on behalf of its clients, in the ordinary course of its business and in the process of underwriting or stockbroking.

What types of joint ventures are caught?

The formation of a joint venture is not specifically covered by section 5 of the Competition Act, as it only covers the acquisition of an ‘enterprise’ and mergers and amalgamations of ‘enterprises’.

‘Enterprise’ as defined under the Competition Act effectively refers to a ‘going concern’ that is already conducting or has previously conducted business. A purely ‘greenfield’ joint venture is unlikely to be considered as an enterprise, and will therefore not fall within the scope of section 5. Moreover, even if it were to be considered as an enterprise, in a majority of cases, a truly greenfield joint venture is unlikely to meet the thresholds under the target exemption (see question 5).

By contrast, the establishment or acquisition of a ‘brownfield’ joint venture (where parents are contributing existing assets or businesses, customers, customer contracts, intellectual property, etc, or conferring control over them) would be notifiable where the jurisdictional thresholds are met, as it relates to the acquisition of an enterprise under section 5 of the Competition Act.

There is presently limited guidance from the CCI in relation to the treatment of joint ventures or the criteria it would apply in determining whether a transaction is greenfield or brownfield, or, for that matter, whether it would treat full-function joint ventures differently from non-full-function joint ventures.

Is there a definition of ‘control’ and are minority and other interests less than control caught?

The acquisition of ‘control’ is one of the events that may trigger a notification. As a starting point, ‘control’ is defined under explanation (a) to section 5 of the Competition Act to include ‘controlling the affairs or management by: (i) one or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, either jointly or singly, over another group or enterprise’.

Earlier, the CCI, in its substantial decisional practice, had interpreted control to mean the ability to exercise decisive influence over the management or affairs and strategic commercial decisions of a target enterprise, whether such decisive influence is capable of being exercised by way of a majority shareholding, veto rights (attached to a minority shareholding) or contractual covenants. However, in the last year, the CCI has further expanded the scope of ‘control’ in two of its orders, (i) penalising Telenor (C-2012/10/87) for failing to notify its acquisitions of shareholdings in two companies, and (ii) penalising UltraTech Cement (C-2015/02/246) for failing to provide information on the shareholding or control of the promoter family over two companies. In UltraTech Cement, the CCI stated that in defining control, regard has to be given to different levels of control - in ascending order, material influence, de facto control and controlling interest (de jure control) - and not just special rights. In Telenor, the CCI held that Telenor could not have sole control of the two target companies as (i) in the first target, another shareholder held 51 per cent shareholding, conferring a controlling interest, and (ii) in the second target, even though Telenor held 67.25 per cent shareholding, other shareholders held more than 26 per cent, giving them the ability to block special resolutions (and is considered negative control even under Foreign Direct Investment policy). In these cases, the CCI has moved from the concept of ‘decisive influence’ based on special or veto rights, towards a more expansive definition of control, to include ‘material influence’.

Such interpretation, therefore, includes negative control by minority shareholders. In contrast to mere ‘investor protection’ rights, having the ability to veto (or cause a deadlock in respect of) strategic commercial decisions could be sufficient to confer at least joint control, the acquisition of which would require notification to the CCI. Such strategic commercial decisions have included annual business plans, budgets, recruitment and remuneration of senior management, and opening of new lines of business.

Because of the expansive interpretation accorded to the meaning of ‘control’, and the absence of clear guidance from the CCI on which specific rights will be considered as pure minority protection rights, the distinction between genuine minority protection rights and negative control has become blurred. As a result, many pure financial investments and private equity transactions are susceptible to review and have been reviewed by the CCI.

Thresholds, triggers and approvals

What are the jurisdictional thresholds for notification and are there circumstances in which transactions falling below these thresholds may be investigated?

Set out below are the jurisdictional thresholds under the Competition Act.

Parties test
  • The parties have combined assets in India of 20 billion rupees or combined turnover in India of 60 billion rupees; or
  • the parties have combined worldwide assets of US$1 billion including combined assets in India of 10 billion rupees or combined worldwide turnover of US$3 billion including combined turnover in India of 30 billion rupees.
Group test
  • The group has assets in India of 80 billion rupees or turnover in India of 240 billion rupees; or
  • the group has worldwide assets of US$4 billion including assets in India of 10 billion rupees or worldwide turnover of US$12 billion including turnover in India of 30 billion rupees.

