The International Comparative Legal Guide to:

Merger Control 2011

A practical cross-border insight into merger control
Published by Global Legal Group with contributions from: Ashurst LLP Borden Ladner Gervais LLP Brasil, Pereira Neto, Galdino, Macedo Advogados BPGM Bullard, Falla & Ezcurra Abogados ELIG, Attorneys-at-Law Elvinger, Hoss and Prussen Freehills Georgiades & Pelides LLC Gide Loyrette Nouel Homburger Hunton & Williams LLP Kallel & Associates Kalo & Associates Koep & Partners Liedekerke Wolters Waelbroeck Kirkpatrick Matheson Ormsby Prentice Michael Shine & Co. Morais Leito, Galvo Teles, Soares da Silva & Associados Nagashima Ohno & Tsunematsu Nielsen Nrager Olivares & Ca., S.C. PRA Law Offices PUNUKA Attorneys & Solicitors Schoenherr Setterwalls SJ Berwin Studio Pirola Pennuto Zei e Associati Tamme Otsmann Ruus Vabamets UGGC & Associes Van Doorne N.V. Vasil Kisil and Partners Vogel & Vogel Webber Wentzel Wikborg, Rein & Co. uri i Partneri

Chapter 21

India
PRA Law Offices

Premnath Rai

P. Srinivasan

1 Relevant Authorities and Legislation

1.1 Who is/are the relevant merger authority(ies)?

In India, the following are the main authorities that regulate mergers (though not specifically from the competition aspect) viz.: High Court(s); Board for Industrial and Financial Reconstruction (BIFR); Government of India (and the Competition Commission of India (CCI). The Companies Act, 1956 (Companies Act) mandates that a scheme of merger or amalgamation (Scheme) of companies shall be subject to approval of the respective High Court(s) within whose jurisdiction the transferor and/or transferee companies are located. Prior to sanctioning a Scheme, the High Court considers the reports filed by the Registrar of Companies (RoC) through the Regional Director, Department of Corporate Affairs, Government of India (Regional Director) and also a report from the Official Liquidator (Official Liquidator) attached to the High Court (in the case of the transferor companies that would stand liquidated pursuant to the Scheme). The focus of reports from the Regional Director and the Official Liquidator is primarily to ascertain whether the affairs of the relevant companies have been conducted in a manner prejudicial to the interests of their members or to public interest. Generally, merger proceedings are not impaired in normal circumstances by any specific governmental actions. The BIFR is the authority established by the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The SICA applies to certain categories of industries that are specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. The SICA provides inter alia that an industrial company shall be considered a sick industrial company if its accumulated losses exceed the sum of paid up share capital and free reserves. BIFR has the power to inquire into the working of such sick industrial companies and approve appropriate schemes for revival of such sick industrial companies. Powers conferred on BIFR include approving a proposal for amalgamation of such sick industrial company with any other company and vice versa. The Companies (Second Amendment) Act, 2002 (which is yet to be brought into force) provides inter alia for administration under the Companies Act, of certain powers and duties that are being currently administered by SICA and for establishment of NCLT and NCLAT (see below) and for transfer to NCLT of certain powers that are currently exercised by BIFR. SICA is proposed to be repealed by Sick Industrial Companies (Special Provisions) Repeal Act, 2003, which is expected to come into force once the Companies (Second Amendment) Act, 2002 comes into full force. Where a merger is not in the nature of a merger of one or more companies with another company, but is one of an acquisition of

