The 2002 Competition Act marked the introduction of a
comprehensive competition regime in India. The provisions of
the merger control regulations, which came into effect on June
1 2011, are however in conflict with the new Takeover Code that
was notified in September 2011. In an effort to address the
implications of this on M&A transaction costs, legal
practitioners have requested further alignment of the merger
control regulations with the Takeover Code.
The merger control regulations regulate any significant
acquisition activity that involves the transaction of Indian
assets. Any M&A transaction that results in a 'combination'
and breaches the specified asset or turnover threshold will
need prior clearance and approval by the Competition Commission
of India (CCI) before coming into effect.
The Competition Act states that the CCI has 30 days to form
a prima facie opinion following the date of filing the relevant
form. The CCI is allowed up to 210 days to pass its final
order, while the regulations governing combinations say that
the CCI shall endeavour to pass an order or issue directions
within 180 days from the date of filing.
The CCI decided, in its final notification on merger control
regulations released on May 11 2011, that the regulations will
only be applied to transactions that occur after June 1 2011.
This was in contrast to its earlier draft, which stated that
transactions that occurred before June 1 2011 would also need
In addition, the final notification also states that
transactions below 15% and the transfer of assets internally
within the same group are exempt from notification. Previously,
in its draft issued in March 2011, the CCI requested companies
to seek CCI clearance even for intra-group combinations. This
raised concerns among investors as this was an extra regulatory
burden for corporations.
There is a degree of satisfaction about the efficiency of
the CCI in handling cases. While the CCI is allowed 210 days to
come up with a formal decision, companies normally receive
responses on their transactions within a few weeks of filing.
Some legal practitioners have said that they do not see the
introduction of a merger regime to be a great problem for
companies because they only need to comply with the new
regulations and they can then continue with their
But J Sagar Associates partner Somasekhar Sundaresan says:
"This is an uninformed opinion. The conflict between merger
control and takeovers is yet to be overcome. The multiple
regulations have complicated the compliance process, and a lot
of extra work needs to be done. The conflict just causes too
much unnecessary trouble for merging activities."
Sundaresan adds that it is extremely important for the
regulators to resolve such inconsistencies before they have to
face more complicated filings in the future.
Under the new takeover regulations, notified on September 23
2011, acquirers that have reached the open offer limit of 25%
will need to make an open offer to public shareholders within
four days. An acquirer is required to pay interest to the
shareholders if their tendered shares are not paid within 15
days after offer. However, the CCI is allowed up to 30 days for
a non-binding prima facie opinion and 210 days to come up with
a final decision. This means that if the CCI is not able to
come up with a decision within 15 days after an open offer is
made, an acquirer in an M&A transaction would need to bear
the extra costs until a final decision is made.
"While the Takeover Code makes an open offer mandatory as
acquirers go beyond a certain threshold, the Competition Act
holds acquirers back from doing that for a certain period of
time," says Sundaresan. "This has put companies in very complex
situations. Much more will need to be done to harmonise the
|India introduces merger
The merger control provisions, which came into
effect on June 1 2011, require the following categories
of proposed 'combinations’. This is as
defined in the 2002 Competition Act and satisfying the
'asset/turnover’ test below.
- Acquisition of control, shares, voting rights or
assets of an enterprise.
- Acquisition of control by a person over an
enterprise when such person has already direct or
indirect control over another enterprise engaged in
production, distribution or trading of a similar or
identical or substitutable goods or provision of a
similar or identical or substitutable service.
- Merger or amalgamation.
The table below displays the thresholds* to be
satisfied by combinations in order for the merger
control provisions to apply:
|In India or
|(i) Acquirer +
Target (ii) Existing Enterprise + Target (iii)
INR1,500 crores (US$331 million)
INR4,500 crores (US$994 million)
||more than US$750
million (including at least INR750 crores in
US$2.25 billion (including at least INR2,250
crores in India)
|Group to which
the Target/ merged entity would belong to after
INR6,000 crores (US$1.3 billion)
INR18,000 crores (US$3.98 billion)
||more than US$3
billion (including at least INR750 crores in
||more than US$9
billion (including at least INR2,250 crores in
* 'Assets’ or the 'Turnover’
thresholds have to be met.
** The value of assets shall be determined by taking
the book value of the assets as shown, in the audited
books of account of the enterprise, in the financial
year immediately preceding the financial year in which
the date of proposed merger falls, as reduced by any
depreciation, and the value of assets shall include the
brand value, value of goodwill, or value of copyright,
patent, permitted use, collective mark, registered
proprietor, registered trade mark, registered user,
homonymous geographical indication, geographical
indications, design or layout design or similar other
***'Turnover’ includes value of sale of
goods or services.
Source: The Competition Commission of India
to return to IFLR supplements