For the purposes of calculating the jurisdictional thresholds, the government of India has exempted, in the public interest, groups that exercise less than 50 per cent of the voting rights in the other enterprise.

The government of India, through a notification dated 27 March 2017, revised the de minimis target-based filing exemption to now apply to all forms of transactions (ie, acquisitions, mergers and amalgamations), for a period of five years until 28 March 2022, whereas earlier it only applied to acquisitions, and in the case of a division of the business being acquired, applied to the selling entity. Under the current exemption, transactions where the assets being acquired, taken control of, merged or amalgamated are not more than 3.5 billion rupees in India or where the turnover is not more than 10 billion rupees in India are exempted from the CCI notification requirement (Target Exemption).

The revised notification also effectively added an explanation in relation to assessing the jurisdictional thresholds.

Is the filing mandatory or voluntary? If mandatory, do any exceptions exist?

If the jurisdictional thresholds are met and no exemptions are available (as discussed above), the combination needs to mandatorily be notified to the CCI. Where a proposed combination consists of a number of inter-connected steps or transactions, even where one or more of these steps or transactions would, on a stand-alone basis, have been exempt from filing, all such transactions must be filed as a composite whole and must not be completed pending the CCI’s review.

In addition to the Schedule I exemptions (as listed above) and the Target Exemption, the government of India has also exempted banking companies from the merger notification requirement when a notification of moratorium has been issued in respect of such companies. A notification of moratorium is ordinarily issued to ‘failing’ banks that are financially and operationally weak and are on the brink of insolvency. In August 2017, the government of India through its notifications exempted Regional Rural Banks and nationalised banks from the application of the provisions of sections 5 and 6 of the Competition Act for a period of five years and 10 years, respectively. Through another notification in November 2017, the government of India exempted central public sector enterprises along with their subsidiaries operating in the oil and gas sectors from the application of the provisions of sections 5 and 6 of the Act for a period of five years.

Section 6(4) of the Competition Act provides that acquisitions, share subscription 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, do not need to be pre-notified to the CCI. However, in such cases, the body concerned will need to notify the CCI of the acquisition, within seven calendar days of completion of the transaction. So far, there have been only four decisions published by the CCI under this provision.

Do foreign-to-foreign mergers have to be notified and is there a local effects or nexus test?

Until the end of March 2014, the Regulations provided an exemption for transactions between parties outside India provided there was insignificant local nexus and effects on markets in India. The CCI interpreted the exemption narrowly, rendering it virtually redundant. To remove uncertainty in this regard, the CCI withdrew the exemption, so that foreign-to-foreign transactions satisfying the standard assets and turnover thresholds under the Competition Act, and not covered by any of the other exemptions, will have to be notified even if there is no local nexus and effects on markets in India. However, the absence of a local nexus and effects will expedite the review and clearance process by the CCI.

Are there also rules on foreign investment, special sectors or other relevant approvals?

There are currently no other special rules under the Competition Act governing merger control review for foreign investment or specific sectors such as telecoms, pharmaceuticals, the media, oil and natural gas.

In addition, there are non-competition regulatory approvals, which may be required, depending on the sector in which the investment is being made. Notably, following an amendment to the recently introduced Insolvency and Bankruptcy Code, 2016, it has been made clear that where a transaction covered by the corporate insolvency resolution process (CIRP) has to be notified to the CCI, approval by the CCI is required before a resolution plan is approved by the committee of creditors. The CIRP is limited to 180 days, which may be extended up to a further 90 days in certain cases. To meet this tight deadline, a bidder would be advised to notify a transaction to the CCI as early as possible.

Notification and clearance timetable

Filing 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 has removed the requirement on parties to notify combinations to the CCI within 30 calendar days of the relevant trigger event. While notifiable transactions will still require approval from the CCI prior to closing and remain subject to penalties for gun jumping, the elimination of the filing deadline removes the artificial timing pressures on filing parties.

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. In addition, 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 COMPAT upheld both penalties and the Supreme Court of India upheld the penalty imposed in the SCM Soilfert case.

Given the trigger exemption, we anticipate that the CCI will now be more vigilant in pursuing defaulters and parties are likely to increase the use of the substantive pre-notification consultation process before formally submitting the filing.

