Latest Indian merger control trends analysed

Author: | Published: 26 Sep 2012
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India's Competition Act, 2002 was brought into force in phases, with Sections 3 and 4 (regulating anti-competitive agreements and abuse of dominance) coming into force on May 20 2009. Sections 5 and 6 of the Act were brought into force on June 1 2011, along with the accompanying Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (the Combination Regulations). Together, these constitute the merger-control regime.

The first year of implementation of the merger-control regime has thrown up several substantive and procedural issues which required scrutiny of and guidance from the Competition Commission of India (CCI), the nodal agency under the Act. The CCI notified the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2012 in February 2012. This has addressed some of these concerns and is an indication of the regulator's receptiveness to feedback from industry.

Notification of combinations

From June 1 2011, all acquisitions of an enterprise, mergers or amalgamations of two or more enterprises, where the asset and turnover thresholds prescribed under the Competition Act are met (known as combinations), will require mandatory approval from the CCI. The Act envisages a suspensory regime; a transaction, in which a merger filing has been made, cannot be completed until approval has been received from the CCI or 210 days have elapsed, whichever is earlier.

The Government of India, through a notification dated March 4 2011, has exempted combinations from the requirement of merger notification where the target enterprise (including its units, divisions and subsidiaries) has assets of value less than Rs2.5 billion ($44.7 million) or turnover less than Rs7.5 billion in India for a period of five years. The purpose of this target exemption is to provide a de minimis threshold and exempt enterprises which are not likely to enjoy significant market power from the purview of the merger-control regime under the Act.

However, the 2012 Amendment Regulations provide that if, as part of a series of steps in a proposed transaction, particular assets of an enterprise (a business or a division) are moved to another enterprise (a separate legal entity), which is then acquired by a third party, the entire assets and turnover of the selling enterprise (from which these assets and turnover were hived off) will also be considered when calculating thresholds for the purposes of Section 5 of the Act. This effectively narrows the scope of the de minimis target based threshold under the target exemption.

If the target enterprise cannot make use of the target exemption, then the jurisdictional thresholds based on the parties and group tests (described below) need to be evaluated.

Under the parties test, the acquirer and target enterprise, including its divisions, units and subsidiaries will need to make a notification if they jointly have either: assets in excess of Rs15 billion in India or turnover in excess of Rs45 billion in India; or worldwide assets in excess of $750 million, including at least Rs7.5 billion in India or worldwide turnover in excess of $2.25 billion, including at least Rs22.5 billion in India.

Meanwhile, under the group test, notification must be made if the group to which the target entity will belong post-acquisition has either: assets in excess of Rs60 billion in India or turnover in excess of Rs180 billion in India; or worldwide assets in excess of $3 billion, including at least Rs7.5 billion in India or worldwide turnover in excess of $9 billion, including at least Rs22.5 billion in India.


Apart from the target exemption, Schedule I to the Combination Regulations enumerates 11 combinations which are ordinarily exempted from the obligation to notify the CCI, as they do not cause an appreciable adverse effect on competition (AAEC) in the relevant market in India. The 2012 Amendment Regulations have brought about significant changes to certain exemptions, however.

The Combination Regulations (as amended) provide an exemption where an acquirer acquires shares or voting rights that do not entitle it to more than 25% of the total shares or voting rights in a target and the acquisition is made solely for the purpose of investment or in the ordinary course of business, not resulting in the acquisition of control of the target. The 25% threshold is in line with the threshold for open offer obligations under the Securities and Exchange Board of India (Substantial Acquisitions of Shares and Takeovers) Regulations, 2011. The use of the word "entitle" in the language of the exemption indicates that convertibles would also be calculated under the 25% threshold.

Further acquisitions of shares by an acquirer who already holds above 50% of the equity shares of the target are exempt, so long as the acquisition does not result in a change from joint to sole control. This would potentially affect impact exits in joint ventures and pre-emption rights, which meet the prescribed thresholds under the Act.

(It may be noted that acquisitions of shares or voting rights from 25% to 49.99% are not addressed by the Combination Regulations if the prescribed thresholds are met.)

Three further exemptions from notification are also provided. The first is where there are changes to share capital: acquisitions of shares or voting rights, not leading to control, by way of buybacks, bonus issues, stock splits, consolidation of face value of shares and rights issues (even beyond the entitlement of the acquirer). A renunciation of rights issue which results in a change in control could require notification to the CCI, however.

