Revamped Merger Control Regime From Anti-trust Perspective In India

Introduction

Neither the Competition Commission of India ("CCI") nor the Government of India ("GoI") has allowed 'merger control' regime to remain turtle. Both have endeavored to sync its regulatory regime aligned with market realities and to adopt the best practices followed by matured jurisdictions.

Effective from 10 September 2024, the GoI notified enforcement of certain provisions of the Competition (Amendment) Act, 2024 ("Amendment Act") inter alia overhauling the "Merger Control Regime in India"¹. Simultaneously, the CCI also notified the Competition Commission of India (Combination) Regulations, 2024 ("Combination Regulations 2024")². These changes make a significant shift in India's Merger Control Regime, aiming to address the complexities of today's market dynamics in the wake of ever-increasing prominence of digital markets, entry of multinational players in Indian markets and the rise of conglomerates. Some of the key developments are:

Inclusion of Deal Value Threshold

The most significant development is the enforcement of the 'Deal Value' threshold ("DVT"). This is in addition to existing thresholds in terms of Assets and Turnover. Any transaction wherein the 'value of the transaction' exceeds INR. 2000 crores (approx. USD 240 Million) and the Target entity has 'substantial business operations ("SBO") in India', the transaction will be required to be notified to the CCI for its prior approval. It is to be noted that the "De-minimis exemption/ small target exemption" is not available if a transaction fulfils the DVT threshold.

Earlier, Zomato/ Uber Eats acquisition had a deal value of INR 2500 crore but it escaped the filing and prior approval requirement of the CCI as the transaction was completed prior to 10 September 2024. Likewise, PVR/ Inox Merger and Facebook/ WhatsApp, escaped the scrutiny from the CCI as they were falling within the ambit of small target exemption. The escape valves have now been plugged.

The SBO qualifies if either of the following criteria is breached³:

Value of the transaction?⁴

The value of the transaction includes any covenant, undertaking, obligations or restrictions imposed on seller or any other person, if such consideration is agreed separately, any consideration payable in two years post the transaction coming into effect; agreements (such as technology transfer agreements, IP licensing agreements, supply of raw materials or finished goods, branding and marketing which are part of the transaction); for call option and shares to be acquired thereof assuming full exercise of such option; likelihood of future outcome under a transaction as per best estimates.

Interestingly, the Combination Regulations provide that for transactions where the total value cannot be determined with reasonable certainty, it is presumed that the DVT is met, thereby requiring CCI approval.

Codification of De-minimis exemption within the Amendment Act⁵

The new framework codifies the pre-existing de-minimis exemption where a transaction was not required to be notified to the CCI if the target has either turnover of less than INR 1,250 crore (approx. USD 150.60 million) or assets less than INR 450 crore (approx. USD 54.21 million) in India. In the amended regime, the benefit of de-minimis exemption is not available if value of the transaction exceeds INR 2000 crore.

Derogation of Standstill Obligation for Open Market Purchases

The Amendment Act now allows open-market acquisitions to proceed even prior to obtaining CCI approval, subject to compliance with twin specific conditions i.e. the acquirer must seek approval within 30 days of the first acquisition and it must limit exercising rights confining to dividends, stock splits, or voting rights related to liquidation and insolvency matters until receipt of the CCI approval. This relaxation aims to accommodate the fast-paced nature of stock market acquisition, and it allows companies to proceed with investments without delays, provided they adhere to the specific conditions.

Revised definition of an "affiliate"

As per the revised legal framework, an enterprise is considered to be an affiliate of another if the latter has more than 10% shareholding or voting rights, has a representative in the board, or has access to commercially sensitive information ("CSI") of the affiliate.

Revised definition of 'Control'

The explanation under Section 5 of the Competition Act, 2002 defines 'Control' as "Controlling the affairs or management by one or more 'enterprises' or 'groups', either jointly or singly, over another enterprise or group." CCI in the existing framework considers control as an ability to exercise decisive influence, but the Amendment Act has defined control as a lowest degree i.e., exercising material influence over management, affairs or strategic commercial decisions. In its decisional practices, the CCI has taken material influence into consideration for the purpose of examining the "scope of control" exercised by the parties.

The CCI in Ultra Tech Cement Limited⁶ has defined material influence as "the lowest level of control, implies presence of factors which give an enterprise ability to influence affairs and management of the other enterprise including factors such as shareholding, special rights, status and expertise of an enterprise or person, Board representation, structural/financial arrangements etc."

The CCI in Agrium Inc..⁷ held that "As regards ICL, the Commission noted the submissions of the Parties that [...] but was of the opinion that considering its position of being one of the global leaders in production of potash, the possibility of it having the ability to materially influence the policies of ICL cannot be ruled out".