shares, compliance with Sections 108A through 108-I of the Companies Act may be required in appropriate cases. Under these provisions, prior approval from the Government of India is required before a person (holding not less than 10% in the capital of a company owning a dominant undertaking) transfers any shares or before a person acquires any shares that would make his aggregate holding at least 25% in such acquired company if the acquirer is the owner of a dominant undertaking or the subject shares are of the dominant undertaking which enjoys a dominant position in the Indian markets. The term dominant undertaking had been defined in erstwhile Monopolies and Restrictive Trade Practices Act, 1969 (MRTP ACT) to mean that which produces, supplies or controls not less than one-fourth of the total quantity of relevant goods or services produced or rendered in India. Further, in terms of Explanation (a) to Section 4(2) of the Competition Act, 2002, an enterprise may be said to occupy a dominant position when it enjoys a position of strength in the relevant market, in India, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour. The Companies Act was amended in 2002 to provide inter alia for the establishment of the National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT). The Supreme Court of India has in its judgment dated May 11, 2010 approved the setting up of the NCLT and NCLAT subject to suitable amendments in the Companies Act, 1956. The Central Government is in the process of making suitable amendments to the Companies Act, 1956 to set up the NCLT and NCLAT. Once the proposed fast-track adjudication body NCLT and NCLAT come into being, corporate matters concerning mergers and amalgamations, winding up etc., will also be decided NCLT and NCLAT instead of the High Courts. The Ministry of Corporate Affairs, Government of India has, per Notification dated August 28, 2009, repealed the erstwhile the MRTP Act and replaced it with Competition Act, 2002, with effect from September 1, 2009. However, provisions relating to regulation of merger / combinations transactions (Sections 5 and 6 of the Competition Act, 2002) are yet to be brought into force. Once Section 5 and Section 6 of the Competition Act, 2010 are brought into force, the CCI shall be the main regulatory authority for regulating mergers and combinations in India. However as Section 3 (dealing with anti-competitive agreements) and Section 4 (dealing with abuse of dominant position) of the Competition Act have already been brought into force, the CCI is empowered to enquire, investigate and determine, on its own or on the basis of any information received by it, whether an agreement has an appreciable adverse effect on competition or whether an enterprise enjoying a dominant position is abusing such dominant position to the detriment of the market and the consumer.

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1.2 What is the merger legislation?

India
If the mergers result in a foreign entity acquiring shares in an Indian company, then provisions of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or issue of Security by a person resident outside India) Regulations, 2000 become relevant. In some sectors (like Atomic Energy, Lottery Business, Gambling and Betting, Housing and Real Estate Business (other than development of townships, residential or commercial complexes, roads and brides), Retail Trading (other than single brand retail trading)) foreign investment is prohibited. In some sectors (like banking, insurance, telecommunication, mining, airports), foreign investment is either subject to a cap or subject to prior approval of the Government of India.
1.4 Is there any other relevant legislation for mergers in particular sectors?

The key provisions relating to merger control from the perspective of anti-competitive practices are implicitly contained in the Companies Act and the Competition Act, 2002 (see question 1.1). Most of the provisions of the Competition Act have now come into force on May 15, 2009. However, the substantial provisions of the Competition Act relating to Regulation of Combinations (Section 5 and Section 6 of the Competitions Act, 2002) have not yet come into effect. As and when Section 5 and Section 6 of the Competition Act, 2002 relating to regulation of combinations under the Competition Act are notified, it can be said that the Competition Act will be the principal source of merger control legislation. CCI has also not yet finalised and issued the detailed Regulations regarding combinations, although a draft of the same was earlier prepared. In addition, where the transaction involves acquisition directly or indirectly of shares in a company whose shares are listed in stock exchanges, then the acquirer will need to comply with the provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulations, 1997 (Takeover Code). However, exemption from application of the Takeover Code is available in the case of a scheme of amalgamation carried out under any Indian or foreign law. The Takeover Code is also due to be amended in terms of the recommendations of the Takeover Panel. The Takeover Panel, formed by SEBI in September 2009, has recommended an increase in the open offer trigger (triggered at various stages during acquisition of shares in a target company) from 15% to 25%. Further, the open offer has to be made for all the shares of the target company, instead of the current practice of an offer for acquiring an additional 20%. The proposed amendments would raise the financing required for taking over a firm, but would encourage investors taking strategic stakes in companies. The committee has also noted that the 100% open offer requirement could result in an acquirer ending in holding beyond the maximum permissible non-public shareholding, which may require the acquirer to either delist or bring down his holding to meet the continuous listing requirements. The panel has recommended that the acquirer may state upfront his intention to delist if his holding in the target company were to cross the delisting threshold, pursuant to the open offer. In the absence of any such disclosure or when the response to the open offer is below the delisting threshold, the acquirer would be required to either proportionately reduce both his acquisitions under the agreement that triggered the open offer and the acquisitions under the open offer or to bring down his holding to comply with continuous listing requirements. This option is currently not provided under the regulations, and will provide a seamless opportunity to new acquirers for delisting.
1.3 Is there any other relevant legislation for foreign mergers?

