The State of Merger Control in India

With a population of over 1.3 billion people and a rapidly expanding economy, India is a key global player in mergers and acquisitions activity. As such, it is crucial for businesses operating in India to have a detailed understanding of the country's merger control regulations. The Competition Act, 2002 ("Act") is the primary legislation governing competition and cautions companies against anti-competitive conduct. One of the primary purposes of the Act is to regulate combinations (i.e., Mergers, Acquisitions, Amalgamations, etc.) which causes or is likely to cause an appreciable adverse effect on competition within India. India's merger control regime consists of a two-step process involving a mandatory filing and clearance from the Competition Commission of India ("CCI"). In this update, we take a closer look at the current status of merger control regulations in India.

Mandatory Filing and Thresholds

According to Section 6(2) of the Act, parties must inform the CCI of a proposed combination that exceeds the set parameters before executing the relevant transaction. The following transactions require mandatory filing with the CCI:

Merger or amalgamation ("Merger"): Where a combination results in the acquisition of control by an enterprise over another enterprise.
Acquisition of control ("Acquisition"): Where an enterprise directly or indirectly, acquires or agrees to acquire shares, assets, or control of another enterprise.

For any combination to be eligible for mandatory filing, the combined assets and turnover of the parties involved in the combination must exceed the following thresholds:

Combined assets in India of the parties exceed $875 million.
Combined turnover in India of the parties exceeds $2.7 billion.

Therefore, any combination that does not meet the thresholds is not subject to mandatory filing with the CCI. However, the CCI has the power to review the combinations that fall below the thresholds, considering the value of the assets, the potential value of the transaction, and the significance of the combination to the economy. In such cases, parties can voluntarily notify the CCI of the proposed combination.

Regulatory assessment process

Combinations that exceed the thresholds must undergo a two-step review process by the CCI. First, the CCI conducts a prima facie assessment to determine if the combination is likely to cause an appreciable adverse effect on competition ("AAEC") within India. Parties must submit a Form I notifying the CCI of the proposed combination under Section 6(2) of the Act. The standalone legal fact test is used to determine if a combination is likely to cause an AAEC. In short, this test is satisfied if any party to a combination has a combined share of more than 15% in relation to goods or services or a combined market share of more than 25% in relation to goods and services. Failure of the test is sufficient to trigger a detailed investigation by the CCI into the combination. The assessment typically lasts 30 days from the date of filing. The CCI usually takes this time to evaluate whether the combination might cause an AAEC and potentially impact competition in the relevant market.

Second, where an AAEC is identified, the parties must respond to the CCI's objections within 30 working days. Failing to respond within this period will result in an automatic rejection of the proposed combination. The response must contain detailed arguments and evidence on why the combination will not have an AAEC. The CCI will publish details of the combination and the responses received from parties on its website and invite third parties to submit their views before concluding its assessment of the combination after a detailed investigation. Depending on the nature of the combination, the review process could take up to 210 working days. This process includes time for the exchanges between parties and the CCI, as well as the publication of the details of the combination for public comment.

Structural and Behavioral Remedies

Following the CCI's assessment of a combination, it may either approve, disapprove or propose modifications to the concerning transaction. In most cases, the CCI approves the combination with modifications. Structural remedies involve the divestiture of certain businesses to address any potential antitrust issues. Such remedies are usually required where the combination results in excessive market concentration. Behavioral remedies, on the other hand, entail amendments to the conducting parties' behavior to address the possible anticompetitive effects of the combination. Some examples of behavioral remedies are nondisclosure of confidential information, operating as a stand-alone entity, and price controls. The CCI's primary objective is to remedy the AAEC as expeditiously as possible. Hence, it may impose interim measures on the parties to prevent them from executing the proposed combination during the pendency of the assessment process to avoid substantial damage to competition in the market.

Exemption to the banking sector

The Reserve Bank of India ("RBI") is the regulator for the banking sector and controls the proportion of equity shares and voting rights a single party may hold in a banking company. This restricts any investor from acquiring control of a banking company without the prior approval from the RBI. Consequently, the RBI decided to exempt the banking sector from the purview of the CCI's merger control regulations. Accordingly, combinations involving merger, amalgamation, or acquisitions of Indian banks are not subject to the CCI's merger control approval process. Instead, the RBI grants no objection certificates for such combinations.

Conclusion

India's merger control regime is effective in preventing combinations that could create or exploit market power. The CCI has explicitly stated its focus is to reduce examination time, promote ease of doing business, and use predictable and objective standards while assessing business transactions. Consequently, it is crucial for parties undertaking combinations to comply with the mandatory filing requirements and cooperate with the CCI to ensure a smooth and timely transaction.