Answer ... The Indian regime covers acquisitions of shares, voting rights or assets and control, as well as mergers and amalgamations. An acquisition of shares or voting rights may be subject to merger notification even if the acquisition does not result in a change of control.

Answer ... ‘Control’ is defined under Section 5 of the Competition Act to include any right that amounts to control over the affairs or management of an enterprise(s)/group(s) by another enterprise(s) or group(s) which may be acting jointly or singly.

Here, a ‘group’ is defined as two or more enterprises which, directly or indirectly, are in a position to:

• exercise 50% 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.

This definition of ‘control’ under the Competition Act is circular in nature and no guidance on its interpretation is provided. Therefore, in the absence of guidance in the Competition Act, the definition of ‘control’ must be derived from the decisional practice of the Competition Commission of India (CCI). The precise definition of ‘control’ has been crystallised in the decisional practice of the CCI. The CCI has analysed different degrees of control in competition law. The first degree of control identified by the CCI is ‘material influence’, which gives an enterprise the ability to influence the affairs and management of another enterprise. This constitutes the lowest level of control.

An explanation has been added by the 2023 amendment act to clearly define the meaning of ‘control’ with reference to the ‘material influence’ standard that has been elucidated by the CCI in its decisions. However, this amendment is not in force as of the time of writing.

The second degree of control identified by the CCI is ‘de facto’ control, where an enterprise holds less than a majority of the voting rights, but in practice controls more than half of the votes actually cast at a meeting.

The third degree of control identified by the CCI is ‘de jure’ or controlling interest, which exists where an entity has a shareholding conferring more than 50% of the voting rights upon it.

Thus, a nuanced review of commercial realities must be undertaken by the parties to assess the level of ‘control’ exercised in order to ascertain whether the CCI’s approval is required for a particular transaction.

Answer ... Yes, the acquisition of a minority interest may trigger a merger filing in India in certain circumstances. However, a minority acquisition may be exempt from the notification/approval requirement based on the nature of the rights being acquired. A proposed transaction is exempt from the requirement to be notified to the CCI under Item 1 of Schedule I of the CCI (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 (‘Combination Regulations’) in case of an acquisition of shares or voting rights, which:

• is made “solely as an investment” or “in the ordinary course of business”;
• does not entitle the acquirer to hold 25% or more of the total shares or voting rights of the target; and
• does not vest the acquirer with any controlling rights over the target.

The Combination Regulations further clarify that for the purpose of the above exemption (which is popularly known as the ‘financial investor exemption’), an acquisition of less than 10% stake shall be treated as an acquisition made “solely as an investment” as long as the acquirer:

• can exercise only such rights that are available to the ordinary shareholders of the target to the extent of its shareholding (ie, has no special rights); and
• has no board seat or a right or intention to nominate a director on the board of the target or intention to participate in the affairs or management of the target.

If an acquirer is acquiring any of the above rights and/or control/controlling rights, the CCI does not consider that the acquisition is being made solely as an investment or in the ordinary course of business.

However, various orders passed by the CCI in recent years have limited the applicability of the above exemptions. There is always a doubt as to whether a non-controlling minority acquisition by such investors which is indeed made “solely as an investment” or “in the ordinary course of business” (ie, a passive investment as against an active or strategic investment) will be eligible to avail of the financial investor exemption if the investor is acquiring some customary minority protection rights or an observer’s seat on the target’s board in order to protect the value of its investment.

The CCI’s decisional practice has also indicated that where an acquirer and the target are engaged in competing businesses or where their businesses are vertically related, the acquisition need not necessarily be termed as an acquisition made solely as an investment or in the ordinary course of business.

In the case of private equity investors, while they may not be direct competitors of the target, the private equity fund may have interests in portfolio companies that are in the same line of business or vertically linked with the target. Therefore, the applicability of the financial investor exemption remains doubtful and requires a case-by-case analysis of portfolio investments of the private equity fund that are competitors of the target.

Answer ... The Competition Act does not expressly cover joint ventures. Joint ventures created through the transfer of assets by one or more enterprises (also referred to as ‘brownfield joint ventures’) may be notifiable if the thresholds in the Competition Act are met and none of the exemptions (including the small target exemption) are available. In determining the applicability of the thresholds, only the values of the relevant asset being transferred by the parent(s) and the turnover generated by such relevant assets will be considered.

Joint ventures formed afresh by capital contributions by one or more enterprises (also referred to as ‘greenfield joint ventures’) are generally exempt from the requirement to notify to the CCI – since the target will be eligible to avail of the small target exemption.