The second relates to intra-group mergers and amalgamations: the Amendment Regulations introduced a partial exemption for mergers or amalgamations between a holding company and a subsidiary wholly owned by enterprises within the same group and between subsidiaries wholly owned by enterprises belonging to the same group.

The third exemption applies in the case of combinations taking place outside India having insignificant local nexus and effect on markets in India. It may be noted that the CCI has, in two orders pertaining to offshore combinations, clarified that if either of the parties to the combination has a presence in India and the prescribed thresholds are met, the requirement for significant local nexus and effects on the market in India is satisfied.

Further, under Section 6(4) of the Act, acquisitions of shares or voting rights by a public financial institution, foreign institutional investor, bank or a venture capital fund, pursuant to a loan agreement or investment agreement, are exempt from the obligation of prior notification to the CCI and are only required to file a post-facto intimation form with the CCI within seven days of such acquisition.

Merger notification procedure

The trigger for merger notifications under the Competition Act is the execution of a binding document to acquire in the case of an acquisition, or the final approval of the board of directors of the parties in the case of a merger. The notification is required to be filed with the CCI within 30 days of the trigger event.

The Combination Regulations provide for three forms on which merger-control notification is required to be made.

The default option is Form I (the short form), wherein parties are required to provide details of the combination and the transacting parties. All 56 combinations that have been notified to date have been Form I filings. The 2012 Amendment Regulations have done away with the facility of filing only a part of Form I in the case of certain transactions which are not likely to have any significant effect on competition. The parties to a combination will now be required to complete the whole of Form I. In addition, a provision has been introduced in Form I for parties to provide details of the value of the assets and turnovers for the purpose of Section 5 and to provide a copy of the agreement, board resolution, and so on (triggering document) as mentioned in Section 6(2) of the Act along with the Form. The filing fee for a Form I filing is now Rs1 million (approximately $20,000).

Form II (the long form) requires extensive details from the transacting parties, including information about the parties, group companies, all the products and services (and not just the products and services which form part of the relevant market for the transaction), nature of the market, including details such as the level of concentration, new entrants, potential entrants, regulatory barriers, pricing strategies, distribution networks, and so on. The 2012 Amendment Regulations state that Form II may preferably be filed in case of a horizontal overlap where the combined market share of the parties is more than 15%; and in case of a vertical overlap where the combined market share of the parties is more than 15%. The filing fee for Form II has been increased to Rs4 million.

Form III is the post-facto intimation form to be filed by public financial institutions, banks, venture capital funds and foreign institutional investors. This form requires details about the relevant market and parties to the combination. There is no filing fee for a Form III filing. There have been three Form III filings to date.

The Combination Regulations provide limited guidance to parties in relation to which form is required for notifying a proposed combination. The parties are required to self assess and opt for either Form I or Form II, on the basis of market shares. Although the CCI offers the facility of pre-merger consultation, the CCI's views are non-binding, informal and oral. There will be no time credit given for filing the incorrect form which will delay transaction timelines and lead to increased transactional costs.

The CCI is required to form a prima facie opinion within a period of 30 days from notification as to whether the Combination will cause an AAEC within the relevant market in India. While Section 20(4) of the Act enumerates several factors to be considered by the CCI in order to determine AAEC, a review of the orders of the CCI indicates that the CCI typically looks at issues including the business activities of the parties, the level of competition and number of competitors in the relevant market, the level of concentration in the relevant market, the potential for growth in the relevant market, and the presence of a regulator in the relevant market.

The CCI can, however, stop the clock during the 30-day period to seek additional information or clarification from the parties, and has done so in most of the 56 merger filings to date. To date, while the CCI has granted approval technically within 30 days, the CCI has taken up to 78 days in one instance to review a merger application inclusive of clock-stops. Given that the Competition Act prescribes a mandatory 210-day suspensory regime and the fact that the preliminary 30-day review timeline is not absolute, transacting parties should carefully assess the level of information they need to provide to the CCI in merger notifications in order to avoid delays in transaction timelines.


Under the Competition Act, the penalty imposed by the CCI for a belated notification or non-notification of a notifiable combination can extend up to 1% of the combined assets or turnover of the parties to the combination, whichever is higher. The Act also empowers the CCI to inquire into a combination that has not been notified for up to one year from the date of consummation of such combination and declare it void if such combination is likely to cause an AAEC in the relevant market in India. The Act prescribes liability of up to Rs10 million (approximately $200,000) for making false statements or omitting material information in the merger notification.

