Quick Guide on Merger Control in India

A Cyril Amarchand Mangaldas ought Leadership Initiative

DISCLAIMER

All information given in this guide has been compiled from credible and reliable sources. Although reasonable care has been taken to ensure that the information in this guide is true and accurate, such information is provided ‘as is’, without any warranty, express or implied as to the accuracy or completeness of any such information. Cyril Amarchand Mangaldas shall not be liable for any losses incurred by any person from any use of this publication or its contents. is guide has been prepared for informational purposes only and nothing contained in this handbook constitutes legal or any other form of advice from Cyril Amarchand Mangaldas. e position of law

stexpressed here are only valid as on 1 January, 2017.

CONTENT

1. Does India have a merger control regime? . . . . . . . . . . . . . . . . . 1

2. What is a ‘combination’?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

3. What are the thresholds prescribed under the Competition Act? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

4. Is a combination involving two foreign enterprises notifiable to the CCI? What is the threshold applicable to international transactions? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

5. Is a Joint Venture ( JV) notifiable under the Competition Act? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

6. Are there any exemptions to the rule of mandatory notification?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

7. How does the CCI view ‘control’ under the Competition Act? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

8. What are the factors that the CCI may consider while examining a notified transaction? . . . . . . . . . . . . . . . . . . . . . . . . 6

9. What is the trigger event and deadline to file the merger notification?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

10. What is the procedure for notifying a transaction to the CCI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

11. Who is obligated to file the merger notificationwith the CCI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

12. How long does the CCI review process take? . . . . . . . . . . . . . . 8

13. Is it possible to have pre-notification consultation with the CCI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

14. What are the consequences for failure to notify a notifiable combination or implementing a combination before clearance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

15. Is there a “look back” clause for transactions thathave been consummated? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

16. Is confidential information protected under the Competition Act? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

17. Can the merger orders of the CCI be appealed?. . . . . . . . . . . 10

Key Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

THINGS YOU OUGHT TO KNOW:MERGER CONTROL

1. Does India have a merger control regime?st Yes. India has a merger control regime effective since 1 June,

2011. e Competition Act, 2002 (as amended) (Competition Act) envisages a mandatory and suspensory merger control regime. A transaction which requires filing of a merger notification cannot be completed until receipt of approval from the Competition Commission of India (CCI) or expiry of 210 calendar days (and additional 60 working days subject to conditions), whichever is earlier.

2. What is a ‘combination’? Certain acquisitions of shares, voting rights, control or assets and

mergers and amalgamations involving enterprises which satisfy prescribed financial thresholds are termed as ‘combinations’ under the Competition Act. Section 5 of the Competition Act prescribes the assets and turnover thresholds. ese thresholds have been modified by the Ministry of Corporate Affairs (MCA), Government of India, first in March, 2011 and recently in March, 2016. e thresholds have been explained in detail in Question 3 below.

3. What are the thresholds prescribed under the Competition Act?

For a transaction to require a prior merger notification to the CCI, the combined assets or turnover of the transacting parties must satisfy the thresholds prescribed under either the Parties Test or the Group Test (set out below). However, a transaction would not require prior notification to, and approval from, the CCI if the target enterprise, including its divisions, units and subsidiaries, has either assets of the value not exceeding INR 350 crore (USD 51.90 million / EUR 48.92 million / GBP 40.93 million/JPY 6.03 billion) in India; or turnover not exceeding INR 1,000 crore (USD 148. million / EUR 139.78 million / GBP 116.95 million/JPY 17.24 billion) in India (Target Exemption). e Target Exemption is applicable only to transactions structured as acquisitions and is not applicable to mergers and amalgamations. e thresholds prescribed under the Parties Test and Group Test are set out below:

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> INR 2,000 crore (approx. USD 296.60 million / EUR 279.56 million/ GBP 233.9 million/JPY 34.48 billion)

> INR 8,000 crore(approx. USD 1.18 billion / EUR 1.11 billion / GBP 935.6 million/JPY 137.93 billion.)

> INR 6,000 crore(approx. USD 889.81 million / EUR 838.69 million/ GBP 701.7 million/JPY 103.44 billion.)> INR 24,000 crore(approx. USD 3.55 billion / EUR 3.35 billion / GBP 2.80 billion/JPY 413.79 billion.)

