Answer ... A direct or indirect acquisition of assets, control, shares or voting rights of an enterprise, or a merger or amalgamation of enterprises, which exceeds the financial thresholds prescribed under Section 5 of the Competition Act is defined as a ‘combination’ and must be notified to the Competition Commission of India (CCI) for its prior approval.
Answer ... The term ‘control’ is defined under Explanation (a) to Section 5 of the Competition Act to include the control by one or more enterprises, either jointly or singly, of the affairs or the management of another enterprise or group. In its decisional practice, the CCI has held that the “ability to exercise decisive influence over the management or affairs” of a target enterprise constitutes ‘control’. The CCI has held that such decisive influence over an enterprise “implies control over the strategic commercial operations of the enterprise”. Having the ability to veto or cause a deadlock in respect of certain “strategic commercial operations” has been found sufficient to constitute negative control. Therefore, the CCI considers the ability to veto any or all of the following items as amounting to control:
- business plans;
- annual operating plan (including the annual budget plan);
- commencement of a new line of activity;
- discontinuation of an existing line of activity or business;
- appointment of key managerial personnel and their compensation; and
- alteration of charter documents.
The CCI, through amendments to the Combination Regulations, has clarified the scope of what constitutes a ‘financial investment’. This has de facto become the new threshold of control. The definition of what constitutes a ‘financial investment’ or qualifies a transaction as ‘solely for investment’ is set out in question 2.3
Answer ... The acquisition of a minority shareholding which exceeds the financial thresholds must be notified to the CCI. However, Schedule I, Item 1 of the Combination Regulations exempts acquisitions of less than 25% of the shares or voting rights of an enterprise made solely as an investment or in the ordinary course of business, provided that the acquisition does not lead to a change in control. As mentioned above, the CCI has amended this Item 1 exemption to clarify that the term ‘solely as an investment’ means any acquisition of less than 10% of the total share or voting rights of a target, where the acquirer has:
- the ability to exercise only such rights as are exercisable by ordinary shareholders;
- no board representation and no right or intention to nominate a director of the target; and
- no intention to participate in the affairs or management of the target.
Answer ... There is no explicit guidance in the Competition Act or the Combination Regulations relating to joint ventures. A joint venture can be formed either by way of an acquisition (of assets, shares, voting rights or control) or by way of a merger or amalgamation, and will be treated as such under the Competition Act for the purposes of notification.
Further, a greenfield joint venture (ie, involving no transfer of assets to the joint venture from its parent entities) is not notifiable; whereas brownfield joint ventures may require notification, if the financial thresholds are met. The CCI has clarified that if one or more enterprises transfer their assets to a joint venture, the formation of the joint venture will be treated as a notifiable transaction, provided that the financial thresholds are met.
Answer ... Yes. Foreign-to-foreign transactions are regulated by the CCI, subject to the financial thresholds being met. The CCI, in Titan International/Titan Europe (C-2013/02/109), clarified that foreign-to-foreign transactions resulting in an indirect acquisition of shares of a company in India must be notified to the CCI.
Answer ... If any one of the following financial thresholds (set out below) is met, the transaction must be notified to the CCI:
The acquirer and the target jointly have either:
- assets of over INR 20 billion in India; or
- turnover of over INR 60 billion in India.
The acquirer and the target jointly have globally (ie, in India or outside India, in aggregate):
- assets of over $1 billion, including at least INR 10 billion in India; or
- turnover of over $3 billion including at least INR 30 billion in India; or
The acquirer’s group and the target jointly have:
- assets of over INR 80 billion in India; or
- turnover of over INR 240 billion in India; or
The acquirer’s group and the target jointly have globally (ie, in India or outside India, in aggregate):
- assets of over $4 billion, including at least INR 10 billion in India; or
- turnover of over $12 billion, including at least INR 30 billion in India.
Answer ... Two exemptions are provided under the Indian rules, as follows.
Target exemption: A transaction is exempt from the notification requirement if the target has:
- assets in India of not more than INR 3.5 billion; or
- turnover in India of not more than INR 10 billion.
This exemption is available until 26 March 2022.