It is pertinent to note that even though there have been a number of belated filings, the CCI has not to date imposed penalties on transacting parties owing to the fact that the merger-control regime was in its first year of implementation. While transacting parties have thus far been given the benefit of the nascent regime, it will be interesting to watch how the CCI chooses to exercise its discretion in relation to penalties going forward.

Recent trends

The CCI has reviewed 58 Form I filings to date and has approved 55 combinations within the initial review period of 30 days. In three instances, the CCI has returned the notice filed to the parties on various grounds. In one instance, the transaction did not meet the prescribed thresholds under the Competition Act and did not require a merger notification. In the second instance, the transaction was abandoned for commercial reasons, and in the third instance the CCI noted that as there was a change in control of the amalgamating parties, there was a significant change in the information required to be considered in order to determine whether or not an AAEC in the relevant market was caused.

One recent trend relates to the CCI's use of the principle of aggregation. The CCI's view on slump sales and sale of business divisions, expressed in three early merger-control orders, was that for the purpose of the thresholds under Section 5, the "target enterprise" would be the vendor entity as a whole: the entity which is selling the business division and not merely the relevant business division being sold. As noted in the Mitsui/Sanyo and Saint Gobain orders, however, parties sought to structure transactions to avoid the slump sale issue and avoid CCI notification by transferring the relevant business divisions or assets to a newly incorporated SPV, which could make use of the target exemption on account of not having any turnover. The CCI, in these orders, adopted the principle of aggregation and aggregated the assets and turnover of the transferor company and the SPV, later incorporating this principle into the new Regulation 5(9) of the Combination Regulations and effectively diluting the target exemption.

Another issue that was partially addressed by the Amendment Regulations relates to intra-group mergers. The CCI adopted the view that the exemption from notification under Item 8 of Schedule I is applicable only to intra-group acquisitions and not amalgamations or mergers. As a result, 36 of 58 notifications to the CCI (to date) have been intra-group mergers or amalgamations, despite the fact that all intra-group re-organisations should be kept out of the purview of merger control as they do not have any impact on competition in the relevant market. However, a partial exemption to intra-group mergers and amalgamations between companies wholly owned by enterprises belonging to the same group was brought in through the Amendment Regulations (described above).

Despite some welcome clarity being brought in by way of the Amendment Regulations, ambiguity persists in other areas such as the treatment of joint ventures under Section 5 of the Act. Unlike competition law in the European Union, there is no distinction between full function joint ventures and non-full function joint ventures. Therefore, the applicability of the merger-control regime to a greenfield or brownfield joint venture is dependent on whether or not the prescribed thresholds (the target exemption, parties test and group test) are met. Before the introduction of Regulation 5(9) of the Combination Regulations, it was not likely that greenfield joint ventures would attract the merger-control notifications, as the turnover component of the jurisdictional thresholds would not be met. By way of Regulation 5(9), however, the assets and turnover of both the parent companies (who are transferring assets to the joint venture company) would be considered for the purposes of the thresholds under the Act.

There is no guidance from the CCI and limited precedent on the concept of "control" under the Act. The CCI has dealt with the concept of control in two instances. In its recent order in Acquisition by Independent Media Trust, the CCI approved the acquisition of zero coupon optionally convertible debentures by the Independent Media Trust, controlled by Reliance Industries. The CCI held that the subscription of convertible securities with an option to convert such convertible securities into equity shares of the target companies confers upon the acquirer the ability to exercise decisive influence over the management and affairs of the target companies. The CCI also noted in this order that the promoters of Network 18, holding 40% of the shareholding of Network 18 were in control of the company. Further, in Alok Industries/Grabal Alok Impex the CCI held that the existence of common promoters and management between two companies would indicate common control. However, the CCI has clarified in informal consultations that control will be construed on a case-by-case basis. Given that the Indian Competition Act is largely based on EU competition law, there may be a possibility that the CCI interprets control to include positive and negative control.

Despite being a threshold-based regime, the CCI has yet to provide guidelines or regulations in relation to the computation of assets and turnover. For instance, in the case of transactions relating to asset management companies in the mutual fund sector, the CCI has taken the view that the assets under management of those companies are also required to be aggregated for the purpose of computation of thresholds under Section 5, which is similar to the computation of turnover under EU competition law.