PARTIES TEST(Acquirer + Target)

GROUP TEST(Acquirer Group + Target)

INDIA APPLICABILITY ASSETS TURNOVERPARTIES TEST AND GROUP TEST IN INDIA

> USD 1 billion(approx. EUR 942.54 million / GBP 788.65 million JPY 116.25 billion)

> USD 4 billion(approx. EUR 3,770.16 million / GBP 3154.6 million JPY 465 billion)

PARTIES TEST(Acquirer + Target)

GROUP TEST(Acquirer Group + Target)

WORLDWIDEAND

INDIA

APPLI-CABI-LITY

ASSETS TURNOVER

PARTIES TEST AND GROUP TEST WORLDWIDE AND IN INDIA

> INR 1,000 crore(approx. USD 148.30 million / EUR 139.78 million / GBP 116.95 million /JPY 17.24 billion)> INR 1,000 crore(approx. USD 148.30 million / EUR 139.78 million / GBP 116.95 million/ JPY 17.24 billion)

> USD 3 billion(approx. EUR 2,827. 62 million / GBP 2365.95 million/JPY 348.75 billion)> USD 12 billion(approx. EUR 11,310.48 million / GBP 9463.8 million/JPY 1395 billion)

> INR 3,000 crore(approx. USD 444.90 million / EUR 419.34 million / GBP 350.85 million/JPY 51.72 billion)> INR 3,000 crore(approx. USD 444.90 million / EUR 419.34 million / GBP 350.85 million/ JPY 51.72 billion)

TOTAL MINIMUMIN INDIA TOTAL

MINIMUMIN INDIA

Note: All statutory thresholds are in bold, and all other foreign currency figures are thexpressed for convenience as per the following conversion rates (as on 12 December,

2016) aer rounding it off: 1 USD = 67.43 INR, 1 EUR = 71.54 INR, 1GBP = 85.5 INR and 1JPY = 0.58 INR.

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4. Is a combination involving two foreign enterprises notifiable to the CCI? What is the threshold applicable to international transactions?

e Competition Act provides the CCI with extra-territorial jurisdiction over combinations taking place outside India and all such combinations will be notifiable if the transacting enterprises meet the jurisdictional thresholds in India. In case of offshore combinations, which satisfy the jurisdictional thresholds by virtue of indirect presence of the parties in India (either by way of subsidiaries, associate companies or joint ventures, etc.), notification to the CCI is required even if the businesses of the parties in India is entirely unrelated to and does not form part of the proposed combination.

5. Is a Joint Venture ( JV) notifiable under the Competition Act? JVs are not per se exempt from notification requirements under

the Competition Act. However, a green-field JV (i.e., a new JV), subject to certain events, may not require prior notification to the CCI given that it does not hold any asset or generate any turnover. On the contrary, a brown-field JV may necessitate a CCI notification if the jurisdictional thresholds are met. Further, there is no distinction made between full-function JVs and non full-function JVs under the Competition Act, as is the case in the EU.

6. Are there any exemptions to the rule of mandator y notification?

In addition to the transactions that can avail of the Target Exemption (as provided in question 3 above), the transactions falling under the following two categories do not require a pre-transaction approval from the CCI:

(i) Transactions expressly exempt under the Competition Act: Acquisitions, share subscriptions or financing facilities entered into by public financial institutions, registered Foreign Institutional Investors (FII), banks or registered Venture Capital Funds (VCF), under a covenant in a loan agreement or an investment agreement. Such transactions require a post facto notification to the CCI in Form III (discussed below in question 10). Further, the

thMCA, by way of a notification dated 8 January, 2013, has

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exempted banking companies under moratorium (pursuant to Section 45 of the Banking Regulation Act, 1949) from the requirement to file a merger notification with the CCI, for a period of 5 (five) years.

(ii) Transactions that are 'ordinarily' exempt under CCI’s (Procedure in regard to the transaction of Business relating to Combinations) R eg ulations , 2011 (Combination Regulations): Transactions set out in Schedule I of the Combination Regulations are presumed not to cause an appreciable adverse effect on competition (AAEC) in India and ‘normally’ do not require a notification. Such transactions include the following:

>25% acquisitions: Acquisition of shares or voting rights l

that does not entitle the acquirer to 25% or more of the total shares or voting rights in the target and are made solely for the purposes of investment or in the ordinary course of business not leading to acquisition of control of the target.

An explanation in relation to acquisitions of less than 10% of the total shares or voting rights has been recently introduced where an acquisition of up to 10% of the total shares or voting rights will be presumed to be in ‘ordinary course’ provided that:

No special rights are allotted to the acquirer and the n acquirer can only exercise ordinary shareholder rights to the extent of its shareholding; and

No board members are appointed by the acquirer; andn

Acquirer does not intend to participate in the affairs n or management of the target.

