SECTION 1: Overview
1.1 Please provide a brief overview of your jurisdiction's merger control legislative and regulatory framework.
Competition law in India is governed by the Competition Act, 2002 (the Act) and regulations framed under the Act. The enforcement agency under the Act is the Competition Commission of India (CCI).
The merger control provisions under the Act were notified with effect from June 1 2011, and it provides for a mandatory and suspensory regime for all notifiable transactions (i.e. acquisitions, mergers and amalgamations) which meet the specified asset or turnover thresholds prescriber under the Act. The notifiable transactions which satisfy the specified jurisdictional thresholds are known as combinations under the Act.
In addition to the Act, the CCI has framed the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (Combination Regulations), which provide the procedural framework with respect to merger control.
The failure to report a notifiable combination can attract a penalty which may extend to one percent of the worldwide turnover or assets, whichever is higher, on the parties to the combination.
In addition to levying penalties, the CCI also has the power to declare void/unscramble an unreported combination, if it is of the view that the combination will have, or will likely to have, an appreciable adverse effect on competition (AAEC) in India. The power to declare void/unscramble a combination can be exercised by the CCI up to one year from the date on which the combination has taken effect. This limitation period does not apply in relation to imposing penalties on parties for a failure to notify a combination to the CCI.
1.2 What have been the key recent trends and developments in merger control?
The CCI's average review time to assess a notifiable transaction has reduced to approximately 24 working days in 2017 (until December 2017) from approximately 34 working days in 2016 – this despite the CCI having limited resources in the merger control division as compared to its international counterparts.
In June 2017, the CCI issued a guidance note on non-compete clauses laying down the overall framework and its approach for the assessment of non-compete restrictions in M&A transactions. This is a welcome step as around 60% (13 cases) of all modifications voluntarily offered or imposed by the CCI (22 cases) pertained to scope and duration of the non-compete obligations.
In the same month (June 2017), the Government of India removed the mandatory 30-day filing deadline for notifiable transactions to bring India's merger control regime in line with international best practices.
In order to further streamline the merger regime in India, the de minimis exemption issued by Government of India in March 2017, clarified that asset acquisitions would entail application of de minimis and jurisdictional thresholds only to the assets and turnover of the relevant business being acquired and not to the aggregate value of the seller's entire financials as previously considered. In a similar vein, the Central Government extended the applicability of the de minimis thresholds to 'mergers and amalgamations' and not just to acquisitions – recognising that the structure of a corporate organisation is irrelevant to the applicability of the thresholds.
1.3 Briefly, what is your outlook for merger control over the next 12 months, including any foreseeable legislative reform/revisions?
The Government of India and the CCI have made significant strides with respect to merger control in 2017. The approach followed by the CCI is indicative of the fact that the CCI will continue to fine-tune the procedural framework, reduce average time taken to approve transactions, and consult with the various stakeholders prior to amending the Combination Regulations on a periodic basis.
The CCI has played a vital role in constantly fine-tuning the merger control regime and has been able to address several teething issues since its inception in 2011. However, one key change which remains on the industry's wish list to be addressed by the CCI, is the right of a hearing before the CCI proceeds to invalidate a merger notification – which it currently can, and does, without providing the notifying parties of an opportunity of being heard.
SECTION 2: Jurisdiction
2.1 What types of transactions are caught by the rules? What constitutes a merger and how is the concept of control defined?
All combinations, subject to certain specific exemptions under the Act and the Combination Regulations, are notifiable. Provided that the prescribed thresholds for assets or turnover are satisfied, the following types of combinations are covered under the Act:
- an acquisition of control, shares, voting rights or assets of one or more enterprises;
- an acquisition of control by a person over an enterprise where such person already has control over another enterprise engaged in engaged in production, distribution or trading of similar or identical or substitutable goods or provision of similar or identical or substitutable services; and
- a merger or amalgamation between or amongst enterprises;
The Act defines control to include controlling the affairs or management by: one or more enterprises, either jointly or singly, over another enterprise or group; one or more groups, either jointly or singly, over another group or enterprise.
The CCI, by way of its decisional practice, has interpreted control to mean the ability to exercise control over the management or affairs and strategic commercial decisions of an enterprise. Such control may be exercised by way veto rights attached to minority shareholding, contractual covenants, or majority shareholding.
A pure greenfield joint venture (JV) is not notifiable given the de minimis exemption issued by the government of India. However, a brownfield JV, where the JV partner(s) is contributing assets (such as, customer contracts, machinery etc) would be notifiable if the jurisdictional thresholds are satisfied. There is no guidance from the CCI with respect to the differentiation in treatment of full-functional JV from non-full-functional JV.
It is to be noted that a share subscription or financing facility or acquisitions by financial institutions, pursuant to any covenant of a loan or investment agreement, which breach the thresholds are not required to be notified to the CCI for its prior approval but are required to be intimated post consummation (see Section 3).
2.2 What are the jurisdictional thresholds for notification? Can the authorities investigate a merger falling below these thresholds?
If any of the below-mentioned thresholds are exceeded, the combination will require a prior approval from the CCI.