India

In addition to the general provisions given above (see question 1.1 and question 1.2), there are industry specific clearances that are relevant for mergers in specified sectors. Examples of such sectors include banking, insurance and telecom services, where merger of companies in banking, insurance or telecom services providers would respectively require approval of Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (IRDA) and Department of Telecommunications (DoT).

2 Transactions Caught by Merger Control Legislation

2.1 Which types of transaction are caught in particular, how is the concept of control defined?

The Competition Act becomes relevant where a foreign merger (or acquisition of shares) causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India. Various factors like actual and potential level of competition through imports in the market, extent of entry barriers, level of combinations in the market, degree of countervailing power in the market, availability of substitutes in the market, market shares of the parties to combination, possibility of failing business, nature and extent of innovation etc. are to be considered before deciding whether a combination can have an appreciable adverse effect on competition (see question 2.6).

The expressions control and group are defined in Section 5 (which is yet to be brought into force) of Competition Act. Section 5 of the Competition Act defines combinations. The CCI is empowered to investigate whether a combination may have an appreciable adverse effect on competition. A combination could be arrived at either by: (i) acquisition of shares/voting rights/assets/control over management or assets of an enterprise; (ii) acquisition of control by a person over an enterprise; or (iii) merger of two or more enterprises, subject to meeting specified jurisdictional thresholds. The jurisdictional thresholds are based on the value of assets or turnover of such combination (see question 2.4). In particular, the term control as defined in Section 5 means controlling the affairs or management by: (i) one or more enterprises, either jointly or singly, over another enterprise or group; or (ii) one or more groups, either jointly or singly, over another group or enterprise. The term group as defined in Section 5 of the Competition Act means two or more enterprises which, directly or indirectly, are in a position to: (i) exercise twenty-six per cent or more of the voting rights in the other enterprise; or (ii) appoint more than fifty per cent of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise. See question 2.4 for situations where the CCI proposes to declare some transactions as not likely to have appreciable adverse effect on competition. The Central Government is empowered to grant exemptions from the application of the Competition Act or any of its provisions under limited grounds like: (i) in the interest of security of the state or public interest; (ii) for discharging obligations arising under any treaty, agreement or convention with any other country; and (iii) any enterprise which performs a sovereign function on behalf of the Central Government or any of the State Governments.

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2.2 Can the acquisition of a minority shareholding amount to a merger?

India
Rs.10 Billion (USD 200 Mil.) or a turnover of more than Rs.30 Billion (USD 600 Mil.); or (b) in India or outside India, in the aggregate, assets with a value of more than USD 500 Mil. (including at least Rs.5 Billion (USD 100 Mil.) in India) or a turnover of more than USD 1,500 Mil. (including at least Rs.15 Billion (USD 300 Mil.) in India). (d) Where there is an acquisition of control over an enterprise and when such acquirer already has control over another enterprise engaged in the production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service and the group to which the enterprise whose control has been acquired would belong after the acquisition, jointly have: (a) in India, assets with a value of more than Rs.40 Billion (USD 800 Mil.) or turnover of more than Rs.120 Billion (USD 2.4 Billion); or (b) in India or outside India, in the aggregate, assets with a value of more than USD 2 Billion (including at least Rs.5 Billion (USD 100 Mil.) in India) or turnover of more than USD 6 Billion (including at least Rs.15 Billion (USD 300 Mil.) in India). Where there is any merger in which the surviving enterprise has: (a) in India, assets with a value of more than Rs.10 Billion (USD 200 Mil.) or a turnover of more than Rs.30 Billion (USD 600 Mil.); or (b) in India or outside India, in aggregate, assets with a value of more than USD 500 Mil. (including at least Rs.5 Billion (USD 100 Mil.) in India) or a turnover of more than USD 1,500 Mil. (including at least Rs.15 Billion (USD 300 Mil.) in India). Where there is any merger in which the group to which the surviving entity would belong after the merger, will have: (a) in India, assets with a value of more than Rs.40 Billion (USD 800 Mil.) or a turnover of more than Rs.120 Billion (USD 2.4 Billion); or (b) in India or outside India, assets with a value of more than USD 2 Billion (including at least Rs.5 Billion (USD 100 Mil.) in India) or a turnover of more than USD 6 Billion (including at least Rs.15 Billion (USD 300 Mil.) in India).