Non-controlling minority acquisitions in the nature of strategic acquisitions are not regarded as investments in the ordinary course of business or pure financial investments and cannot avail of these exemptions.

Acquisitions between 25% and 50%: Acquisition where the l

acquirer already holds 25% or more of shares or voting rights in the target and acquires up to 50% of shares or voting rights not resulting in acquisition of sole or joint control of the target.

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l Acquisitions above 50%: A further acquisition where the acquirer already holds 50% or more of shares or voting rights in the target and the acquisition does not result in a change from joint to sole control.

l Changes to share capital: Acquisitions made pursuant to a bonus issue, stock splits, consolidation of shares or buy back or of shares or subscription to rights issue of shares, not leading to any acquisition of control or an acquisition of shares or voting rights;

l Underwriting/stock broking: Acquisitions made by a securities underwriter or a stock broker in the ordinary course of business, not leading to control;

l Intra-group acquisitions: Acquisition of shares, voting rights or assets by a person or enterprise, of another person or enterprise within the same group except in cases where the acquired enterprise is jointly controlled by enterprises that are not part of the same group.

l Intra-group mergers and amalgamations: Mergers or amalgamations between two or more enterprises within the same group, provided such merger or amalgamation does not result in a shi from joint to sole control;

l Asset Acquisitions: Acquisition of assets which do not constitute substantial business operations: (i) in a particular location; or (ii) in relation to a particular product or service of the target, which is made solely as an investment or in the ordinary course of business, not leading to control of the target, irrespective of whether such assets are organized as a separate legal entity;

l Miscellaneous acquisitions: Acquisitions of stock-in-trade, raw materials, trade receivables and stores and spares in the ordinary course of business.

7. How does the CCI view ‘control’ under the Competition Act? ‘Control’ under the Competition Act refers to control, whether

joint or sole over the management or affairs of an enterprise by one or more enterprises or groups.

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Further, the CCI has interpreted ‘control’ to mean the ability to exercise decisive influence over the management and affairs of the target. It has clarified that control includes both positive and negative control. Negative control is exercised by one enterprise by way of affirmative voting rights or veto rights over the strategic business decisions of the other, including appointment of management personnel, approval of the annual budget and business plans, changes to dividend policy, entry or exit from lines of business, changes in capital structure, appointment of auditors, etc. e concept of ‘control’ has been interpreted expansively and is viewed on a case-to-case basis by the CCI.

8. What are the factors that the CCI may consider while examining a notified transaction?

e Competition Act enlists various factors which are required to be taken into consideration by the CCI while determining if a combination is likely to cause an AAEC in the relevant market. Such factors include, inter alia, the actual and potential level of competition through imports in the market, entry barriers to the market (regulatory and otherwise), degree of countervailing power in the market, availability of substitutes in the market, market shares of each of the parties to the combination (individual and combined), likelihood of foreclosure/removal of competitors, extent of vertical integration in the market, etc.

9. What is the trigger event and deadline to file the merger notification?

e notification in Form I and Form II is required to be filed with the CCI within 30 days of:

Final approval, in the case of a merger or amalgamation by l

the boards of directors of the merging/amalgamating enterprises; or

Execution of a binding definitive agreement or “other l

document” conveying a decision to acquire (which includes a public announcement made under takeover regulations), in case of an acquisition of shares, voting rights, assets or control.

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10. What is the procedure for notifying a transaction to the CCI? e Competition Act provides for a self-assessment regime to

determine the form of merger notification to be filed with the CCI on the basis of market shares of the transacting parties.

ere are 3 types of forms for notification of the combination:

(i) – It is the short form which requires information Form I pertaining to the combination, with a filing fee of INR 15 lakh (USD 22,245.291 / EUR 20,967.291 / GBP 17,543.85/ JPY 2.58million).

(ii) – It is a more detailed, technical form which parties Form IIcan opt to file, along with a filing fee of INR 50 lakh (USD 74,150.971 / EUR 69,890.970 / GBP 58,479.53/ JPY 8.62 million). e Combination Regulations recommend that Form II should be “preferably” filed when:

e combined market shares of the parties to the l proposed transaction, who are competitors (i.e., horizontal combinations), is more than 15% in the relevant market; or

e combined market share of the parties to the l proposed transaction, who operate in vertically linked markets (i.e., upstream and downstream markets), is more than 25% in the relevant market.

(iii) – It is a post-completion intimation form, which Form III is filed within 7 (seven) days of an acquisition, share subscription or financing facility entered into by a public financial institution, registered FII, bank or registered VCF, under a covenant of a loan agreement or an investment agreement.

