What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
Where the proposed foreign investment is to be made via the approval route, the jurisdiction of the competent authorities is triggered, as they have the authority to review the proposed applications. FDI transactions of more than 50,000 million rupees need the prior approval of the Cabinet Committee on Economic Affairs. Further, any investment or payment made into India must be reported to the RBI either through authorised dealers or directly to the RBI, depending on the nature of investment or payment made into India.
Under the Competition Act, a combination will need to be mandatorily notified to the CCI if it satisfies any of the following assets and turnover thresholds, and is unable to take the benefit of any of the available exemptions:
Either the acquirer or the target or both have
20 billion rupees
60 billion rupees
The group to which the target will belong has
80 billion rupees
240 billion rupees
Either the acquirer or target or both have
In the case of a merger, the enterprise after a merger or created as a result of the merger, has
US$1 billion, including assets of at least 10 billion rupees in India
US$3 billion, including turnover in India of more than 30 billion rupees
A group has
US$4 billion, including assets of at least 10 billion rupees in India
US$12 billion, including turnover in India of more than 30 billion rupees
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees?
Foreign investments are permitted in India through the automatic route and the approval route depending on the sector. No prior approval is required for activities falling under the automatic route, subject to compliance with the applicable performance conditions. However, areas or activities that do not fall within the automatic route and are under the approval route require the prior approval of the competent authority (see questions 3 and 6). Further, foreign investment in some sectors, such as the pharmaceuticals sector, is permitted up to a certain threshold via the automatic route, and beyond such threshold via the approval route. To obtain approval, the investor company or investee company (the applicant) must submit a single online application on the website of the FIFP along with such information as required, which, inter alia, includes:
- a summary of the foreign investment proposed;
- certificate of incorporation and memorandum of articles of the investor and investee company (and in the case of a joint venture, of the joint venture company);
- diagrammatical representations of the cash flow;
- foreign inward remittance certificates evidencing the fund flows; and
- a copy of the board resolution of the investee or issuing company in the case of a fresh issue of shares. Certain categories of foreign investors, such as investment funds, are required to provide additional documentation pertaining to the investment managers and contributors to such funds.
If the online application is not digitally signed, the DIPP will direct the applicant to submit a physical copy of the application to the concerned competent authority within five days of such direction being given to the applicant. There is no fee for filing an online application.
Further, all notifiable combinations must be notified to the CCI in the format prescribed under the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (Combination Regulations). The Ministry of Corporate Affairs of the Indian government issued a notification on 29 June 2017 that does away with the erstwhile requirement to necessarily notify a combination within 30 calendar days of an event triggering a notification requirement. However, the requirement to file a notice with the CCI is still mandatory and the suspensory regime (ie, requirement to receive CCI approval prior to consummating a notifiable transaction in any way or form) still applies. Subject to the extent of market shares in overlap markets the transaction may be notified in the shorter form (Form-I) or a more detailed form (Form-II). Subsequent to filing the application, the CCI reviews the combination to ascertain if the combination causes or is likely to cause any AAEC, before passing its final order.
Which party is responsible for securing approval?
The approval of the competent authority is required if the investment is made under the approval route and either of the parties, being the foreign collaborator or foreign investor, or the Indian company, can secure approval from the competent authority. Further, where an investment involves an acquisition of shares, assets, voting rights or control, the acquirer will be responsible for notifying the combination to the CCI. In the case of a merger or amalgamation, all the parties are jointly responsible for notifying the combination to the CCI.Review process
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
Within two days of submission of the online application, the DIPP is required to e-transfer the application to the competent authority concerned and also circulate the application to the RBI, the Ministry of Home Affairs (MHA) (in case the proposed foreign investment is in a sector requiring security clearance) and the Ministry of External Affairs. The concerned ministries are required to upload their queries regarding the application on the FIFP within four weeks of online receipt of the application. If security clearance is required from the MHA, the aforesaid timeline can be extended to six weeks (Stage 1). Within one week of the completion of Stage 1, the competent authority may pose queries to the applicant. The applicant must respond to the queries of the competent authority within one week of the date of receipt of queries (Stage 2). Within two weeks from the completion of Stage 2, the competent authority must process the application and convey its decision to the applicant. The above timelines are subject to variation in the event that the application is subject to receipt of security clearance from the MHA or because of other administrative reasons. The status of the application can be tracked on the FIFP website.
As far as the CCI is concerned, the overall prescribed statutory time period to review the combination and pass a final order is 210 calendar days from the date of filing of the notification, and in limited situations, where remedies may be warranted, 270 days to disapprove or approve the transaction. The Combination Regulations further provide that the CCI shall endeavour to pass its final order within 180 calendar days of filing the notification. Further, the CCI must form a prima facie opinion on the likelihood of the combination resulting in an AAEC within 30 working days of filing the notification. This is subject to ‘clock stops’ on account of requests from the CCI for additional information, extensions sought by parties, etc. The extent of overlaps relating to the combination, the sensitivity of the government towards the sector to which the combination relates and the existence or likelihood of the combination resulting in AAEC, are some of the factors that may determine the timeline for clearance. In a majority of cases, the CCI has approved transactions within the 30 working day timeline (excluding clock stops).
