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Recent Developments in Merger Control in India

Cyril Shroff and Nisha Kaur Uberoi, International Antitrust Bulletin, December 2012, Vol. 4, p. 15-17.

See Cyril Shroff's resume See Nisha Kaur Uberoi's resume

The authors would like to acknowledge the contribution of Shruti Aji Murali, associate in the Mumbai Competition Law Practice at Amarchand Mangaldas.


India’s highly anticipated merger control regime (Sections 5 and 6 [1] of the Competition Act, 2002 (“Act”) [2] and the accompanying Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 as amended (“Combination Regulations”)) came into force on 1 June 2011, after initial resistance from the business community. Despite the nascent regime, the Competition Commission of India (“CCI”) has already brought about significant substantive and procedural amendments to the Combination Regulations in February 2012, providing clarity and responding to industry feedback, positioning itself as a progressive regulator. Nevertheless, the CCI has some way to go in streamlining the merger control process in India. Since June 2011, the CCI has reviewed mergers across a wide variety of sectors such as steel, realestate, entertainment, banking, information technology, insurance, mutual funds, etc.

The Merger Control Framework

The Indian merger control regime is a mandatory, suspensory regime and any acquisitions, mergers or amalgamations of enterprises, where the prescribed jurisdictional thresholds are met (“Combinations”), require prior approval of the CCI. The Act provides for a 210 day period for the CCI to review a notified Combination, failing which the Combination is deemed to be approved. The 210-day review period is split into Phase I, i.e. a period of 30 days [3] from the date of notification when the CCI is required to provide its prima facie opinion as to whether the Combination will cause an appreciable adverse effect on competition (“AAEC”) in the relevant market in India; and Phase II, i.e. 180 days after the CCI passes an order instituting a Phase II investigation, wherein the CCI is required to pass a final order either approving, disapproving or proposing modifications to a notified Combination.

The merger regime comprises a three-step procedure comprising the Target Exemption, [4] Parties Test [5] and Group Test [6] in order to evaluate notifiability of Combinations. For a Combination to be notifiable, it should meet the prescribed thresholds under the Target Exemption and also fulfill either the Parties test or Group test. Apart from the Target Exemption, Schedule I to the Combination Regulations provides for a list of exemptions from notification.

A merger notification is required to be filed with the CCI within 30 days from the trigger date, which in the case of acquisitions is the date of execution of the first binding agreement or other document [7] and in the case of mergers or amalgamations is the date on which final board approval is granted. The merger notification may be filed in either Form I (short form, including information pertaining to the combining parties, relevant market, competitors, etc.) or Form II (detailed long form, including information about the group, competitors, imports, exports, research and development in the relevant market, analysis, reports, surveys or studies relied on to enter into the Combination). The Combination Regulations provide for a self-assessment regime and recommend that a Form II be “preferably” filed in instances where the combined market share of the parties (where they are competitors) post-Combination is more than 15% or when the parties operate in vertically linked markets and their individual or combined market share is more than 25% in the relevant market(s). In all other instances, a Form I may be filed.

Further, the Act imposes a penalty of up to 1% of the combined assets or turnover of the parties to the Combination, whichever is higher, on parties for nonnotification of Combinations. The CCI has in 9 instances instituted penalty proceedings for belated notification of Combinations as well, but has not imposed any penalty as it was the first year of implementation of the merger control regime.

The Experience Thus Far

The CCI has reviewed 85 Form I merger notifications to date. India’s first long form merger notification was filed on 1 November 2012 and is under review by the CCI.

The substantive test for merger control under the Act is AAEC and the factors to determine AAEC are listed under Section 20(4) of the Act. [8] Some of the factors that the CCI has considered are market structure, the number of competitors in the market, market shares of the parties, level of maturity and growth in the market and the presence of a sectoral regulator.

The pedantic and literal interpretation of the Act and the Combination Regulations has resulted in the CCI adopting positions contrary to international competition law principles, such as in the case of intra-group mergers and amalgamations, asset acquisitions and slump sales, etc. Other interpretational issues persisting in the merger control regime include the treatment of joint ventures under Section 5 and the insignificant local nexus exemption.

However, the CCI has in a recent slew of reviews provided much-needed clarity on its stance in relation to the concept of “control” [9] for the purposes of the Act. In Alok Industries/Grabal Alok Impex [10] the existence of common promoter group, directors and management was said to constitute common control. Further, in MSM India/SPE Holdings/SPE Mauritius [11] the CCI concluded that the right to block special resolutions (through a more than 26% equity stake) amounts to “negative control”, which is “control” for the purposes of the Act. The CCI stated, “Joint control over an enterprise implies control over the strategic commercial operations of the enterprise by two or more persons. In such a case, each of the persons in joint control would have the right to veto/block the strategic commercial decision(s) of the enterprise which could result in a dead lock situation.” The CCI also noted that certain actions, such as engaging in any new business, opening locations in new cities, hiring and termination of key personnel, etc. could not be undertaken without the consent of the minority shareholders and held, “It is observed that the collective shareholding of the sellers to the extent of 32.39% is sufficient to block/ veto any action that requires special resolution… Further, the actions for which consent/approval of… [the minority shareholders]… is required…includes certain strategic commercial decisions of MSM India and the same cannot be considered as mere minority investor protection rights.” Recently, in Century Tokyo Leasing Corporation/Tata Capital Financial Services Limited [12] the CCI concluded that the approval of business plans, annual operating plan (including the annual budget plan), commencing a new line of activity and discontinuing any existing line of activity or business, appointment of key managerial personnel and their compensation constitutes control. Thus, the CCI is adopting the position that control can be positive control and negative control.