The notifying parties have combined assets in India of INR20 billion ($315 million) or combined turnover in India of INR60 billion. or
The notifying parties have combined worldwide assets of $1 billion including combined assets in India of INR10 billion or combined worldwide turnover of $3 billion including combined turnover in India of INR30 billion.
The group has assets in India of INR80 billion or turnover in India of INR240 billion.
The group has worldwide assets of $4 billion including assets in India of INR10 billion or worldwide turnover of $12 billion including turnover in India of INR30 billion.
The CCI cannot investigate a transaction which does not breach the jurisdictional thresholds and therefore does not qualify as a combination under the Act.
2.3 Are foreign-to-foreign transactions caught by the rules? Is a local effect required to give the authority jurisdiction to review it?
There is no exception for foreign-to-foreign transactions, and so long as the jurisdictional thresholds are exceeded, the combination will require the prior approval of the CCI. The local nexus test is met if the target exceeds the Indian assets and turnover thresholds specified in the de minimis thresholds, and the parties on a combined basis exceed the jurisdictional thresholds which also contain minimum Indian asset or turnover requirements.
The Combination Regulations earlier provided a relaxation for combinations taking place entirely outside Indian with insignificant local nexus and effects on markets in India, but this relaxation was done away with in May 2014.
The Act provides jurisdiction to the CCI for any acts taking place outside India, including a combination taking place outside India, if such combination has or is likely to have an AAEC in India.
SECTION 3: Notification
3.1 When the jurisdictional thresholds are met, is a filing mandatory or voluntary? What are the risks/sanctions for failing to notify a transaction and closing prior to clearance?
The filing of a merger notification for a combination is mandatory as well as suspensory, ie the combination cannot be consummated without the receipt of approval from the CCI.
The Act provides for a self-assessment regime to determine the form of the merger notification to be filed with the CCI based on the market shares of the combining parties. A combination may be notified to the CCI in short form (Form I) or long form (Form II). Form II is preferably required to be filed when: the combined market shares of notifying parties, who are competitors, is more than 15% in the relevant market; or the combined market share of the notifying parties, who operate in vertically linked markets, is more than 25% in either the upstream or the downstream market.
The CCI reviews information in the public domain for those transactions which ought to have been notifiable under the Act but did not seek CCI's prior clearance. In such cases, the CCI issues a show cause notice to parties asking for details about their financials and transaction documents, in order to ascertain whether the transaction benefitted from any relaxation or was a case of gun-jumping.
The failure to report a notifiable combination can attract a penalty which may extend to one percent of global turnover or assets, whichever is higher, on the parties to the combination. In addition to levying penalties, the CCI also has the power to declare void/unscramble an unreported combination, if it is of the view that the combination will have, or will be likely to have, an AAEC in India.
Separately, a share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement, which breaches the thresholds is required to be filed within seven days of consummation of the transaction. In other words, no prior approval is required for such transactions and only information regarding the transaction needs to be provided in the specified form (Form III).
3.2 Who is responsible for filing? Do filing fees apply?
The party responsible for filing in case of an acquisition (of shares, control, voting rights or assets) is the acquirer. In case of a merger or amalgamation, the parties to the merger need to jointly file the merger notification with the CCI.
The statutory filing fees for a short form filing (Form I) is INR1.5 million, whereas the statutory filing fees for a long form filing (Form II) is INR5 million. There is no filing fee for Form III.
3.3 Is there a deadline for filing? What are the filing requirements and how onerous are they?
The 30-day filing deadline was removed by the government of India in June 2017. The notifying parties have the discretion to file the merger notification at any time prior to closing.
In terms of the information required, even the short form (Form I) requires the notifying parties to provide significant data up-front, including details of the relevant market, details pertaining to the upstream and downstream markets, details of the five largest competitors, five largest suppliers and five largest customers. Further, the short form requires the notifying parties to provide information at group level in terms of overlaps in the relevant market. In this regard, notifying parties are required to provide an overview of the business activities of the party in India, as well as a broad description on a worldwide basis. Additionally, the notifying parties would also need to disclose, if they have any direct or indirect shareholding and/or control over other enterprises that are engaged in similar activities as the notifying parties.
A long form merger notification is 40-60% more onerous than a short form, requiring additional details in terms of the financial details, market information (such as, distribution channels and service networks), level of concentration in the market, costs in terms of research and development, details of imports and exports, price lists of the last three years, economic rationale of the transaction and the like. The CCI typically expects an economist report to be provided in case of a long form filing.
Form III notifications are required to be filed within seven days from the consummation of the transaction. The Form III requires details of the transaction including the details of control, the circumstances for exercise of such control and the consequences of default arising out of such loan agreement or investment agreement.
3.4 Are pre-notification contacts available, encouraged or required? How long does this process take and what steps does it involve?
The parties to a potential transaction can seek guidance from the CCI by requesting a pre-filing consultation, including review of draft merger notification.
The request for a pre-filing consultation is to be provided in prescribed format and sent via e-mail, and is usually granted within a week. The pre-filing consultation is typically provided in a physical meeting and the views provided by the CCI are not binding.