Which parties are responsible for filing and are filing fees required?

In case of an acquisition, the acquirer and in 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, the notice is filed in the (long) Form II.

The filing fee for Form I is 1.5 million rupees and for Form II it is 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 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 quantum 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 case of consummating 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 more recently, a penalty of 1 million rupees (Chhatwal Group Trust (C-2018/01/544)), and by way of advancing a loan 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. Recently, the CCI found that even a contractual clause in the acquisition agreement amounted to consummation of a part of the acquisition (Bharti Airtel (C-2017/10/531)). It is not clear what the offending clause covered, as material parts of the order are redacted. However, the CCI considered that the arrangement dis-incentivised the target from competing with the acquirer, that it affected the business activities in the ordinary course of the target and that it 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 inventories, 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 (i) guidelines issued by the sectoral regulators setting caps on market shares and spectrum holdings did not replace the competition mandate of the CCI; (ii) spectrum constituted an asset, the acquisition of which amounted to a combination under the Competition Act; and (iii) 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.

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 in this regard. 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 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?

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 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. 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.

Phase I

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 working 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.

Phase II

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 in relation to the comments received from the public or stakeholders. 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 the 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 in case 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 Regulations 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.

Substantive assessment

Substantive test

What is the substantive test for clearance?

The substantive test for assessing a combination is whether the combination will cause or be likely to cause an AAEC within the relevant market in India.

To determine whether a combination will have or be likely to have an AAEC, the CCI may consider all or any of the following factors stated in section 20(4) of the Competition Act:

  • actual and potential level of competition through imports in the market;
  • extent of barriers to entry in the market;
  • level of combination in the market;
  • degree of countervailing power in the market;
  • likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;
  • extent of effective competition likely to sustain in a market;
  • extent to which substitutes are available or are likely to be available in the market;
  • market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination;
  • likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
  • nature and extent of vertical integration in the market;
  • possibility of a failing business;
  • nature and extent of innovation;
  • relative advantage, by way of the contribution to the economic development, by any combination having or likely to have an AAEC; and
  • whether the benefits of the combination outweigh the adverse impact of the combination, if any.

Is there a special substantive test for joint ventures?

No, there is no special substantive test for joint ventures and nothing has so far emerged from decided cases.

Theories of harm

What are the ‘theories of harm’ that the authorities will investigate?

There is no clear guidance from the CCI on the theories of harm that they will investigate. However, on the basis of the CCI’s jurisprudence, the CCI has considered both unilateral effects and coordinated effects (and a combination of both in one case) as appropriate theories of harm in a number of cases.

To date, the CCI has been focused on combined market shares and the presence of strong competitors post-transaction in approving transactions.

The CCI has considered the impact of a proposed combination on innovation and has required divestments that allow a new entrant to compete in the market. In addition, in Agrium/PotashCorp, the CCI arrived at a view that the combination might cause coordinated effects in the market for supply of potash in India and required a divestment of minority shareholdings in competing enterprises.

Non-competition issues

To what extent are non-competition issues relevant in the review process?

Non-competition issues are not relevant in the review process. In Walmart/Flipkart (C-2018/05/571), a number of market players and pressure groups voiced criticisms of Flipkart’s business practices. However, the CCI found that the majority of these concerns were unconnected to the transaction and many had nothing to do with competition law.

Economic efficiencies

To what extent does the authority take into account economic efficiencies in the review process?

Section 20(4) of the Competition Act prescribes various factors that may be considered by the CCI while examining a transaction, including various efficiency-related factors. The efficiency-related factors include:

  • nature and extent of innovation created as a result of the transaction;
  • relative advantage, by way of contribution to the economic development by any transaction causing or being likely to cause an AAEC; and
  • assessing whether the benefits outweigh the adverse impact of the transaction.

In its limited decisional practice to date, the CCI has not cleared any transaction that was likely to or caused an AAEC, solely on the grounds that efficiencies outweighed competition concerns. The CCI has taken the prima facie view that a transaction may cause an AAEC on approximately 10 occasions, which were cleared on account of modifications and divestments, and not on account of efficiencies. Some limited guidance can be drawn from the CCI’s clearance decision adopted in Etihad Airways/Jet Airways, Holcim/Lafarge and PVR/DT (C-2015/07/288) transactions, where the CCI has indicated that the efficiencies (where claimed by the parties) should be merger specific, verifiable, quantifiable and outweigh competition concerns.

