The Indian merger control regime came into effect on June 1, 2011. Initial concerns that the regime would hamper M&A activities and result in unreasonable delays have been largely settled and the Competition Commission of India (CCI) has ably played the role of a facilitator of India’s vibrant M&A activity.
Over the past decade, the CCI has reviewed and approved over 700 merger filings. It has throughout looked carefully at proposed acquisitions, mergers and amalgamations, employing increasingly sophisticated analytical tools in complex deals. No transaction has been blocked to date, though remedies have been required in a number of cases. On the 10th anniversary of merger control in India, we summarise key milestones and trends along with some views on the way forward.
On 29 June 2017, the CCI removed the erstwhile strict filing timeline of 30 calendar days from the date of the trigger document. Previously, the timing of the CCI notification was crucial, as a failure to notify on time would attract a penalty. Parties did not want to notify too early and face the risk of their notification being rejected as incomplete or premature. This was a very welcome change which brought India in alignment with international best practices and has facilitated ease of doing business, especially for international mergers.
On 27 March 2017, the de minimis exemption (previously only available for acquisitions) was extended to include mergers and amalgamations. The notification also clarified that parties are only required to consider the assets/turnover value attributable to the specific business/assets being acquired, as opposed to previously considering the entire assets and turnover of the target.
On 13 August 2019, the CCI introduced the Green Channel Route under which combinations will be deemed approved at the date of filing if the parties have no horizontal overlaps, no present or potential vertical relationships and are not engaged in any complementary businesses. This welcome trust-based route clearly reduced the burden on parties to transactions which have no conceivable effect on competition and needed notification only for technical reasons.
The CCI has always been very open to stakeholder engagement through pre-filing consultations (PFC) as well as through various guidance notes and the frequently asked questions (FAQs) to provide greater clarity. Parties opting for a PFC get greater clarity on the CCI’s expectations and the likely impact on the timeline for approval. The CCI increasingly puts proposals for change out to consultation with stakeholders. Further, the CCI has ensured effective and pro-active communication and advocacy on social media platforms such as Twitter and LinkedIn as well as holding various roadshows and conferences across India.
The CCI has gained a lot of experience in handling cases involving complex fact patterns and markets in the past 10 years. There is closer scrutiny of internal documents, bidding documents, reports, press releases, etc. The CCI’s competitive assessment has become a lot more detailed and granular over the years. It has also demonstrated that it is able to design remedies taking account of the specific characteristics of Indian markets.
The CCI has engaged actively with merging parties to alleviate any competitive concerns in critical markets/segments in India. It has strived to come up with a solution that is ‘least restrictive’ and addresses its concerns (for instance, Dish TV/Videocon, Hyundai/Kia/Ola; L&T/Schneider). It endeavours to tailor remedies to the facts of each case and has rejected a ‘one-size fits all’ approach. The CCI over the years has accepted a broad range of structural and non-structural remedies (behavioural and hybrid). However, it continues to prefer structural remedies to behavioural remedies in case of significant competitive overlaps. In multi-jurisdictional transactions, it has often sought consistency with remedies packages elsewhere, but has also opted for India-specific remedies if global remedies have not been appropriate or not sufficient for the Indian market.
Sophisticated economic tools such as the Herfindahl-Hirschman Index (HHI), catchment area analysis and bidding data analysis (GE/Alstom) are increasing been relied upon by the CCI to arrive at a more holistic assessment. The CCI no longer focuses only on unilateral effects; rather the focus has widened to include vertical and portfolio effects (Bayer/Monsanto; L&T/Schneider).