In case of acquisition of a division/asset/business of the seller, the Indian assets and turnover attributable to such division/asset/business alone will be taken into account for the purpose of the target exemption (and not the value of assets and turnover of the seller’s entire enterprise, as was previously the case). However, in the case of an acquisition of shares, voting rights or control, the assets and turnover of the entire target enterprise in India will be considered.
Exemptions under Schedule I: Schedule I of the Combination Regulations lists certain categories of combinations which need not normally be notified to the CCI, as they are not ordinarily likely to cause an appreciable adverse effect on competition in the relevant market in India. In practice, this is generally understood to mean that no notification is required for such transactions. These include the following:
an acquisition of less than 25% of the shares or voting rights of an enterprise made solely as an investment or in the ordinary course of business, not leading to a change in control. There is limited guidance on the meaning of ‘ordinary course of business’. As stated above, an amendment to the Combination Regulations in 2016 clarified that the term ‘solely as an investment’ means an acquisition of less than 10% of the total shares or voting rights of an enterprise, if the acquisition does not confer:
- any special rights (other than those exercised by an ordinary shareholder);
- a board seat (or the right or intention to appoint a board seat); or
- the intention to participate in the affairs and management of the target.
Interestingly, the CCI has found that acquisitions that give rise to horizontal overlaps or vertical relationships between an acquirer and the target may raise competition concerns and cannot be regarded as ‘solely as an investment’ or ‘in the ordinary course of business’. Consequently, the application of this Item 1 exemption has been significantly diluted, as the number of notifiable transactions would increase. The CCI interprets the definition of ‘solely as an investment’ very strictly, which further limits the scope of the Item 1 exemption;
- an acquisition of any additional shares or voting rights where the acquirer or its group already holds 25% or more (but less than 50%) of the shares or voting rights, as long as such acquisition does not result in the acquirer holding 50% or more of the shares or voting rights, and does not result in the acquisition of sole or joint control of the target (ie, as long as it does not result in a change in the quality of control);
- an acquisition of shares or voting rights where the acquirer already has 50% or more of the shares or voting rights in the target (except where the transaction results in the transfer from joint control to sole control);
- an acquisition of assets not directly related to the business activity of the acquirer or solely as an investment or in the ordinary course of business, not leading to control, except where the assets being acquired represent substantial business operations in a particular location or for a particular product or service of the target, irrespective of whether such assets are organised as a separate legal entity. The CCI, in Reliance Jio/Reliance Communications (C-2017/06/516), has held that the acquisition of telecommunications spectrum between competitors will be considered as a strategic acquisition and is not in the ordinary course of business or solely for investment purposes. Therefore, Reliance Jio’s acquisition of spectrum from competitor Reliance Communications could not avail of this exemption;
- amended or renewed tender offers already filed with the CCI by the party making the offer;
- an acquisition of stock in trade, raw materials, stores and spares or other similar current assets in the ordinary course of business;
- an acquisition of shares or voting rights pursuant to a bonus issue, stock split, consolidation of face value of shares, buy-back of shares or subscription to rights issues of shares (except where the transaction results in the acquisition of control);
- an acquisition of shares or voting rights by a securities underwriter or registered broker of a stock exchange in the ordinary course of business;
- an intra-group acquisition of shares, voting rights or assets by one person or enterprise of another person or enterprise in the same group, except where the target is jointly controlled by enterprises that are not part of the same group;
- an intra-group merger, where either one of the enterprises has more than 50% shares or voting rights of the other enterprise, or more than 50% shares or voting rights in each of the enterprises are held by enterprises within the same group. However, this exemption does not apply to intra-group mergers or amalgamations where there is a change from joint control to sole control; or
- an acquisition of shares, control, voting rights or assets by a purchaser approved by the CCI in a divestment order.
The Combination Regulations have been worded in a manner such that the above are not absolute exemptions (ie, even where a transaction falls within the above categories, the CCI may direct parties to notify if it causes or is likely to cause an appreciable adverse effect in competition in any relevant market in India). In any event, the applicability of the above exemptions must be assessed on a case-by-case basis.