Under the Competition Act, the expression acquisition is used in the context of acquiring shares, voting rights or assets of any enterprise or control over management of an enterprise. Merger is understood in the Indian law as to mean amalgamation of two or more enterprises. In this context, acquisition of shareholding (minority or otherwise) does not per se amount to a merger. However, acquisition of minority shareholding could be a combination as Section 5 of the Competition Act does not provide for any specific threshold exemption limit. On a related matter, the CCI has issued draft regulations governing Combinations called The Competition Commission of India (Combination) Regulations, (Draft Combination Regulations). By the Draft Combination Regulations, the CCI has proposed to declare some categories of Combinations as not likely to cause an appreciable adverse effect on competition in India. The CCI has stated that where there is an acquisition of shares or voting rights solely as an investment or in the ordinary course of business, of not more than twenty-six per cent of the total shares or voting rights of the acquired enterprise, not leading to control of such enterprise would not be considered as likely to cause an appreciable adverse effect on competition in India. (See question 2.4.)
2.3 Are joint ventures subject to merger control?

(e)

(f) The Competition Act prohibits agreements in respect of production, supply and distribution of goods and services that cause or that are likely to cause an appreciable adverse effect on competition within India. However, a joint venture agreement would not per se be considered anti-competitive so long as such agreements increase efficiency in production, supply, distribution, storage, acquisition or control of goods or provision of services.
2.4 What are the jurisdictional thresholds for application of merger control?

Section 5 of the Competition Act, when brought into force, will provide for the regulation of the following types of combinations: (a) Where there is an acquisition of control, shares, voting rights or assets of an enterprise and if the parties to the acquisition would jointly have: (a) in India, assets with a value of more than Rs.10 Billion (USD 200 Mil.) or a turnover of more than Rs.30 Billion (USD 600 Mil.); or (b) in India or outside India, assets with a value of more than USD 500 Mil. (including at least Rs.5 Billion (USD 100 Mil.) in India) or a turnover of more than USD 1,500 Mil. (including at least Rs.15 Billion (USD 300 Mil.) in India). Where there is an acquisition of control, shares, voting rights or assets of an enterprise and if, after such acquisition, the enterprise being acquired and the group to which it will belong after acquisition would jointly have: (a) in India, assets with a value of more than Rs.40 Billion (USD 800 Mil.) or a turnover of more than Rs.120 Billion (USD 2.4 Billion); or (b) in India or outside India, assets with a value of more than USD 2 Billion (including at least Rs.5 Billion (USD 100 Mil.) in India) or turnover more than USD 6 Billion (including at least Rs.15 Billion (USD 300 Mil.) in India). Where there is an acquisition of control over an enterprise and when such acquirer already has control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service and the enterprise over which control has been acquired along with the enterprise over which the acquirer already has control, jointly have, (a) in India, assets with a value of more than

For the meaning of the terms control and group, see question 2.1. Though the jurisdictional thresholds for Combinations only refer to the value of assets or turnover of the relevant entities or group, when it comes to merger control, only those Combinations that cause or are likely to cause appreciable adverse effect on competition within the relevant market in India are prohibited. The term relevant market is defined to mean the market that may be determined by the CCI with reference to the relevant product market or the geographic market or both. It may be noted that the Draft Combination Regulations specify the following categories of transactions as not likely to have an appreciable adverse effect on competition in India: (i) acquisition of shares/voting rights by parties referred to at (a) and (b) above, solely as an investment or in the ordinary course of business, of not more than 26% of the total shares/voting rights of the company, of which shares/voting rights are being acquired, directly or indirectly, or in accordance with the execution of any document including a shareholders agreement or articles of association not leading to control of the enterprise, whose shares/voting rights are being acquired; acquisition of assets by parties referred to at (a) and (b) above, not directly related to the business activity of the party acquiring the asset or made solely as an investment or in the ordinary course of business, not leading to control of the enterprise where the assets are being acquired except when the assets being acquired represent the entire business operations in a particular location or for a particular product or service of the enterprise, of which assets are being acquired, irrespective of whether such assets are organised as a separate legal entity or not; any transaction referred to at (a) to (f) above, where the assets of Rs. 10 Billion (USD 200 Mil.) or turnover of Rs. 30 Billion (USD 600 Mil.) when required to be assessed with

(b)

(ii)

(c)

(iii)

