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Legislation, triggers and thresholds

Legislation and authority

What legislation applies to the control of mergers?

The Competition Act, 2002 and the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 are the two key merger control statutes. The central government is also empowered to issue notifications granting exemptions from time to time.

What is the relevant authority?

The Competition Commission of India is the primary authority responsible for enforcing merger control rules under the Competition Act. Its decisions may be appealed to the National Company Law Appellate Tribunal (NCLAT). NCLAT’s decisions may be appealed to the Supreme Court of India, which is the final appellate authority under the Competition Act.

Transactions caught and thresholds

Under what circumstances is a transaction caught by the legislation?

A ‘combination’ is defined as either a merger or an acquisition of shares, assets or control which exceeds the financial thresholds, in terms of both assets and turnover, set out in the Competition Act.

Transactions that do not meet these thresholds do not constitute a combination and need not be reviewed by the commission.

Under the Competition Act, parties to mergers or acquisitions of assets, shares or control that exceed these thresholds must file a formal notification in the prescribed form with the commission and wait until approval has been granted before closing the deal. This rule applies to all transactions, with the sole exception of acquisitions by certain financial institutions pursuant to a covenant in a loan or investment agreement. In such cases, notification should be made post-closing and the commission’s approval is not required.

Inter-connected transactions Where a transaction is structured as a series of interconnected steps, each of these steps is considered as part of a single composite transaction. If any one of these steps meets the thresholds, pre-merger notification is mandatory before any part of the transaction can be implemented.

The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 further provide that certain transactions are unlikely to have an appreciable adverse effect on competition and as such are not ordinarily notifiable (listed in the section on notification process below).

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

The commission has jurisdiction to review and investigate a transaction if it meets the prescribed thresholds as provided below.

Jurisdictional thresholds Transactions are caught by the merger control legislation if the enterprises involved in the transaction meet the thresholds set out below.

Direct parties test: India

Assets

OR

Turnover

Combined Indian assets > Rs20 billion

 

Combined Indian turnover > Rs60 billion

(approx $310 million)

 

(approx $931 million)

Direct parties test: worldwide and India

Assets

OR

Turnover

Combined worldwide assets > $1 billion

 

Combined worldwide turnover > $3 billion

and

 

and

Combined Indian assets > Rs10 billion

 

Combined India turnover > Rs30 billion

(approx $155 million)

 

(approx $465 million)

Acquiring group test: India

Assets

OR

Turnover

Combined worldwide assets > Rs80 billion

 

Combined India turnover > Rs240 billion

(approx $1.24 billion)

 

(approx $3.72 billion)

Acquiring group test: worldwide and India

Assets

OR

Turnover

     

Combined worldwide assets > $4 billion

 

Combined worldwide turnover >$12 billion

and

 

and

Combined Indian assets > Rs10 billion

 

Combined India turnover > Rs30 billion

(approx $155 million)

 

(approx $465 million)

Notes:

The Competition Act defines ‘group’ to mean two or more enterprises which, directly or indirectly, are in a position to:

  • exercise 26% or more of the voting rights in the other enterprise;
  • appoint more than 50% of the members of the board of directors in the other enterprise; or
  • control the management or affairs of the other enterprise.

Asset acquisition The most recent change in the merger control rules is that now, if the transaction involves an acquisition, merger or amalgamation of a portion or business division of an enterprise, the value of assets and turnover of that portion or business division of the enterprise will be relevant in assessing whether the notification requirement applies.

Target de minimis exemption  Notwithstanding the above, the Indian government has established a target-based exemption whereby a transaction is exempted if the target entity (or business) has assets in India worth less than Rs3.5 billion (approx $54 million) or turnover in India of less than Rs10 billion (approx $155 million). This exemption is effective until March 28 2022. 

Informed guidance

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

Yes ‒ parties may apply for a pre-filing consultation with the commission. The pre-filing consultation is confidential and the parties must apply for it separately. The consultation is oral, informal and non-binding on the commission. 

Foreign-to-foreign

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

Foreign-to-foreign mergers are caught under the Indian merger control regime. If a transaction meets the prescribed thresholds, it will be subject to the pre-notification requirement even in the absence of any local nexus.

Joint ventures

What types of joint venture are caught by the legislation?

No special provisions relate to joint ventures under the Competition Act. A joint venture comprising an acquisition or merger that meets the thresholds will be subject to the pre-notification requirement. Typically, a greenfield joint venture will be exempt under the target de minimis exemption.

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