The merger control regime in India has been in force for over five years and has significantly transformed the manner in which M&A activity is governed in India. The Competition Commission of India (CCI) regulates the enforcement of Sections 5 and 6 of the Competition Act, 2002 (Act) that were brought into effect on 1 June 2011. The Act provides for a mandatory suspensory regime and transactions which meet the jurisdictional thresholds (based on asset and turnover computation) require a prior notification to the CCI.
Over the last six years, there have been a total of 407 Form I (short form) merger notifications that have been filed with the CCI out of which 338 merger notifications have been approved to date. Additionally, in relation to Form II (long form) merger notification, the CCI has approved 21 of the total 26 merger notifications filed to date. Notably, the CCI has never blocked a transaction so far.
The CCI has been proactive in ensuring that the merger review process is streamlined with international best practices and has engaged with various stakeholders regularly, thereby simplifying the merger notification process.
The CCI in consultation with its stakeholders has amended the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 ("Combination Regulations") on a yearly basis. The Combination Regulations have been amended five times to date to ensure that the merger review process is more efficient.
A. Engagement with local and international authorities
The CCI has demonstrated its willingness to approach and engage with sector specific authorities as well as engage with international antitrust regulators while assessing global transactions. In a recent combination that involved the acquisition of the Chloroprene Rubber (CR) business of E.I. du Pont de Nemours5, the CCI sought information from the Rubber Board, Ministry of Commerce and Industry while conducting its competition assessment. Additionally, the CCI also engaged in international co-operation with the Australian Competition & Consumer Commission (ACCC) and carried out non-confidential discussions with the ACCC. The approach adopted by the CCI is in line with the conduct of several mature antitrust jurisdictions specifically in multi-jurisdictional transactions.
B. Amendments to the Combination Regulations
The CCI for the fifth time over the last five years amended the Combination Regulations6 (2016 Amendment) and brought about certain key changes including:
1. Acquisitions that are considered "solely as an investment"
Item 1 of Schedule 1 to the Combination Regulations exempt certain acquisitions from notification to the CCI, if an acquisition is made solely as an investment and in the ordinary course of business, not entitling the acquirer to hold more than 25% of the total shares or voting rights of the target. However, uncertainty prevailed over the interpretation of the term "solely as an investment" for a considerable period of time, as this term was interpreted differently, thereby adding to uncertainty. The CCI, by way of an amendment reduced the burden of industry by clarifying the scope of acquisitions that would be treated "solely as an investment". The CCI clarified that an acquisition of less than 10% equity interest would not require a prior merger notification, if such acquisition did not result in acquisition of veto rights (such as, annual business plans, annual budget, key investment decisions, etc.) or was not accompanied by a board seat.
2. Public Announcement – Trigger
In relation to an acquisition, the trigger event to file a notification with the CCI is the execution of an agreement or "other document". Before the 2016 Amendment, the proviso to Regulation 5(8) of the Combination Regulations defined the scope of term "other document" to include a communication made to statutory authority of an intention to acquire. As a result of this, any preliminary communication made to a statutory authority, for example, the Foreign Investment Promotion Board or the Telecom Regulatory Authority of India, even when the final terms of acquisition were not decided between parties, was treated as a trigger event to notify the transaction to the CCI, which served little purpose in a mandatory suspensory regime. In order to address the concerns of industry and to ensure certainty, the CCI has now narrowed the scope of "other document" to a public announcement made under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in relation to listed companies, that would trigger the requirement to file a merger notification with the CCI.
C. Revised Jurisdictional Thresholds
The merger control regime in India received a fillip on account of increased thresholds. The Ministry of Corporate Affairs (MCA), Government of India by way of a notification dated 4 March 2016, revised the jurisdictional asset/ turnover thresholds under Section 5 of the Act and increased them by 100% and enhanced the thresholds to ensure that small transactions would not be scrutinized by the CCI.