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reference to assets or turnover in India alone, does not include assets of Rs.2 Billion (USD 40 Mil.) or turnover of Rs.6 Billion (USD 120 Mil.) respectively, of each of at least two of the parties to the combination; (iv) any transaction referred to at (a) to (f) above, where the minimum assets of Rs. 5 Billion (USD 100 Mil.) or turnover of Rs. 15 Billion (USD 300 Mil.) are involved when required to be assessed with reference to assets or turnover in [India or outside India], does not include assets of Rs.2 Billion (USD 40 Mil.) or turnover of Rs. 6 Billion (USD 120 Mil.); the acquisition of shares/voting rights referred to at (a) to (b) above, where prior to such acquisition, the acquirer holds more than 50% of the shares or voting rights in the enterprise of which further shares or voting rights are being acquired; the acquisition of control/shares/voting rights/assets resulting from a gift or intestate/testamentary succession or transfer by a settler to an irrevocable trust;

India
market in India. Whether or not a foreign to foreign transaction would be classified as a combination depends on the applicable threshold limits relating to assets or turnover (see question 2.4).
2.7 Please describe any mechanisms whereby the operation of the jurisdictional thresholds may be overridden by other provisions.

India

(v)

(vi)

(vii) an acquisition of current assets in the ordinary course of business; (viii) an amended or renewed tender offer where a notice has been filed by the party making the offer prior to such amendment or renewal of offer; (ix) (x) acquisitions by a securities underwriter, in the ordinary course of business and in the process of underwriting; acquisitions pursuant to a bonus or rights issue or subdivision of shares excluding acquisitions resulting out of relinquishment of rights; the acquisition ordered by the CCI;

Provisions that regulate combinations do not apply to share subscription or financing facility or any acquisition by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement. However, any such public financial institution, foreign institutional investor, bank or venture capital fund is required to file within seven days from the date of acquisition, the details of the acquisition in a form to be specified by the Regulations. Draft Combination Regulations prescribe the form in which such details have to be furnished to the CCI. In addition, the Central Government is also empowered to grant exemptions from application of the Competition Act if such exemptions are warranted: (i) in the interest of security of the State or the public interest; (ii) for giving effect to obligations assumed by India under any treaty, agreement or convention with any foreign country; or (iii) by enterprise that performs sovereign functions on behalf of the Central Government or any State Government. Finally, through the Draft Combination Regulations, the CCI has declared certain categories of transactions as not likely to have appreciable adverse effect on competition in India, with a possible inference that such transactions need not be notified. However it is not yet clear whether the CCI will be able to exempt such transactions, in the absence of specific powers under the Competition Act. See question 2.4.
2.8 Where a merger takes place in stages, what principles are applied in order to identify whether the various stages constitute a single transaction or a series of transactions?

(xi)

(xii) acquisitions within the same group; (xiii) the acquisition of additional shares/voting rights entitling the exercise of more than [sic] 5% of the voting rights in a financial year by an acquirer who together with persons acting in concert, has acquired 15% shares or more but less than 55% of the shares/voting rights in a company; (xiv) an acquisition where the acquiring party is a foreign state; (xv) an acquisition by the Central Government or State Government; or

(xvi) any transaction, acquiring of control or merger which is exempt under any other statute made by Parliament.
2.5 Does merger control apply in the absence of a substantive overlap?

No specific principles have been formulated as yet to address such a question.

A merger could qualify as a combination under the Competition Act even if there is no increase in market share or no competition concerns are involved since (see question 2.4) the assets or turnover threshold tests may be met even without an increase in market shares. Moreover, the nature and extent of vertical integration in the market is one of the relevant factors which need to be considered by the CCI in order to determine whether a combination would have or is likely to have an appreciable adverse effect on competition in the relevant market. An increase in market share is another relevant factor for determining whether or not a combination may have an appreciable adverse effect on competition (see question 1.3).
2.6 In what circumstances is it likely that transactions between parties outside India (foreign to foreign transactions) would be caught by your merger control legislation?

3 Notification and its Impact on the Transaction Timetable

3.1 Where the jurisdictional thresholds are met, is notification compulsory and is there a deadline for notification?

Yes. The Competition Act read with the Draft Combination Regulations makes it mandatory to notify the CCI, of every combination, within thirty (30) days from (a) the last of the approvals by the Board of Directors of the enterprises concerned with the proposal relating to merger/amalgamation; or (b) the execution of any agreement or other document for the acquisition of shares/voting rights/control of the other enterprise. However, this requirement will be become applicable once Section 6 of the Competition Act is brought into force.
3.2 Please describe any exceptions where, even though the jurisdictional thresholds are met, clearance is not required.