Remedies and ancillary restraints

Regulatory powers

What powers do the authorities have to prohibit or otherwise interfere with a transaction?

In the event the CCI believes the transaction will cause or is likely to cause an AAEC in India, the transaction will be treated as void, and all actions taken in pursuit of the void transaction shall also be void. In such a case, the CCI has the power to unwind the transaction, though this has not happened to date. The CCI also has the power to reduce the scope of ancillary restrictions such as non-compete provisions and can also order divestiture of assets. There is no express restriction on the types of remedies that the CCI can accept to address AAEC concerns.

Remedies and conditions

Is it possible to remedy competition issues, for example by giving divestment undertakings or behavioural remedies?

Yes, it is possible to remedy competition issues.

Initially, the remedies considered by the CCI were largely in the context of non-compete obligations in the pharmaceutical sector. Since then, the CCI considered far more significant remedies, both behavioural and structural, while clearing the transactions. For example, in a proposed transaction related to establishing a joint venture in relation to aviation fuel farm facility, the CCI accepted, among other matters, commitments in relation to third-party access rights as a remedy for clearing the transaction. Structural remedies have been imposed in Holcim/Lafarge and Sun/Ranbaxy (C-2014/05/170). In PVR/DT, the CCI relied on structural remedies, and required divestitures and expansion freezes as a precondition to clearing these transactions. The CCI did not accept behavioural remedies in the form of price caps, as it considered such remedies to be ineffective to address the identified AAEC concerns, and difficult to monitor. The CCI has required significant India-specific remedies in Dow/DuPont, FMC/Dupont (C-2017/06/519), Bayer/Monsanto and ChemChina/Syngenta (C-2016/08/424) to approve these transactions. The CCI has also gone as far as requiring divestment of minority shareholding in companies in India (Bayer/Monsanto) and outside India (Agrium/PotashCorp).

What are the basic conditions and timing issues applicable to a divestment or other remedy?

During Phase I, the CCI will carry out a review of the proposed combination within a 30-working-day period. However, if the CCI reaches out to third parties during Phase I, this time period is extended by up to 15 working days. In practice, the process may take more than 30 to 45 working days, as the clock can be stopped for various reasons, including the time taken to respond to information requests. At the end of this, the CCI may arrive at the opinion that the proposed combination is not likely to have an AAEC, in which case it will approve the combination. During this phase, the parties themselves may offer modifications that, if accepted by the CCI, will be treated as conditions in the clearance order. Where modifications are offered by the parties, the time period for the CCI to come to a prima facie view is extended by another 15 days.

Alternatively, the CCI may reach a prima facie opinion that the combination is likely to cause an AAEC. Unless the parties can, in response to a show cause notice, persuade the CCI otherwise, the Phase II investigation will start. Through an amendment to the Regulations, the CCI now allows the parties to offer modifications (remedies) in response to a show cause notice, before the start of a detailed Phase II investigation.

Once the Phase II investigation commences, as a formal matter, it is for the CCI to initiate the remedies process by proposing modifications to the transaction, although it will in practice allow the parties to set the ball rolling informally. The Competition Act provides in some detail the Phase II process for agreeing to modifications. Where the CCI proposes modifications to proposed combination, the parties to the combination may carry out modifications within the specified period, or submit amendments to the modifications to the CCI within 30 working days. If parties’ proposed amendments are rejected, the parties have 30 working days to accept original modifications proposed by the CCI. If parties fail to accept the original modifications or to implement them, the combination will be prohibited. In the Dow/Dupont and Bayer/Monsanto transactions, the CCI took over 500 days (including all time exclusions) to conditionally approve the transactions, subject to modifications.

Therefore, the CCI’s review period can end with a prohibition decision, an unconditional approval or an approval conditional on behavioural or structural remedies.

What is the track record of the authority in requiring remedies in foreign-to-foreign mergers?

The CCI is yet to require remedies in foreign-to-foreign transactions, and none have been offered to date.

Ancillary restrictions

In what circumstances will the clearance decision cover related arrangements (ancillary restrictions)?

The CCI requires parties to file all ancillary arrangements along with the notification form. Approval for the combination thus also covers the ancillary restrictions.

