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Merger review

The merger control provisions of the CA have been in effect in India since 1 June 2011 and the CCI, which has been entrusted with merger control, promulgated the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (Combination Regulations) on 11 May 2011, setting in place procedural and certain substantive aspects of Indian merger control. The Combination Regulations have been amended annually by the CCI in February 2012, April 2013, March 2014, July 2015, January 2016 and most recently on 9 October 2018.

The Indian merger control regime is a mandatory regime; accordingly, pre-merger clearance from the CCI must be obtained before completion of a transaction, and the transaction must be suspended until such clearance occurs. There is no concept of a voluntary notification to the CCI (i.e., if the thresholds tests are not met, no notice can be filed with the CCI). The revised financial thresholds have been prescribed as follows:

India (rupees)Worldwide (US dollars)
Combined assetsCombined turnoverCombined assetsCombined turnover
Parties20 billion60 billion1 billion3 billion
Group80 billion240 billion4 billion12 billion

The Combination Regulations provide for filing fees ranging between 1.5 and 5 million rupees depending on which form the parties to the combination are required to file with the CCI (respectively, Form I and Form II).

In pure acquisitions, it is the acquirer that is obliged to make the filing and pay the appropriate filing fee. However, in the case of a merger or amalgamation, the parties to the combination are required to jointly make the filing with the CCI and, therefore, jointly remit the filing fee. Further, unless otherwise exempt, combinations that are structured as mergers or amalgamations approved by the boards of directors of the transacting parties on or after 1 June 2011, or that are structured as acquisitions where the definitive acquisition agreement or other binding document is executed on or after 1 June 2011, must be notified to the CCI for its approval. The notified transaction cannot be completed until the CCI gives its approval or 210 calendar days have passed from the date of notification, whichever is earlier. In cases where a transaction is not notified at all, the CCI cannot initiate an enquiry after the passing of one year from the date of completion of the transaction.

Non-filing of a notifiable transaction (i.e., gun jumping) is punishable by a fine of the higher of 1 per cent of the assets or turnover of the combination.

The October 2018 amendments to the Combination Regulations brought several anticipated changes to the regime. The CA stipulates a deemed approval of a transaction 210 days after filing; the October 2018 amendments clarified that clock stops pursuant to requests for information from parties should be excluded when counting the 210-day period. Further, the earlier regulations were silent on the ability of parties to withdraw notices or refile or propose voluntary modifications before Phase II investigation. The amended Combination Regulations now expressly allow parties to withdraw and refile notices, and propose voluntary modifications in Phase I itself or immediately after a prima facie order is passed by the CCI after Phase I investigation. Now the parties need not wait for a Phase II investigation to begin before they can propose voluntary modifications. The approach iterated in the amended Combination Regulations is a welcome change which is consistent with the approach taken by leading international antitrust regulators.

The Central Government of India, through a notification dated 29 March 2017, revised and updated earlier notifications on the 'de minimis exemption' or 'small target exemption'. The prescribed effect of this March 2017 notification is that acquisitions of a target with Indian assets of up to 3.5 billion rupees or turnover of up to 10 billion rupees in India are granted an exemption from notifying the CCI. Notably, the March 2017 notification expands the scope of the earlier 'small target exemption' notifications to include mergers and amalgamations, and also provides the much-needed clarification that only the 'true target' in the case of asset acquisitions has to be considered for the purposes of determining the applicability of the asset and turnover thresholds under the CA. The 'de minimis exemption' or 'small target exemption' is currently available until 28 March 2022, unless otherwise extended.

Apart from the 'de minimis' exemption or the 'small target exemption', the Ministry of Corporate Affairs, Government of India from time to time, through notifications under the CA, has also exempted certain enterprises from the provisions of Section 5 and 6 of the CA in the public interest. In addition, Schedule I of the Combination Regulations also describes several potential transaction scenarios that 'need not normally be notified' to the CCI.

i Significant cases

The year 2018 saw the imposition of hefty penalties for gun jumping and clearance of important global mergers.

The Linde/Praxair case and the Bayer/Monsanto case were global mergers of equals that were sent into Phase II investigation by the CCI. In both of these cases the CCI identified significant overlaps and ordered a conditional approval. In Linde/Praxair, the structural remedies ordered by the CCI were divestment of Linde's industrial gas plants and cylinder filling stations operating in the eastern and southern regions of India and divestment of Linde's share in Bellary Oxygen Company Private Limited, a joint venture between Linde and Inox Air Products Limited. In addition to the above structural remedies, the CCI also ordered the parties to the transaction not to employ, or make offers of employment to, any key personnel of the businesses being divested, for a specified period of time. In Bayer/Monsanto, the structural remedies ordered by the CCI were divestment of the NSH-BAC business, vegetable seeds business, and the entire shareholding in Maharashtra Hybrid Seeds Company Limited along with any rights held therein. In addition, the CCI also ordered Bayer to undertake behavioural commitments such as following broad-based, non-exclusive licensing of GM as well as non-GM traits, allowing fair reasonable and non-discriminatory access to certain digital platforms, and a commitment not to bundle any of its products, etc. Hybrid remedies are in vogue internationally and it appears the CCI has followed the trend.