There are four broad categories of exemptions under the merger control regime that the parties to the combination can analyse and benefit from:
- Statutory exemption: the requirement of mandatory notification to the CCI do not apply to any financing, acquisition or subscription of shares undertaken by FIIs, or venture capital funds registered with the SEBI, public financial institutions and banks pursuant to a covenant of an investment agreement or a loan agreement. However, these entities are required to provide details of the acquisition, including control, circumstances for exercising such control and consequences of default arising out of such loan agreements or investment agreements to the CCI within seven days of the date of the acquisition.
- Categories of transactions ‘normally’ exempt from mandatory notification: Regulation 4 read with Schedule 1 of the Combination Regulations treats certain categories of transactions as being ordinarily not likely to cause an appreciable adverse affect on competition in India, and hence provides that a pre-notification need not normally be filed for such transaction.
- Target-based exemption (de minimis exemption): further to the thresholds notification, any transaction where the enterprises (ie, the enterprises whose shares, voting rights, assets or control are being acquired or are being merged or amalgamated) either has assets not exceeding 3,500 million rupees in India or has a turnover not exceeding 10,000 million rupees in India, are currently exempt from the mandatory pre-notification requirement.
- Exemptions for specific sectors: the central government has issued notifications exempting certain banking companies from the notification requirement to the CCI for a period of five years (for example, see notifications dated 8 January 2013 and 30 August 2017). Recently, the central government also exempted certain central public sector enterprises operating in the oil and gas sector from the CCI notification requirement for a period of five years from 22 November 2017.
There are no expedited or ‘fast-track’ options for the review process; however, occasionally the government of India considers proposals for the fast-track single window clearance of foreign investment on jurisdictional basis.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
Where investment is through the approval route, prior approval must be obtained before the transaction is completed (Regulation 16(A)(2), TISPRO 2017). If the parties complete the transaction before obtaining the relevant approvals or in a manner that contravenes the FEMA (or rule, regulation, notification, direction or order issued in exercise of the powers under the FEMA) or contravene any condition subject to which an authorisation is issued by the RBI, the parties shall, upon adjudication by the designated authorities of the Enforcement Directorate (Directorate), be liable to a penalty of up to three times the sum involved where such amount is quantifiable or up to 200,000 rupees where the amount is not quantifiable. A penalty of 5,000 rupees will be incurred for every day after the first day on which the contravention continues. Further, under section 14 of the FEMA, in the event of non-payment of the penalty within 90 days from the date the notice for payment of such penalty is served, the parties shall be liable to civil imprisonment.
Every notifiable combination requires the approval of the CCI prior to its consummation. If a notifiable combination is not notified, or if the parties take any step to implement the combination (or a part thereof) prior to the receipt of the CCI’s approval, the CCI may impose penalties extending up to 1 per cent of the total turnover or assets (whichever is higher) of the combination. In the past, the CCI has imposed penalties of up to 50 million rupees. To date, the CCI has not exercised its power to impose the highest allowable penalty under the Competition Act.Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
Formal or informal guidance from authorities such as the competent authority or the DIPP can be obtained prior to a filing being made or during the time that the application is in process. An applicant can submit a clarification to the DIPP listing its query in the prescribed form. The CCI has also put in place a mechanism for pre-filing informal merger consultations, but it is not binding.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
Experts and specialists are involved at the stage when policy decisions are being made for the purposes of receiving recommendations. Lobbying does not formally prevail in India. There is no informal procedure or mechanism available to facilitate clearance of any proposal. The process of granting approval is transparent and is solely considered on the basis of the TISPRO 2017. The applicant must meet all the legal requirements as prescribed for the approval to be granted. Applicants can track the status of their applications on the FIFP website on both a daily and a weekly basis. In the past, economists have been engaged by parties for merger control filings to the CCI.
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
The DIPP and the RBI may review, challenge and unwind an approved transaction. In Bycell Telecommunication India P Ltd v Union of India and Ors, the FIPB, having previously granted approval to the petitioner, revoked it - after the Ministry of Home Affairs withdrew the security clearance of the petitioner - on the grounds that even if the petitioner had complied with requirements under the laws relating to foreign investment, lack of a security clearance is a valid ground to revoke an application. Further, under the provisions of the FEMA, the central government, by an order published in the Official Gazette, may appoint as many officers of the central government as it likes as the adjudicating authorities for holding an inquiry into the person alleged to have committed contravention of the FEMA. The Directorate is a specialised financial investigation agency under the Department of Revenue, Ministry of Finance, which has, under the central government, been accorded powers and is mandated with the task of enforcing the provisions under the FEMA.
The CCI may also review, challenge or unwind only those combinations, where the transactions that met the assets or turnover thresholds prescribed under the Competition Act were not notified for CCI’s approval, after their closing. Once the combination has been consummated, it may be subject to such review by the CCI for only up to one year from the date on which such combination has taken effect. However, the CCI is not precluded from penalising parties for failure to notify and for having consummated combination without its approval after the period of one year has passed from the date of consummation of the transaction.