There is some guidance from the CCI in relation to the acceptable scope of non-compete arrangements (including in relation to duration, geographic and product scope). The CCI’s guidance makes it clear that a restriction will be regarded as ancillary only where it is directly related to and necessary to the implementation of the transaction, taking account of the reasonableness of the restriction in terms of duration, subject matter and geographical scope. Where the covenants are for longer durations, the CCI will seek justifications from the parties.

If non-competes do not fall under the guidance, they remain subject to review under sections 3 and 4 of the Competition Act regarding anticompetitive agreements and abuse of dominant position, respectively. The CCI does not conduct such analysis in its merger review process. However, its orders state that the non-compete are not ancillary to the transaction. In the last year, in SVF Doorbell (C-2019/01/633), CA Swift Investments (C-2019/01/643) and Atos/Syntel (C-2018/08/592), the CCI approved the transactions, but noted that the duration and scope of non-compete provision were not ancillary to the transaction, and were thus, not covered by the approval order.

Involvement of other parties or authorities

Third-party involvement and rights

Are customers and competitors involved in the review process and what rights do complainants have?

Third parties do not have a right to voluntarily represent their interests during Phase I of the investigation; however, the CCI can reach out to third parties, and on such occasions, these specific third parties may make their representations to the CCI during Phase I. Further, if the CCI forms a prima facie opinion that the combination has, or is likely to have, an AAEC, it shall, after considering the response of the parties to the combination or receipt of the report from the Director General, whichever is later, direct the parties to the combination to publish details of the combination in daily newspapers.

Thereafter, the CCI may ask any person or member of the public affected or likely to be affected by the said combination to file his or her objections in writing within 15 working days of the date on which the details of the combination were published. The person filing his or her objection is required to substantiate his or her claim that he or she is adversely affected or is likely to be affected by the combination by producing supporting documents.

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

The CCI remains free to contact customers, competitors and suppliers of the parties to the combination during the course of the investigation and has done so informally even during the Phase I review period. In complex transactions with significant overlaps, the CCI is increasingly relying on these powers and has reached out to competitors and customers to gather information as well as verify the information and claims made by the notifying parties. The CCI has also increased its international cooperation, especially in its review of global, multi-jurisdictional transactions.

In August 2018, in Walmart/Flipkart, the CCI approved the acquisition of the majority stake in Flipkart by Walmart. Notably, a number of market players and pressure groups voiced criticisms of Flipkart’s business practices. The CCI found that majority of these concerns were unconnected to the transaction and many had nothing to do with competition law. It did, however, take note of the concerns of deep discounting and preferential treatment to select retailers in online marketplaces, but held that these were not specific to the notified transaction as, if so, Flipkart was doing so prior to the proposed acquisition. Accordingly, as the purpose of merger review is to consider the effects of combinations, such conduct was not subject to the merger review process. Separately, Flipkart’s conduct was investigated pursuant to a complaint filed by the All India Online Vendors Association (AIOVA) alleging abuse of dominant position (AIOVA v Flipkart (Case No. 20 of 2018)). The complaint was dismissed by the CCI, holding that no case of contravention of the provisions dealing with abuse of dominant position is made out against Flipkart. The matter is pending appeal before the National Company Law Appellate Tribunal (NCLAT).

Publicity and confidentiality

What publicity is given to the process and how do you protect commercial information, including business secrets, from disclosure?

Parties are required to submit a 500-word summary of the transaction (not containing any confidential information), which is uploaded on the CCI website as soon as parties file their notification form with the CCI.

The CCI allows requests for confidentiality by parties, when these requests are specifically made in writing along with the notification form, or along with any other information submitted to the CCI. The CCI requires that the parties submit detailed reasons and justifications in support of their confidentiality claims. The CCI has required such reasons to be provided in an affidavit. Once accepted, the CCI will not publish information on which the parties have requested confidentiality without first obtaining the permission of the parties. As a general matter of practice, the CCI grants confidentiality for three years.

Cross-border regulatory cooperation

Do the authorities cooperate with antitrust authorities in other jurisdictions?