As discussed above, the amendments brought to the Combination Regulations in October 2018 allowed parties to propose voluntary modifications in Phase I of the investigation. This amended provision was used by the parties in the Northern TK Venture/Fortis Healthcare case, which was approved in Phase I after the acquirer provided voluntary commitments to the CCI including implementation of an elaborate 'rule of information control' between the acquirer and one of its joint ventures operating in a geographic market with a high market share of the acquirer.

In Adani Transmission Limited, the acquirer had advanced to the seller loans adjustable with the consideration payable for the transaction and the share purchase agreement envisaged advancement of further loans to the seller which was also adjustable with the consideration payable. In the CCI's view, in effect the loans were in the nature of advance consideration. The CCI found the act of advancing of loans, by the acquirer to the seller, adjustable with the consideration amount, and the stipulations in the share purchase agreements allowing advancing of similar loans to the seller to be in contravention of the standstill obligation under the CA. However, having regard to mitigating factors such as full cooperation by the parties in furnishing information and establishment of infringement on the basis of information voluntarily provided by the parties, the CCI imposed a nominal penalty of 1 million rupees on the acquirer.

In the LT Foods Limited case the parties to the proposed combination had entered into a framework agreement in terms of which the acquirers were to pay before the approval of the CCI an advance of 17 million rupees and undertake measures such as handover of inventories to the acquirers, introduction and interaction with suppliers of the seller, restriction on promotional spending and restriction on the seller entering or exiting territories. The CCI found all of these measures to be in contravention of the standstill obligation under the CA. The CCI reiterated that the standstill obligation under the CA not only prohibited completion or closure of a transaction before the approval of the CCI, but also prohibited coordination between the parties to the transaction. In the CCI's view, the intention of the parties to acquire, merge or amalgamate should necessarily remain merely a proposal. However, having regard to mitigating factors like full cooperation by the parties in furnishing information, establishment of infringement on the basis of information voluntarily provided by the parties and consideration of the proposed transaction being low, the CCI imposed a nominal penalty of 500,000 rupees on the acquirer.

At the appellate level, the Supreme Court of India on 17 April 2018 passed two significant decisions on gun jumping. In CCI v. Thomas Cook India Limited and another, the Supreme Court upheld a CCI decision against Thomas Cook (India) Limited, Thomas Cook Insurance Services (India) Limited and Sterling Holiday Resorts (India) Limited imposing a penalty of 10 million rupees for gun jumping. Similarly, in SCM Soilfert Limited and another v. CCI, the Supreme Court upheld a CCI decision against SCM Soilfert Limited and Deepak Fertilizers and Petrochemicals Corporation Limited imposing a penalty of 20 million rupees for gun jumping. The Supreme Court, in these decisions, has clarified that transactions cannot be structured in a manner to avoid compliance with the mandatory provisions of merger control under the CA. Further, these judgments of the Supreme Court also provide valuable guidance on the factors that need to be considered in determining whether a transaction is independent or interrelated.

ii Trends, developments and strategies

After the removal of the 30-day timeline for filing a CCI notification by way of the June 2017 MCA Notification, there has been a significant decline in the number of gun-jumping cases for belated filing. This is a positive sign since parties are now able to provide a comprehensive notification to the CCI without having to rush the filing due to the erstwhile 30-day deadline.

There has been a string of cases penalising parties for the payment of advance consideration, either directly or through indirect structures. It appears that this trend will continue, given the CCI's strong stance, considering such advance payments to be partial closure of the transaction.

The recent amendments to the Combination Regulations bring some degree of respite for parties, since they are now allowed to make voluntary proposals for structural modification during Phase I. This amendment is critical as it provides leeway to parties to obviate a Phase II investigation altogether if the remedies proposed voluntarily are adequate to address the CCI's concerns.

Lastly, the recent rulings of the Supreme Court confirming the CCI's decisions in certain gun-jumping cases stand testimony to the robustness of the CCI's merger control jurisprudence. It is also worth mentioning that the CCI shared information with its counterparts in other jurisdictions while reviewing global mergers. This highlights the growing camaraderie between the CCI and other antitrust agencies. Thus far, India has only seen eight Phase II cases, with no transactions being blocked. This reflects the business-friendly outlook of the CCI.

iii Outlook

As mentioned above, the Central Government in India constituted an expert committee in September 2018 to review the entire competition law regime in India. The work of the committee is under way and it is speculated that the committee may recommend important changes to the merger control regime in India such as removal from the CA of the 30-day time limit from the trigger event to file a notification (at present this provision has been exempted from application by a notification for a period of five years), incorporation of common exemptions into the Act (at present these exemptions are contained in a schedule to the Combination Regulations), and change of the regime to a 'control regime', where only transactions involving change of control will be mandatorily notifiable to the CCI.