Another area of concern is possible jurisdictional overlaps between the CCI and other sectoral regulators. For instance, the Ministry of Corporate Affairs is formulating regulations for the pharmaceutical sector as it is proposed that the CCI review all foreign direct investment into the sector even if the jurisdictional thresholds have not been crossed. Other sectoral regulators (such as the Reserve Bank of India) are trying to exclude mergers and acquisitions in the banking sector from the purview of the CCI. Similarly, the Department of Telecommunications has reportedly sought an exemption for the telecommunications sector in India, in order to facilitate consolidation in that sector. While the CCI's expertise with respect to competition in such regulated markets cannot be challenged, co-ordination and information exchange between the CCI and such sectoral regulators is important to ensure that M&A activity in India is not hampered.

The above issues are likely to be addressed by the CCI in a fresh round of proposed amendments to the Competition Act. The efficiency of the CCI is commendable as it has been approving combinations in a time-bound manner given the nascency and ambiguities that are prevalent in the regime. The CCI's responsiveness to the industry's concerns, and its eagerness to develop a unique body of jurisprudence comparable to that of more advanced jurisdictions, is encouraging, and puts to rest any fears of merger control acting as a roadblock to M&A activity in India.

Nisha Kaur Uberoi

Amarchand & Mangaldas & Suresh A. Shroff & Co
5th floor, Peninsula Chambers
Peninsula Corporate Park
Lower Parel
400 013

T: +91 22 24964455

Nisha Kaur Uberoi is a partner of Amarchand Mangaldas and head of the competition law practice (Mumbai region) of the firm. Uberoi currently leads a team of ten lawyers exclusively doing competition law and handles complex competition law matters involving innovative solution-oriented structuring, interaction with the regulators and economists and a multidisciplinary approach. She advises on the full range of competition matters including, merger control, enforcement (cartel investigations and abuse of dominance) and competition audit and compliance.

Uberoi graduated from the National Law School of India University, Bangalore in 2002 and did her LL.M. at the National University in Singapore with a focus on Comparative Competition Law and Law and Economics in 2005. Prior to joining the firm, Nisha worked in a leading UK firm based in Singapore and advised on competition law and mergers and acquisitions.

Uberoi has been recognised by the International Who's Who of Professionals in 2011-2012 for her work in competition law.

Uberoi has authored several publications on competition law, including chapters on anti-competitive agreements, abuse of dominance and merger control for the BRICS book on competition law for International Bar Association – Kluwer publication, 2012. She has also written articles on merger control in India for the India Law Newsletter, ABA Section of International Law, February 2012 and Trends in Merger Control for the XBMA forum.

Uberoi represented Indian and multinational clients before the Competition Commission of India (CCI) and obtained the maximum number of merger control clearances in India. She also speaks regularly at various forums on competition law.

Cyril Shroff

Amarchand & Mangaldas & Suresh A. Shroff & Co
5th floor, Peninsula Chambers
Peninsula Corporate Park
Lower Parel
400 013

T: +91 22 2496 4455

Cyril Shroff is a managing partner of Amarchand & Mangaldas & Suresh A. Shroff & Co, India's largest and foremost law firm with approximately 575 lawyers. Amarchand Mangaldas has offices at Mumbai, New Delhi, Bangalore, Kolkata, Hyderabad, Chennai and Kolkata.

With over 30 years of experience in a range of areas, including corporate laws, securities markets, banking, infrastructure and others, Shroff is regarded and has been consistently rated as India's top corporate, banking and project finance lawyer by several international surveys including those conducted by International Financial Law Review, Euromoney, Chambers Global, Asia Legal 500, Asia Law and others.

Shroff has authored several publications on legal topics. He is a visiting lecturer of securities law at the Government Law College. He is a member of the advisory board of the Centre for Study of the Legal Profession established by the Harvard Law School, and a member of the advisory board of the National Institute of Securities Markets (NISM).

Shroff is a member of the executive council – Legal Practice Division of the International Bar Association and the advisory board of the Asia-Pacific Forum of the IBA. He is a member of the Media Legal Defence Initiative (MLDI) International Advisory Board. Also, a member of the Primary Markets Advisory Committee of the Securities and Exchange Board of India. Shroff is also part of various committees of the Confederation of Indian Industry – the National Council on Corporate Governance, the National Committee on Capital Markets, Private Equity & Venture Capital, Commodities Markets, Financial Investors and Regulatory Affairs. He has also been a member of several government and other regulatory committees on law reform concerning the corporate and securities market, bankruptcy laws and commercialisation of infrastructure.

Shroff was admitted to the Bar in 1982 after receiving his BA LLB degree from the Government Law College in Mumbai. He has been a solicitor, High Court of Bombay, since 1983.

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