Merger Regulation in India

Mandatory & Suspensory Regime

• The Indian merger regulation under the Competition Act, 2002 (as amended) (Competition Act or Act)
became effective on 1st June 2011. The CCI is the central enforcement agency for the merger control
regime.
• The Indian merger control regime is mandatory and suspensory. Notifiable transactions cannot be
consummated (entirely or in part) before CCI approval. Inter-connected transactions (including internal
reorganizations, in some cases) must remain in abeyance till the CCI approves the transaction.
• Transactions are notifiable, if thresholds prescribed under Section 5 of the Competition Act are met and
if exemptions are unavailable.
• A single notice explaining multiple interconnected transactions (even if individually not notifiable to the
CCI) must be filed with the CCI where a single such transaction is notifiable.
• Appeals against orders of the CCI lie to the National Company Law Appellate Tribunal (NCLAT) and then,
to the Supreme Court of India.

What is “Control” and what constitutes “Merger”

• The Act regulates combinations in mergers, acquisitions and amalgamations which cross the jurisdictional
thresholds laid down in the Act. The terms ‘merger’ and ‘amalgamation’ are not defined under the Act.
• ‘Acquisition’ is defined as directly or indirectly acquiring or agreeing to acquire: (1) shares, voting rights
or assets of any enterprise; or (ii) control over management or control over assets of any enterprise.
• The Act defines ‘control’ as including the control of affairs or management by:
• One or more enterprises, either jointly or singly, over another enterprise or group; or
• One or more groups, either jointly or singly, over another group or enterprise.
• The CCI has recognized three degrees of control:
material influence;
de facto control;
and de jure control (controlling interest)

The legal framework

• Under the relevant provisions of the Competition Act and the Combination Regulations, the CCI has been
tasked with the duty of reviewing mergers (referred to as 'combinations'3 under Indian law). India follows
a mandatory and suspensory merger control regime, and all transactions that meet the prescribed
jurisdictional thresholds, and are not otherwise exempt, are required to be pre-notified to the CCI. The
Competition Act provides jurisdictional thresholds on a party basis and a group basis, and if either test
(based on either assets or turnover values) is met, the transaction must be pre-notified to the CCI.
• The Competition Act and the Combination Regulations also prescribe certain exemptions; for instance: (1)
minority acquisitions of less than 25 per cent shareholding, provided that the acquisition is either 'solely
for investment purposes' or is in the 'ordinary course of business' and does not lead to the acquisition of
control; (2) creeping acquisitions of between 25 per cent and 50 per cent shareholding without change in
control; and (3) purely internal reorganisations (subject to certain conditions).
• Additionally, in 2017, the government also introduced a de minimis target-based exemption, initially for
a period of five years (until March 2022), pursuant to which transactions in which the value of the
enterprise being acquired, merged or amalgamated (or in the case of an asset or business acquisition, the
value of the assets or business being acquired, merged or amalgamated) is less than 3.5 billion rupees in
India (or turnover attributable to the assets is less than 10 billion rupees in India) do not need to be
notified to the CCI (target exemption). In March 2022, the government extended the validity of this
exemption for another five years (until 28 March 2027).
• Therefore, while the jurisdictional thresholds seek to cast a wide net, the exemptions appropriately filter
out transactions that are unlikely to raise any competition concerns, ensuring that the notification process
is well balanced.

Trigger Events

• Trigger events for acquisitions: the execution of transaction documents or agreements to acquire control,
voting rights etc.
• Trigger event for mergers: the approval of the transaction by the board of directors of the respective
parties.
• Trigger event for acquisitions of distressed assets under the Insolvency and Bankruptcy Code, 2016 (IBC
acquisitions): Where a resolution plan contains a provision for combination, the resolution applicant shall
obtain the approval of the CCI prior to the approval of such resolution plan by the Committee of Creditors.

Invalidation

• If a notification is incomplete, or not in compliance with the Combination Regulations, the CCI may
invalidate the filing. The timeline for review restarts when the Parties have filed the fresh notification.
• Parties have the option of withdrawing and refiling a merger notification, before the CCI issues a show
cause Notice (SCN). In this regard, the CCI has also clarified that the filing fee already paid shall be adjusted
against the fee payable for the new notification, provided the new notification is given within three
months from the date of withdrawal.

Form of Filing

• Parties can either file a short Form I or a long Form II with the CCI. A Form III (post completion notification)
is prescribed for certain exempt transactions.
• If parties are competitors and hold a market share exceeding 15%, or if parties are vertically integrated
and hold an individual or combined market share exceeding 25%, a Form II filing is recommended.
• Filing 1 fees for a Form I and II are INR 2 million (approx. USD 27,299) and INR 6.5 million (approx. USD
88,722) respectively.

Failure to Notify & Limitation

• Under section 43 of the Act, the maximum penalty for failure to notify the CCI is 1% of the combined
assets or turnover, whichever is higher, of the combining parties, if a notifiable transaction is not notified
to the CCI or where such a notifiable transaction is consummated in part or in totality before receipt of
the CCI approval. The maximum penalty that the CCI has imposed till date, is INR 50 million (approx. USD
682,472).
• The CCI can look back at the effects of a transaction that was not notified for a period of 1 year from the
date of its completion even based on its own information or knowledge of the transaction. There is no
time limitation to the CCI’s power to penalize parties for a failure to notify it.

Thresholds, The Small Target Exemption & Local Nexus

• 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).
• 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.

Green Channel Approval

In line with the government's policy to improve ease of doing business in India, the CCI, by way of a
notification published on 13 August, 2019 has introduced the concept of a 'Green Channel' approval route
(Green Channel). This will allow parties to file a simplified version of Form I and receive deemed approval
of the transaction immediately upon notifying the CCI. However, the Green Channel will apply to only
those transactions where the acquirer (and the acquirer group) has no existing interests in companies: -
that may be seen as competitors of the target's business; - that operate in markets with vertical linkages
to the target's business; and - with complementary linkages to the target's business.

Deadline for Filing & Timeline for Clearance

• Parties applying under the Green Channel will receive an on-spot approval from the CCI instead of
waiting for the 30 days period.
• The CCI usually approves simple notifications with 30 working days (approx. 45-60 calendar days),
concluding that these transactions do not cause an appreciable adverse effect on competition (AAEC) in
India. This is casually referred to as a Phase I investigation.

• The CCI may request parties for additional information. The assessment clock stops while the parties
respond to requests for information from the CCI.

• The CCI may approach third parties for information while making its assessment.

• If the CCI is of the opinion that there is likely to be an AAEC on the market, then it will issue a notice to
the parties asking them to explain why a detailed investigation should not be conducted. This is the Show
Cause Notice (SCN).

• If the parties address the CCI’s concerns in their response to the SCN, the CCI may approve the
transaction. If not, it will commence a detailed investigation (casually referred to as a Phase II
investigation). It is open to the parties to oer behavioral and structural modifications to the proposed
transaction in response to the SCN. • The CCI may take 210 calendar days (and an additional 60 working
days, in certain circumstances) to approve a transaction (Phase I or Phase II).

Joint Ventures

• The Act does not expressly cover joint ventures. Joint ventures created as a result of transfer of assets
by one or more enterprises (casually referred to as “brown field joint ventures”) may be notifiable
provided the jurisdictional thresholds provided under Section 5 are met.

• Joint ventures formed afresh by capital contributions by one or more enterprises (casually referred to
as “green field JVs”) are generally exempt from the requirement to notify the CCI prior to its formation.

• While determining the applicability of Section 5 thresholds and the Small Target Exemption, only the
relevant asset and turnover value of the assets being transferred by the parent(s) need be considered