11. Who is obligated to file the merger notification with the CCI? e obligation to notify the CCI lies with the acquiring

enterprise in case of an acquisition and jointly with the merging/amalgamating parties in the case of a merger or amalgamation.

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12. How long does the CCI review process take? e CCI is required to form a prima facie opinion on whether a

combination is likely to cause an AAEC within the relevant market in India within a period of 30 working days from the receipt of the notification. e 30-working day timeline, which constitutes Phase I, is not absolute as the CCI can “stop the clock” for seeking further information and the time taken by the parties to submit further information is excluded from the 30-working day computation. At the end of Phase I, the CCI may either approve the transaction, or order a Phase II investigation. e transacting parties cannot complete the transaction until the earlier of: (i) a final decision by the CCI; or (ii) lapse of 210 days from the date of notification to the CCI subject to an additional 60 working days based of the conditions set out under the Competition Act. Phase II investigation entails an in-depth investigation if the CCI, at the end of the Phase I review period, forms a prima facie view that a combination causes or is likely to cause an AAEC as the relevant market. Further, is the returned market for the purposes of a Phase II investigation, the CCI has an additional 180 days to review the combination. e transacting parties are required to publish details of the combination in the prescribed format on their respective websites, four leading newspapers and the CCI’s website to invite public comments. Upon receiving comments from the public and seeking additional clarifications, if any, the CCI is required to review all the information and arrive at a final conclusion regarding the matter, including proposing and negotiating remedies with the parties. ere have only been 3 (three) Phase II investigations by the CCI, thus far.

13. Is it possible to have pre-notification consultation with the CCI?

e CCI provides for informal, oral and non-binding pre-notification consultation, which may relate to procedural a substantive issues. e consultation requests can be made by the parties’ on a no-name basis. e CCI neither disclose/publish the parties’ query nor its opinion on its website or otherwise.

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14. What are the consequences for failure to notify a notifiable combination or implementing a combination before clearance?

e Competition Act prescribes a penalty of up to 1% of the combined global assets or turnover, whichever is higher, for failure to notify a notifiable transaction, belated notification or consummating a transaction (or part therefore) before receipt of the CCI approval. e penalty is imposed on the acquirer in case of an acquisition and on both the parties in case of a merger or amalgamation. e CCI has imposed penalties within the range of INR 10 million (USD 0.14 million / EU 0.13 million / GBP 0.11 million / JPY 17.24 million) to INR 50 million (USD 0.7 million / EU 0.65 million / GBP 0.55 million / JPY 86.20 million) for failure to report a notifiable transaction, belated notification and gun-jumping.

15. Is there a “look back” clause for transactions that have been consummated?

e Competition Act empowers the CCI to “look back” and inquire into a combination that has not been notified for up to 1 (one) year from the date of completion of such combination. is timeline does not limit/preclude the power of the CCI to impose penalty for failure to file a notifiable transaction.

16. Is confidential information protected under the Competition Act?

e Competition Act, read with the Combination Regulations, allows the parties to claim confidentiality on information and/or documents submitted with the merger notification which are commercially sensitive in nature. e parties are required to provide detailed justifications (along with the implications on the business if such information is made public) to substantiate their confidentiality claims. Further, the confidentiality claims are required to be supported with an affidavit duly sworn by the authorised signatory. e CCI, typically, grants confidentiality on requested information for a period of 3 (three) years.

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17. Can the merger orders of the CCI be appealed? Any person aggrieved by an order of the CCI may prefer an

appeal to the Competition Appellate Tribunal (COMPAT) within 60 days of the CCI order. Appeals against orders of the COMPAT lie with the Supreme Court of India. To date, only five merger control orders of the CCI have been appealed before the COMPAT.

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KEY CONTACTS

Anshuman SaklePartnerM: +91 9833818023E: anshuman.sakle@cyrilshroff.com

Rahul GoelPartnerM: +91 9599487116E: rahul.goel@cyrilshroff.com

Bharat BudholiaPartnerM: +91 9167073778E: bharat.budholia@cyrilshroff.com

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Percival Billimoria (Percy) Partner & National Chair – Disputes, Regulatory, Advocacy and PolicyE: percy.billimoria@cyrilshroff.com

Cyril ShroffManaging PartnerE: cyril.shroff@cyrilshroff.com

Ashok ChawlaSenior Advisor – Public Policy and Member – Strategic Advisory Board, Cyril Amarchand Mangaldas; Former Chairperson, CCIE: ashok.chawla@cyrilshroff.com

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NOTES

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