D. Phase II Investigations
The CCI has been subjecting complex transactions (where the parties have high market shares in specific markets) to a Phase II in-depth investigation. The CCI has conducted a full-fledged Phase II review (lasting 210 days) in three cases so far.
E. Structural Commitments
Over the last year, the CCI has increasingly used structural commitments as a merger remedy to address competition concerns arising from the combination. The CCI has imposed structural commitments in three cases to date. The CCI has conducted detailed market studies in each of these transactions prior to suggesting modifications and structured suitable divestment packages to allay the competition law concerns.
The merger between Sun Pharmaceutical Industries Ltd. (Sun Pharma) and Ranbaxy Laboratories Ltd. (Ranbaxy)7 was the first ever Phase II investigation conducted by the CCI8. Sun Pharma and Ranbaxy were engaged in the manufacture and marketing of branded generics and active pharmaceutical ingredients. However, the CCI chose to delineate the relevant product market at a molecular level for formulations. Out of the 49 molecules assessed, the CCI required the merging parties to divest 7 brands. On account of high market shares of the merging parties, the divestiture package consisted divestment of 7 brands, including an upfront buyer requirement and crown jewel remedy.
The CCI in the global merger of Holcim S.A and Lafarge Ltd.9 imposed structural commitments on the parties to address potential competition concerns. The CCI conducted a competition impact assessment on the basis of the Elzinga-Hogarty test and catchment area analysis to delineate the relevant geographic market. Based on the analysis, the CCI recommended divestiture of two plants in the eastern region of India coupled with an upfront buyer requirement and crown jewel remedy. On account of certain legal impediments relating to the mining laws in India, the CCI approved an alternate divestment package whereby the entire share capital of Lafarge India Ltd. could be divested to an upfront buyer that is to be approved by the CCI.10
More recently, the CCI approved PVR Limited's (PVR) acquisition of DLF Utilities Ltd (DUL)11, comprising 39 screens on a slump-sale basis and imposed structural as well as behavioural commitments on PVR. The CCI had identified separate markets for 'exhibition of films through multiplexes, including high end single screen theatres' in various geographical regions (e.g., Gurgaon, South Delhi, Noida, etc.). Based on its analysis of certain factors such as, (i) level of market concentration using the Herfindahl Hirschman Index; (ii) change in concentration and the increment in market shares; (iii) constraints exerted by competitors; and (iv) efficiencies resulting from the combination, CCI reached a finding that the combination could lead to an appreciable adverse effect on competition (AAEC) in certain geographical markets (Noida, South Delhi and New Gurgaon). While the CCI did approve the combination deviating from its past practice, the transaction was subject to certain behavioural and structural remedies, including: (i) commitments not to expand PVR's presence in the concerned relevant markets; (ii) commitment not to enter into co-operation arrangement with DUL; and (iii) commitment to reduce the non-compete period to three years (instead of five) covering only the concerned relevant markets.
While the CCI has been an efficient regulator there continue to remain certain ambiguities in the merger review process. The CCI has imposed remedies in less than 3% of the total cases reviewed to date thereby demonstrating its industry friendly approach while addressing competition concerns. Going forward the CCI will need to maintain a balance between commercial realities facing the industry and its mandate to preserve and promote competition in India.
- Nisha Kaur Uberoi, is the Partner and Co-Head, of the competition law practice at AZB & Partners and can be reached at firstname.lastname@example.org.
- Soumya Hariharan is a Senior Associate in the competition law practice at AZB & Partners and can be reached at email@example.com.
- Gaurav Bansal is an Associate in the competition law practice at AZB & Partners and can be reached at firstname.lastname@example.org.
- Nikhil D'Souza is an Associate in the competition law practice at AZB & Partners and can be reached at email@example.com.
- Combination Registration No. C-2015/01/239.
- CCI Notification dated 7 January 2016.
- By way of full disclosure, the authors represented parties in this transaction.
- Combination Registration No. C-2014/05/170.
- Combination Registration No. C-2014/07/190.
- By way of full disclosure, the authors represented parties in this transaction.
- Combination Registration No. C-2015/07/288.