Previously, a detailed assessment of the competition law implications of a non-compete clause had to be undertaken by the notifying parties, with the aim of anticipating and allaying any concerns that might be raised by the CCI during the merger review process. In the early days, the CCI sought amendments to non-compete clauses which were thought to be excessive. Thereafter, it issued a detailed Guidance Note on Non-Compete Clauses which resulted in the CCI approving transactions with a caution that the non-compete clause was not ancillary to the transaction, thereby, leaving it open to scrutiny subsequently. In December 2020, the CCI amended the Combination Regulations and removed the requirement to justify any non-compete restrictions amongst the parties from the notification form. While the CCI has addressed the commercial realities of deal making whilst also reducing the information burden, the parties will need to self-evaluate their non-compete arrangements to ensure that they are competition law compliant. This is a welcome change, which is in line with the CCI’s newfound approach of fostering a self-assessment regime to be adhered to by the parties with inputs from their counsel.
The interpretation of ‘control’ is critical from the perspective of examining notifiability and assessment of transactions. The CCI previously interpreted control to mean “the ability to exercise decisive influence over the management or affairs and strategic commercial decisions” of a target enterprise, whether such decisive influence was being exercised by way of: (i) majority shareholding; (ii) veto rights (attached to a minority shareholding); or (iii) contractual covenants. However, it has since adopted a spectrum of control ranging from ‘material influence’ (instead of ‘decisive influence’ (Ultratech/Century) to absolute control. The CCI has considered the ability to veto (or cause a deadlock in respect of) strategic commercial decisions (such as the annual business plan, budget, recruitment and remuneration of senior management, and opening of new lines of businesses) as sufficient to confer at least joint control.
There has also been greater scrutiny of minority investments, especially where private equity investors have investments in several enterprises in the same sector. Even though the CCI introduced an explanation (introduced on 8 January 2016) regarding what would constitute as an acquisition solely for investment purposes, it has nevertheless held that minority acquisitions (even without any control rights) by enterprises operating directly or indirectly in the same horizontal market or vertically related markets as the target would not be seen as being either solely for investment purposes or in the ordinary course of business (Amazon/Shoppers’ Stop).
Considering restrictions placed on physical movement with the onset of COVID-19 in 2020, the CCI immediately allowed flexibility within its procedures. It has: (i) introduced electronic filing of combination notices, including green channel notifications; (ii) deferred non-urgent cases; (iii) made the PFC facility available through video conference; and (iv) set up a dedicated helpline to attend to the queries of stakeholders during the pandemic. This has enabled the clearance of transactions without excessive delays on account of COVID-19.
Given the solid track record of the CCI of being adaptable and keeping in step with changes in market and business realities, we would like to put forth a few suggestions, which may be taken forward by the CCI.
Given the lack of clear guidance from the CCI (and the recent shift from ‘decisive influence’ to ‘material influence’), merging parties are required to ‘take a call’ on whether or not their acquisition will be viewed as an acquisition of control. The CCI should be pragmatic in its approach while applying the concept of control based on the specific facts and circumstances of each case. The CCI must be cautious against applying the standard of “material influence” without due consideration of the facts at hand, and thereby broadening the jurisdictional net unduly.
The CCI should be more open to giving confidentiality to the parties over commercially sensitive information for longer durations. In April 2021, the CCI proposed amendments to the General Regulations including the ability for parties to self-certify their confidentiality claims, instead of the Director General/CCI assessing confidentiality claims and passing orders. The proposed introduction of a self-certification process is a positive step.
In cases relating to common minority shareholdings, there is a need to better understand the way in which private equity funds function. The CCI should also consider relying upon nuanced economic tools such as the Modified HHI. The current market study on common ownership may be is a step in the right direction towards having a better understanding of this genre of investments.
The CCI should continue to reflect and adapt to international best practices and continue to update its FAQs with more detailed guidance on nuanced points of interpretation.
In light of the revised Form I, the CCI could also consider streamlining the information requirements in Form II.
In conclusion, while the past decade has laid the foundations of the Indian merger control regime, practice is fast evolving and is increasingly aligned to that in more mature jurisdictions. All in all, the future of Indian merger control looks promising. The CCI should continue to balance the requirements of an effective merger control regime with the need to ensure the ease of doing business as a precondition for India’s economic progress
This article was originally published in Bar & Bench on 15 June 2021 Co-written by: Shweta Shroff Chopra, Partner; Aparna Mehra, Partner. Click here for original article
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