Another contentious issue has been the possible jurisdictional overlap between the CCI and other sectoral regulators, which is proposed to be resolved by the proposed amendments to the Act. The other proposed amendments to the Act include the introduction of different thresholds for merger notification for any class of enterprises by the Central Government, in consultation with the CCI, as well as a reduction in the merger review timelines from 210 to 180 days. [13] While the proposed amendments to the Act are a positive signal, the Indian merger control regime still has some way to go in adopting international competition principles. The international cooperation agreement signed between the CCI and the US is a first step in this direction.


[1Section 5 of the Act defines “Combination” to mean any acquisition by an enterprise of shares, voting rights, assets or control in another enterprise or a merger or amalgamation between two or more enterprises and sets out the jurisdictional thresholds applicable to the combining parties and in some cases, the group to which the target enterprise would belong. Section 6 prohibits combinations that cause or are likely to cause an AAEC within a relevant market in India and treats such transactions as void.

[2The Act came into force in phases, with the provisions regulating anti-competitive agreements and abuse of dominance coming into effect on 20 May 2009.

[3It should be noted that the 30-day period excludes clock stops, where the CCI requests the notifying parties for further information in relation to the merger notification.

[4The Government of India, through the Ministry of Corporate Affairs, issued a notification dated 4 March 2011, whereby a combination would not require prior notification to, and approval from, the CCI if the target enterprise (including its divisions, units and subsidiaries) has either assets of the value not exceeding Rs. 2500 million in India or turnover not exceeding Rs. 7500 million in India. The amendments to the Combination Regulations in February 2012 effectively watered down the de minimus Target Exemption by providing that if as part of a series of steps in a proposed transaction, particular assets of an enterprise are moved to another enterprise (i.e. 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 principle of aggregation now applies to any transferor company’s assets and turnover in entirety (even if only a single asset were to be transferred to a special purpose vehicle (“SPV”) into which an investment is being made) and the assets and turnover of the SPV, both of which would effectively constitute the target enterprise.

[5Under the Parties test, a Combination will require notification if the acquirer and target enterprise jointly have either: (i) assets in excess of Rs. 15 billion in India or turnover in excess of Rs. 45 billion in India; or (ii) worldwide assets in excess of USD 750 million, including at least Rs. 7.5 billion in India or worldwide turnover in excess of USD 2.25 billion, including at least Rs. 22.50 billion in India.

[6Under the Group test, a Combination will require notification if the group to which the target enterprise will belong post-Combination has either: (i) assets in excess of Rs. 60 billion in India or turnover in excess of Rs. 180 billion in India; or (ii) worldwide assets in excess of USD 3 billion, including at least Rs. 7.5 billion in India or worldwide turnover in excess of USD 9 billion, including at least Rs. 22.5 billion in India.

It may be noted that the Act defines “group” under clause (b) of the Explanation to Section 5, to mean two or more enterprises which, directly or indirectly, are in a position to, (i) exercise 50% or more of the voting rights in the other enterprise (amended by the Notification for the purposes of Section 5); (ii) appoint more than 50% of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise.

[7“Other document” has been defined in the Combination Regulations to mean “…any binding document, by whatever name called, conveying an agreement or decision to acquire control, shares, voting rights or assets.”

[8The factors that the CCI is required to consider in determining whether or not a proposed Combination is likely to cause an AAEC in the relevant market or not are:
(a) Actual and potential level of competition through imports in the market;
(b) Extent of barriers to entry into the market;
(c) Level of combination in the market;
(d) Degree of countervailing power in the market;
(e) Likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;
(f) Extent of effective competition likely o sustain in a market;
(g) Extent to which substitutes are available or are likely to be available in the market;
(h) Market share, in the relevant market, of the persons or enterprises in a combination, individually and as a combination;
(i) Likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;
(j) Nature and extent of vertical integration in the market;
(k) Possibility of a failing business;
(l) Nature and extent of innovation;
(m) Relative advantage, by way of the contribution to the economic development, by any combination having or likely to have AAEC; and
(n) Whether the benefits of the combination outweigh the adverse impact on competition, if any.

[9“Control” has been defined under Section 5 of the Act to include controlling the affairs or management of one or more enterprises or group, either jointly or singly.




[13These amendments will be taken up for consideration the winter session of the Parliament commencing from 22 November 2012 to 20 December 2012.

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