SECTION 4: Review process and timetables
4.1 What is the standard statutory timetable for clearance and is there a fast-track procedure? Can the authority extend or delay this process? What are the different steps and phases of the review process?
The Act provides for an outer limit of 210 calendar days for the CCI to review a notified combination, failing which the combination is deemed to be approved. There CCI does not have any facility to fast track a merger filing.
Phase I review
The CCI is required to provide a prima facie opinion on whether a proposed transaction will cause or is likely to cause an AAEC in the relevant market in India within 30 working days of filing the merger notification (excluding clock stops). The 30-working day timeline is not absolute as the CCI can 'stop the clock' and seek additional information from the notifying parties, and the time taken by the parties to submit such information is excluded from the 30-working day computation.
The 30-working day review period can be extended further by another 15 working days, each, in the event the CCI calls for further information from third parties or there is a voluntary commitment by the notifying parties at the end of the phase I review period.
Phase II review
Where the CCI is of the opinion that a combination notified to the CCI, has or is likely to have an AAEC, it can subject the merger notification to an in-depth investigation process (which lasts a further 180 days). Parties cannot consummate the combination, including parts of the combination, until the CCI approves the combination at the end of the Phase II process. Note that Form I merger notifications can also be subjected to a phase II investigation.
Typically, a no-issues short form (Form I) is cleared within two calendar months and a long form (Form II) is cleared within three to four calendar months.
4.2 What is the substantive test for clearance? What are the theories of harm the authorities will investigate? To what extent does the authority consider efficiencies arguments?
The substantive test for assessing a combination is whether the combination will cause or be likely to cause an AAEC in the relevant market in India. In order to determine whether a combination will have or be likely to have an AAEC, the CCI may consider all or any of the following factors stated in Section 20(4) of the Act:
- actual and potential level of competition through imports in the market;
- extent of barriers to entry in the market;
- level of combination in the market;
- degree of countervailing power in the market;
- likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or
- profit margins;
- extent of effective competition likely to sustain in a market;
- extent to which substitutes are available or are likely to be available in the market;
- market share, in the relevant market, of the persons or enterprise in a combination, individually and as a combination;
- likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
- nature and extent of vertical integration in the market;
- possibility of a failing business;
- nature and extent of innovation;
- relative advantage, by way of the contribution to the economic development, by any combination having or likely to have an AAEC; and
- whether the benefits of the combination outweigh the adverse impact of the combination, if any.
The CCI principally assesses whether the proposed combination will lead to co-ordinated effects – as there is one less player in the market; or unilateral effects – where the merged enterprise has the ability to raise prices above competitive levels. The CCI also employs certain screening tests such as the Herfindahl-Hirschman index, Elzinga-Hogarty test, concentration ratio and gross upward pricing pressure index while making its competition assessment.
As regards efficiency arguments put forward by the notifying parties, the CCI has indicated that the efficiency must be specific to the combination and resulting from it. The CCI will not accept broad claims of synergies and efficiencies created by the combination.
4.3 Are remedies available to address competition concerns? What are the conditions and timing issues applicable to remedies.
Several notifying mergers have offered voluntary commitments to avoid a phase II investigation. As mentioned above, there have been several voluntary modifications with respect to the scope and duration of non-compete. The CCI has shown a preference for structural remedies over behavioural remedies, as it cannot monitor behavioural for the most part.
SECTION 5: Judicial review
5.1 Please describe the parties' ability to appeal merger control decisions and the time-limits applicable. What is the typical time-frame for appeals.
The appeals for decisions of the CCI lies with the National Company Law Appellate Tribunal, which replaced the erstwhile Competition Law Appellate Tribunal. Third parties seeking to appeal merger control orders of the CCI must establish locus standi and there is a 60-day time limit for filing an appeal against the merger control orders. There have been very few appeals in relation to merger control orders, with most combinations being approved without any intervention from the CCI. Typically, appeals take up to a year to get decided.
|About the author|
Nisha Kaur Uberoi
Nisha Kaur Uberoi is a partner and the national head of the competition law practice at Trilegal, where she leads one of the largest competition law teams in India.
Uberoi advises on a full range of competition matters, including cartel enforcement, abuse of dominance, leniency applications, merger control, competition law audit and compliance. She represents clients in cartel investigations as well as abuse of dominance proceedings and regularly appears at the Competition Commission of India (CCI), the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court. Uberoi is currently the lead lawyer on the alleged cement cartel case, where she is representing ACL, a LafargeHolcim company, in which the cement companies were penalised approximately $1.6 billion by the CCI. She is currently defending companies in alleged cartels across several sectors, including inter alia, the tyre, cement, auto-parts and shipping liner businesses.
Uberoi has obtained a significant number of merger control clearances in India (200 of an approximate total of 497 merger notifications). She also advised on India's first two Phase II investigations involving divestitures. She recently obtained an unconditional approval on the Idea Cellular and Vodafone merger. Nisha currently serves as India's Non-Governmental Advisor for the International Competition Network.