The CCI has signed memorandums of understanding (MOUs) with various competition authorities, including with the Federal Antimonopoly Service of Russia, the US Federal Trade Commission and the Department of Justice, the Canadian Competition Bureau, the European Commission, and the Australian Competition and Consumer Commission to enhance cooperation between the authorities. The CCI is in the process of signing similar MOUs with other key jurisdictions.

The MOUs, which are very general, are intended to increase cooperation and communication between the competition authorities. The CCI has stated that it has reached out to other competition authorities during the review process and regularly seeks waivers from parties to share information with other authorities in large global transactions.

Judicial review

Available avenues

What are the opportunities for appeal or judicial review?

Any person aggrieved by an order of the CCI approving or prohibiting a transaction may appeal to the NCLAT within 60 days. Appeals previously lay before the COMPAT, which has been dissolved as of 26 May 2017. Orders of the COMPAT and NCLAT can be further appealed to the Supreme Court of India.

In 2013, a concerned citizen appealed the Etihad Airways/Jet Airways decision before the COMPAT in Jitender Bhargava v Competition Commission of India & Ors (Appeal No. 44 of 2013). The appeal was dismissed as the appellant did not have locus standi to appeal the CCI’s decision as it was not a ‘person aggrieved’ as required by the Competition Act.

Similarly, in 2014, Thomas Cook appealed the CCI’s decision in Thomas Cook/Sterling Holidays (Appeal No. 48 of 2014), and the COMPAT set aside the 10 million rupees penalty imposed by the CCI for a delayed filing. The CCI appealed this decision in the Supreme Court of India, which has restored the penalty on Thomas Cook in its recent order and upheld the CCI’s decision. The penalty of 20 million rupees imposed on the acquirer in SCM Soilfert for consummating strategic open market purchases in the target enterprise, without prior approval from the CCI, was upheld in appeal both in the COMPAT and the Supreme Court.

In 2016, Dalmia Cements appealed the CCI’s supplementary order passed in Holcim/Lafarge on the grounds that the CCI did not have the power to pass such an order under the Competition Act. The COMPAT granted interim relief to Dalmia Cements, staying the operation of the CCI’s supplementary order; however, Dalmia Cements withdrew its appeal prior to the COMPAT deciding the case finally.

In Agrium/PotashCorp, upon rejection of the counter-proposal made by the parties to divest shareholding in two entities as opposed to three entities that were proposed by the CCI to remedy the resultant coordinated effects in the market, the parties filed an appeal before the NCLAT. In the first ever appeal against a CCI modification proposal, the NCLAT provided six weeks’ time to the parties and the CCI to arrive at a consensus and resolve the matter. Subsequently, the parties submitted a new proposal, accepted by the CCI and that was approved by the NCLAT, which accordingly disposed of the appeal.

In August 2018, the Confederation of All India Traders, a trader’s collective, filed an appeal before the NCLAT, challenging the approval order passed by the CCI in Walmart/Flipkart on the ground that the CCI failed to look into the anticompetitive effects arising out of the combination. The hearings in the matter have concluded and the judgment has been reserved.

Time frame

What is the usual time frame for appeal or judicial review?

Section 53B(5) of the Competition Act provides that appeals before the NCLAT shall be dealt with expeditiously and the NCLAT shall endeavour to dispose of appeals within six months. Appeals of merger decisions have generally been completed within this period.

Enforcement practice and future developments

Enforcement record

What is the recent enforcement record and what are the current enforcement concerns of the authorities?

Since the merger control provisions came into force in June 2011, the CCI has cleared almost all notifications in the Phase I review period. Public orders have been published in Sun/Ranbaxy, Holcim/Lafarge, PVR/DT, Dow/DuPont, Bayer/Monsanto, Agrium/PotashCorp, Linde/Praxair (C-2018/01/545) and Schneider/L&T (C-2018/07/586), which were all approved subject to remedies after a Phase II review. Show cause notices were issued in Mumbai International Airport (C-2014/0/164), Nippon Yusen Kabushiki (C-2016/11/459) and ChemChina/Syngenta; however, these transactions were cleared before Phase II was initiated. To date, there have been no prohibition decisions.

In the last year, the CCI unconditionally approved Walmart/Flipkart, Alstom/Siemens (C-2018/07/588), IndiaIdeas.com/Visa (C-2018/12/620), GlaxoSmithKline/HUL (C-2018/12/625) and Proctor and Gamble/Merck (C-2018/06/579), whereas, it approved Northern TK Venture/Fortis Healthcare (C-2018/09/601) and Reliance/Den/Hathaway takeovers (C-2018/10/609 and C-2018/10/610) subject to voluntary remedies in Phase I.