The CCI has been empowered to investigate any combination, even if such combination takes place outside India or if any party to a combination is outside India, if such combination has or is likely to have an appreciable adverse effect on competition in the relevant

The Draft Combination Regulations specify some transactions as not likely to have an appreciable adverse effect on competition (see

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question 2.4) and the intention of the CCI appears to be that in such cases no notification would be required. However, no explicit exemption from notification is available yet. (See question 2.7.) However, the obligation to notify the CCI will be required to be complied with once Section 5 and Section 6 of the Competition Act are brought into force.
3.3 Where a merger technically requires notification and clearance, what are the risks of not filing? Are there any formal sanctions?

India
sanction of the Scheme, the High Court considers reports filed by the Regional Director and the Official Liquidator (in the case of companies that will be liquidated as part of the Scheme). It may be noted that if, during such merger proceedings before the High Court, any question is raised about the merger being in contravention of Competition Act, the High Court would refer the matter to the CCI. Within a period of 60 days thereafter, the CCI is expected to give its opinion to the High Court. Under the Competition Act, the CCI may inquire into a combination: (i) upon its own knowledge; (ii) upon receipt of information relating to acquisition or merger transactions; (iii) upon receipt of information from a party to the combination; or (iv) upon receipt of reference from any other statutory authority like, say, the High Court (see above paragraph). It appears from the wording of the sections that an inquiry under points (i) and (ii) above will not be initiated after expiry of one year from the date on which the combination has taken effect. As regards to an investigation under point (iii), the CCI is expected to initiate the same on receipt of information. As regards point (iv), there is a time limit of 60 days within which the CCI has to give its opinion. If the CCI is of the prima facie opinion that the combination has caused or is likely to cause an appreciable adverse effect on competition within the relevant market in India, it will issue a showcause notice to the parties to the combination as to why an investigation should not be conducted. Within 30 days of receipt of such show-cause notice, the parties are expected to file their response. After receipt of the response of the parties, the CCI may call for a report from the Director General within such time as the CCI may specify. After review of the response, if the CCI, prima facie, is of the view that the combination has or is likely to have an appreciable adverse effect on competition, then the CCI will direct publication of notice of such combination in the prescribed manner. The Competition Act and also the Draft Combination Regulations specify the timeline for various activities. If the specified timeline is adhered to, the CCI is expected to pass final orders approving or striking down the combination, within a period of 210 days after the date of notification of Combination. In computing the said period of 210 days, the time taken by the parties to the combination in accepting any modifications suggested by the CCI will be excluded. In addition, if the parties to the Combination seek extension of time, it will also result in an extension of the period within which the CCI will pass final orders. The Competition Act provides that no Combination shall come into effect until 210 days have passed from the date of notification of Combination to the CCI, or until the CCI has passed orders approving or rejecting the Combination, whichever is earlier. However, the requirement of notifying the CCI of proposed combination as required under section 6(2) of the Competition Act and the waiting period of 210 days from the date of notifying the CCI for proposed combination to come into effect, will become applicable once Section 6 of the competition Act is brought into force.
3.7 Is there any prohibition on completing the transaction before clearance is received or any compulsory waiting period has ended? What are the risks in completing before clearance is received?

Failure to notify will invite a penalty equal to one (1) per cent of the turnover or assets of the combined entity, whichever is higher. In case notice of a combination is not filed, the CCI may still investigate, within a period of one year from the date on which the combination has taken effect, such combination and require the combination to file a notice in the prescribed form. Such filing of notice on the CCIs mandate, will not exonerate the combination from its liability to pay the penalty (as described above) that may be imposed. The CCI also has powers to grant an interim injunction in appropriate cases. Finally, the CCI may also order that the combination shall not take effect, if it finds such combination as having an appreciable adverse effect on competition in India. Given the severity of the impact such direction may create, it would be appropriate for the parties and their advisers to evaluate the risk of not making a notification to the CCI about the proposed combination.
3.4 Is it possible to carve out local completion of a merger to avoid delaying global completion?