This expansion is therefore consistent with CCI's decisional practice which marks a dilution in the concept of control by shifting from the test of 'decisive influence' to 'material influence'. Furthermore, the threshold of control to determine material influence is much lower in its capacity, due to which all the transactions having miniscule control in the target entity would be bound to file notification before the CCI for prior approval.

Increased Filing Fees ⁸

The amended Combination Regulations has also brought in increased statutory filing fees. The filing fee for Form I has been increased from INR 20 lakhs to INR 30 lakhs and filing fee for Form II has been increased from INR 65 lakhs to INR 90 lakhs. This fee was last revised in 2021.

Reduced timelines for reviewing any combination

The timelines have been shortened from 30 working days to 30 calendar days for the CCI to form prima facie opinion if the transaction causes or is likely to cause Appreciable Adverse Effects on Competition ("AAEC") in India. It is important to note that if the CCI does not issue prima facie opinion within 30 calendar days, then the transaction notified by the parties is deemed to have been approved by CCI. Also, the review period cap has been shortened from 210 days to 150 days. Further, in cases where the CCI issues any defect letter to the parties to the combination, the CCI's review clock of 30 calendar days will recommence from the date when such defects are cured by the parties. The reduced timelines are a challenge for CCI as it has "few working hands to scrutinize the ever increasing numbers of transactions"

Exemption of certain categories of combinations⁹

The Competition (Criteria for Exemption of Combinations) Rules, 2024 ("Exempted Combination Rules") exempts certain categories of combinations from notification requirements before the CCI. The Exempted Combination Rules replace the erstwhile Schedule I exemptions under the earlier Combination Regulations. This is in line with Section 63 wherein power to make Rules lies with the GoI. The new criteria for availing of exemptions in a transaction are hereinbelow:

• Ordinary Course of Business: certain minority acquisitions applicable to stockbrokers, underwrites (acquisition of less than 25% of shares or voting rights of the target) and mutual funds (acquisition of less than 10% of shares or voting rights of the target);
• Solely as an Investment: Acquisition of shares or voting rights of less than 25% of a target may be exempted from the notification before the CCI if there is no control i.e., acquirer does not have right to appoint a director or observer on board and no right to access CSI of the target), and no overlaps. However, if there are any horizontal, vertical or complementary overlaps, the exemption is only applicable to transactions wherein acquisition of shares or voting rights is less than 10% post the acquisition;
• Incremental Acquisitions: In case, the shareholding of an acquirer is below 25% prior and post the completion of transaction, then such a transaction is exempt subject to acquirer not exercising any control or access to CSI in the target. Further, in case of any overlaps, acquisition of additional 5% is allowed by the acquirer and post the transaction, the shareholding should not exceed 10%.
• Intra Group transactions: These rules exempt intra-group transactions i.e., any transaction taking place within the same group only if there is no change in control.
• Demergers: These rules exempt demergers if the resultant entity offers shares as consideration to the demerged entity.
• Change in 'Control' test: Change from 'joint to sole' to uniform 'change in control'.

Conclusion

This revamped framework brings the merger control regime in India aligned with global best practices, especially the insertion of DVT as an additional threshold and 'material influence' as a control which is widely embraced in jurisdictions such as EU and USA. The reduced review timelines, flexibility on purchasing from open-market corporations, is a welcome move for the parties and are in consonance with "Ease of Doing Business". The changes are expected to infuse a competitive market environment that ensures growth, innovation and better treatment to consumers as the Indian economy further integrates into the rest of the world. Nevertheless, it should be noted that "Merger Control from the lens of competition" will always remain a "Work in Progress".

Footnotes

1 Available at: https://www.cci.gov.in/images/whatsnew/en/1relevant-provisions-of-sections-of-the-act1725960647.pdf

2 Available at: https://www.cci.gov.in/images/whatsnew/en/5the-competition-commission-of-india-combinations-regulations-20241725959471.pdf

3 Regulation 4 of the Combination Regulations

4 Ibid

5 Available at: https://www.cci.gov.in/images/whatsnew/en/2the-competition-minimum-value-of-assets-or-turnover-rules-20241725960502.pdf

6 Ultra Tech Cement Limited/Jai Prakash Cement Limited, Combination Registration No. C-2015/02/246)

7 Agrium Inc. and Potash Corporation of Saskatcehwan, Inc., Combination Registration No. C-2016/10/443

8 Regulation 11 of the Combination Regulations

9 Available at: https://www.cci.gov.in/images/whatsnew/en/4the-competition-criteria-for-exemption-of-combinations-rules-20241725960585.pdf

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