The CCI appears to have paid particular attention to the technology and healthcare sectors in its merger review process. It has also reviewed the cement sector in greater detail given the recent consolidation in the sector and the history of cartelisation.

Reform proposals

Are there current proposals to change the legislation?

There are no current proposals to change the legislation.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year36 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

The CCI cleared a number of high-profile mergers in 2018. These included Walmart’s acquisition of a majority stake in Flipkart; the CCI found that the relevant B2B market in which the parties were active was very competitive, given the presence of large players and the very low market shares of the parties. The CCI declined to consider a number of criticisms of Flipkart’s business practice, finding that these were not specific to the notified transaction. The CCI also cleared Siemens’ proposed acquisition of Alstom, wherein the parties overlapped in the mobility business (products and services for rail transport), but there was no likelihood of an AAEC given the low combined market shares, limited bidding overlaps and the presence of other credible and big competitors. However, the European Commission blocked the transaction on the basis of the concern specific to the European Union.

In Bayer/Monsanto, the CCI cleared the major agrochemicals merger on the basis of divestment of certain businesses and of behavioural commitments, including requirements to license on fair, reasonable and non-discriminatory (FRAND) terms and to give Government of India institutions free access to Indian agro-climatic data. In Linde/Praxair, a merger between the two industrial gas giants was cleared on the basis of commitments to divest certain plants and filling stations as well as Linde’s shareholding in a joint venture. In Northern TK Ventures/Fortis Hospitals, a member of the acquirer’s group had an interest in a joint venture (JV) operating a competing hospital. Concerns that the JV might be used as a platform for coordination by competing companies were addressed by a ‘rule of information control’ ensuring that the JV and the combined entity would operate as separate, independent and competitive businesses, which included the removal of interlocking directorates. The CCI also cleared two acquisitions by companies in the Reliance Industries Limited Group of majority stakes in and sole control of multi system operators Den Networks (Den) and Hathaway Cable and Datacom in the markets for broadcasting and distribution and broadband internet services, subject to voluntary undertakings: (i) no technical alignment resulting in changes in equipment in customer premises; and (ii) in case of any change, the costs would be borne by the parties and the customers would be free to choose any type of services and bundles of services offered by the companies concerned. Schneider/L&T became the first ever transaction to be approved after a Phase II review purely on the basis of behavioural commitments offered by the parties along with a detailed implementation and monitoring mechanism.

Following an amendment to the Insolvency and Bankruptcy Code, 2016, it has been clarified that where a transaction covered by the CIRP is required to be notified to the CCI, approval by the CCI is required before a resolution plan is approved by the committee of creditors. The CIRP is limited to 180 days, which may be extended up to a further 90 days in certain cases. To meet this tight deadline, a bidder would be advised to notify a transaction to the CCI as early as possible after an expression of interest with a resolution professional. The CCI reviewed a number of transactions under the Insolvency and Bankruptcy Code. Most of these involved the steel and cement industries. In view of the tight timelines prescribed by the Code, all these proposed combinations, none of which raised AAEC concerns, were speedily reviewed and cleared.

The CCI has continued its hard-line stance in relation to failures to notify notifiable transactions and implementation before clearance, ie, gun jumping. The CCI penalised some telecommunications companies for failing to notify acquisitions of spectrum that constitute assets and the exemption for the acquisition of assets made solely as an investment or in the ordinary course of business did not apply. The CCI has moved from the concept of ‘decisive influence’ based on special or veto rights towards a more expansive definition of control, to include ‘material influence’.

The CCI made a number of amendments to the Regulations, in particular allowing parties to ‘pull and refile’ a merger notification and enabling the parties to offer modifications (remedies) in response to a show cause notice, before the start of a detailed Phase II investigation.

In July 2018, the CCI introduced a Do It Yourself (DIY) Notifiability Check for Mergers and Acquisitions under the Competition Act, available at https://www.efilingcci.gov.in/DIY/#/. This is designed to help individuals (and their advisers) determine whether a transaction is notifiable to the CCI based on the assets and turnover thresholds and available exemptions.