India: The Conundrum Of Composite Combinations: To File Or Not To File

Last Updated: 20 May 2016
Article by Danish Khan and Anand Sree

The concept and application of Composite Combinations in the Indian merger control regime continues to be ambiguous. We try to bring some clarity to the concept by tracing the history of the Combination Regulations of Competition Commission of India

The turn of the year saw yet another amendment to the merger filing procedure in India. The 2016 amendments to the Competition Commission of India (Procedure in regard to transaction of business relating to Combinations) Regulations, 2011 (Combination Regulations) seek to further simplify the merger-filing process. Various procedural hassles, like verification of notice given to the Competition Commission of India ('CCI') before entering into a combination, have been removed to make the regulations more forward-looking.

Out of all the amendments to the Combination Regulations, the amendment to Regulation 9(4) deserves closer scrutiny. Regulation 9(4) of the Combination Regulations (as amended by the 2016 amendment) reads as follows:

"Where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions which are inter-connected, one or more of which may amount to a combination, a single notice, covering all these transactions, shall be filed by the parties to a combination"

The words "or inter-dependent on each other", which earlier existed after the phrase "transactions which are inter-connected", have now been omitted.

Regulation 9(4) has been the subject of a series of amendments and litigation in recent years. On first glance, the original intention behind Regulation 9(4) seems to be  the simplification of the filing process by enabling the parties to avoid multiple filings and file a single "composite" notification if a single transaction comprises of a series of inter-connected or inter-dependent steps. However due to its narrow interpretation by the CCI, the opposite effect seems to have been achieved. The latest in the series of amendments to Regulation 9(4) could have significant ramifications in notification of composite combinations.

The complexity lies in ascertaining when a web of transactions qualify as a "composite combination"; and which of these transactions need to be notified to the CCI and taken approval of before consummation.

The TalkComp team trace the history of Regulation 9(4) to explain the concept of "composite combinations" through the present post and issues relating to their notification to the CCI.


The term "composite combination" is a creature of decisional practice, rather than a legislative fashioning. Neither the Competition Act, 2002 ('Act'), nor the Combination Regulations, use any such phrase.

Typically, a business transaction is considered as a composite transaction when it is given effect by way of a series of individual transactions which are inter-dependent and inter-connected to each other, and all the steps or individual transactions coalesce together to give effect to the ultimate intended effect of the business transaction.

Individually, some of these transactions may amount to a combination within the terms of Section 5 of the Act and hence need approval of the CCI before consummation while others may not qualify to be a combination or may be exempted/excluded from being notified. One would normally expect exempted transactions not requiring the approval of the CCI before consummation. However, that is not the case if such transactions are part of a "composite combination".

All individual transactions constituting a "composite combination" ought to be filed as a composite scheme of combination, notwithstanding the fact that some of these transactions on a standalone basis may not ordinarily be required to be filed.

A good instance of a composite combination arrives from the penalty imposed on Etihad for failure to notify one of the agreements in acquisition of 24% equity stake in Jet Airways. In addition to host of other notifiable agreements in the transaction, the combining parties also entered into agreement regarding sale of three landing/take-off slots of Jet Airways at London Heathrow Airport to Etihad; and lease of same slots back to Jet.While the parties contended that the landing slots agreement was an independent transaction from other agreements, CCI noted that documents produced by the parties to the combination made reference to the landing slots agreement and vice versa. Further, it was noted by the CCI that the transaction document identified the landing slots agreement envisaged the CCI's approval to the proposed combination as a condition precedent to the closure of the transaction. The CCI considered this as evidence that the parties treated the Landing slots agreement as related to other notifiable transactions. Further, non-execution of other notifiable agreements within 30 days of landing slots agreement gave a right to Etihad to terminate the landing slots agreement. Therefore, the CCI considered the landing slots agreement as a part of the composite combination.

More recently, the Competition Appellate Tribunal gave its verdict on composite combinations. The CCI had penalised Thomas Cook (India) Limited (and others) for failure to seek approval of CCI before consuming certain market purchases which were part of the transaction, but were otherwise/individually exempted. The CCI had considered the market purchases and the other notifiable aspects of the transaction as part of a composite combination and hence held that the otherwise non-notifiable market purchases should have been sought approval before consummation by the combining parties. A penalty of INR 1 Crore was accordingly imposed on account of non-notification of the said market purchases.

The COMPAT over-ruled the CCI in appeal, primarily because COMPAT opined that even though the market purchases as well as the scheme for combination were authorised in the same meeting of the Directors, the implementation of two-stage scheme for demerger/amalgamation was not dependent on the market purchases. COMPAT held that the said transaction would have taken place irrespective of the market purchases and achievement of the ultimate objective was not dependent on the market purchases.

Thus, COMPAT appears to over-rule CCI on account of incorrect appreciation of facts by the CCI. However, while doing so, the COMPAT does seem to affirm the previous decisional practice of CCI validating the test of "mutual dependence" to establish multiple transactions as a composite combination.

The above background leads us to the discussion of Regulation 9(4) of the Combination Regulations. It should be noted that at the time when the CCI issued its Thomas Cook decision, Regulation 9(4) used the word "may be filed" instead of the current "shall be filed". COMPAT noted that in so far as Regulation 9(4) is concerned(in its unamended form), it is merely an enabling provision. The object thereof is to facilitate filing of one notice in respect of various interconnected/interrelated/interdependent transactions. This implies that if the parties take several steps or enter into multiple transactions for achieving the object of combination then they are not required to file separate notice under Section 6(2) and it will be sufficient if one notice is filed for seeking approval of CCI

Post the decision of CCI in Thomas Cook, Regulation 9(4) of the Combination Regulation has been amended twice. Firstly, the 2015 amendment replaced the then existing "may be filed" to "shall be file". This takes away the facilitatory/enabling nature of Regulation 9(4) and imposes a liability on the parties to file a single notice for composite combinations.

Secondly, as already mentioned above, the phrase "or inter-dependent on each other" now stands omitted. This has a potentially drastic effect on the entire jurisprudence of composite combination as explained above. It is possible that exempted transactions which are merely inter-connected to the other notifiable transactions, but not necessarily inter-dependent inter-se, may need to be notified to the CCI before consummation.

Although no conclusive opinion can be formed without any clarification from the CCI, it is safe to assume that Regulation 9(4) in its latest form, would have helped CCI's cause in Thomas Cook appeal in COMPAT. In a sense, it is possible that the latest amendment is a subtle attempt by the legislature to negate the effect of COMPAT's Thomas Cook decision.

Based on the latest amendment to Regulation 9(4), it is quite possible that the CCI may insist on notifying exempted/excluded transactions if they are inter-connected to other transactions in composite combination, even if test of "mutual-interdependence" is not satisfied. The CCI would do well do provide clarity on this aspect in the near future.

This article was originally published on Talking Competition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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