Answer ... There is no exemption for foreign-to-foreign transactions. All transactions – including foreign-to-foreign transactions – that exceed the thresholds under the Competition Act (which include certain local nexus thresholds) must be notified to the CCI.

Answer ... A transaction must be notified if the transaction meets the thresholds in either the parties test or the group test.

Parties test: The parties (ie, the legal persons directly involved in the transaction) either:

• have combined assets in India of INR 20 billion or a combined turnover in India of INR 60 billion; or
• have:
• • combined worldwide assets of $1 billion, including combined assets in India of INR 10 billion; or
  • a combined worldwide turnover of $3 billion, including a combined turnover in India of INR 30 billion.

Group test: The group (ie, the group that the parties will belong to after the transaction, including the parties, their ultimate parent(s) and all entities directly or indirectly controlled by the ultimate parent(s)):

• has assets in India of INR 80 billion or a turnover in India of INR 240 billion; or
• has:
• • worldwide assets of $4 billion, including assets in India of INR 10 billion; or
  • a worldwide turnover of $12 billion, including a turnover in India of INR 30 billion.

Transaction value threshold: The 2023 amendment act (see question 8.1) has introduced a transaction value threshold, which will be triggered where:

• the value of any transaction – in connection with acquisition of any control, shares, voting rights or assets of an enterprise, or merger or amalgamation – exceeds INR 20 billion; and
• the target in question has ‘substantial business operations in India’ (‘transaction value threshold’).

Where this threshold is applied, parties cannot avail of the small target exemption (described in question 1.1).

The transaction value threshold is not in force as of the time of writing. It will come into force upon publication of a notification to this effect by the government of India.

Answer ... A transaction is exempt if it meets any of the conditions specified in Schedule I of the Combination Regulations. This schedule lists out transactions that are presumed not to cause an appreciable adverse effect on competition (AAEC) (‘Schedule I Exemptions’). These transactions are:

• acquisitions of up to 25% of the shareholding/voting rights that do not amount to control (as described in question 2.3);
• acquisitions of the shareholding/voting rights where the acquirer:
• • already holds between 25% and 50% of the shareholding/voting rights of the target before or after the transaction; and
  • does not acquire joint/sole control of the target;
• acquisitions of shareholding/voting rights where the acquirer already holds 50% or more shareholding/voting rights in the target (unless the transaction leads to transfer from joint control to sole control);
• acquisitions of assets of the target that do not amount to a strategic acquisition. The assets must also:
• • be unrelated to the business activities of the acquirer; and
  • not lead to acquisition of control over the target;
• amended/renewed tender offers which have already been notified to the CCI;
• acquisitions of stock-in-trade, raw materials, stores and spares, trade receivables or other similar current assets in the ordinary course of business;
• acquisitions of shares/voting rights pursuant to issue of bonus shares, stock splits, consolidation of face value shares, buybacks or subscription to a rights issue (unless such acquisition leads to the acquisition of control over the target);
• acquisitions of an enterprise that is in the same group as the acquirer (unless the target is jointly controlled with an entity that is not part of the same group);
• mergers/amalgamations where one enterprise already holds a 50% or more shareholding/voting rights in the other (unless the transaction leads to a transfer from joint to sole control); and
• acquisitions of shareholding/voting rights/assets/control pursuant to an order of the CCI.

Small target exemption: A transaction is also exempt from notification to the CCI if the value of assets of the target in India does not exceed INR 3.5 billion, or the value of the turnover of the target does not exceed INR 10 billion respectively, in terms of the audited financials of the immediately preceding financial year to that in which the definitive transaction documents are executed.

This exemption is available pursuant to notifications issued by the Ministry of Corporate Affairs dated 4 March 2011, 4 March 2016, 29 March 2017 and 16 March 2022. At present, the exemption is available until 27 March 2027.

The exemption is not available for any transaction that breaches the transaction value threshold (described in question 2.6) which was introduced by the 2023 amendment act; however, this threshold is not yet in force as of the time of writing.

Further, any share subscription, financing facility or acquisition pursuant to a covenant of a loan agreement or investment agreement is also exempt from notification under the Competition Act if it is entered into by the following entities:

• public financial institutions;
• foreign portfolio investors;
• banks; or
• Category I alternative investment funds (ie, funds which invest in start-ups, early stage ventures, social ventures, small and medium-sized enterprises, infrastructure or other sectors which the government or regulators consider as socially or economically desirable).

Under the Competition Act, such transactions were required to be notified on a post facto basis within seven days of consummation. The 2023 amendment act has done away with this requirement; however, this amendment has not entered into force as of the time of writing.