This question has to be evaluated with reference to facts of a specific case including whether it is feasible to carve out such a split. Further, even if a global completion takes place (without the local completion in India), it could become a combination as defined in the Competition Act, if the criteria specified therein are fulfilled (see question 2.6). It is therefore important to see whether, by splitting the two sets of transactions, it is feasible to carve out the local component from out of the jurisdictional thresholds. In any case, the question whether or not such global completion of merger (with or without the local component) has any appreciable adverse effect on competition in India needs to be answered.
3.5 At what stage in the transaction timetable can the notification be filed?

See question 3.1.

3.6 What is the timeframe for scrutiny of the merger by the merger authority? What are the main stages in the regulatory process? Can the timeframe be suspended by the authority?

(See question 1.1.) All mergers of companies require approval of the High Court and the process usually takes 3 to 9 months. Such mergers involve: (i) holding a meeting of the Board of Directors of the respective companies; (ii) making an application to the High Court for holding a meeting of shareholders and creditors of the companies; (iii) holding meetings of the shareholders and creditors of the companies; and (iv) seeking and obtaining approval of the Scheme by the High Court. If the shares of the company (companies) are listed in stock exchanges, appropriate permissions will have to be obtained from the stock exchanges for listing the new shares to be issued consequent to the merger. Prior to a

Yes. See question 3.6. In addition, under the Draft Combination Regulations, the CCI may declare any such Combination as void. Since a Scheme of merger requires approval from High Court(s), it is likely that interested parties may raise anti-competition issues in relation to a Scheme of merger before the High Court (see question 3.6, paragraph 1). Also see question 3.1 above.

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3.8 Where notification is required, is there a prescribed format?

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General whichever is later, may direct the parties to the said combination to publish details of the combination within ten working days of such direction, in such manner, as it thinks appropriate, for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination. The parties to the combination would then have to publish the details of the combination in the newspapers and other mediums as directed by the CCI and thereafter furnish proof of publishing details of combination along with a fee of Rs.2 Mil. (USD 400,000). The fees payable to the CCI shall be net of any charges, fees, or taxes, if any, payable by the parties on its remittance to the CCI.

Yes, the Draft Combination Regulations provide for such forms.

3.9 Is there a short form or accelerated procedure for any types of mergers?

India

The Draft Combination Regulations prescribe two forms. There does not seem to be any specific accelerated procedure for mergers. However, certain types of mergers may entail lesser time frames as opposed to mergers under the Companies Act as indicated below. By way of example, the Central Government has the powers to amalgamate companies in the national interest by an order in the official gazette, without following the detailed provisions of the Companies Act. In addition, the merger of Producer Companies (i.e., companies engaged, inter alia, in marketing of primary produce of its members) may be done by passing a special resolution of its members, with notice to all members and creditors, without prior approval of the High Court. Likewise, merger of sick industrial companies (i.e., industrial companies whose net worth has becoming negative) may be done by BIFR under the provisions of the SICA.
3.10 Who is responsible for making the notification and are there any filing fees?

4 Substantive Assessment of the Merger and Outcome of the Process

4.1 What is the substantive test against which a merger will be assessed? Are non-competition issues taken into account?

The Draft Combination Regulations provide that: (i) in case of an acquisition of shares/voting rights/control, the acquirer shall file the notice; (ii) in case of a merger or amalgamation, all parties to the Combination shall jointly file the notice; and (iii) where the CCI issues a show cause notice to a person to a party to a Combination (say that has failed to issue the notice), such person shall file the notice. The relevant notification may be filed by the concerned party either in long form in Form 1 or in short form in Form 2, along with the requisite fees. The fees payable for notifying any combination in Form 1 or Form 2 is proposed to be Rs. 2 Mil. (USD 400,000). However if the CCI has sent any communication to the relevant company that has undergone merger which is, in the CCIs opinion, a combination which is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India, and has issued a show cause notice to the parties to the combination calling upon them to respond within thirty days of the receipt of the notice, as to why investigation in respect of such combination should not be conducted, the parties to the combination will be required to file a response to the show cause notice of the CCI along with a fee of Rs. 2 Mil. (USD 400,000). Further, where the parties to a combination have failed to file notice under sub-section (2) of section 6 of the Competition Act, which prescribes mandatory notification to the CCI about any proposed combination and the CCI is of the prima facie opinion, based upon its own knowledge or information received by it, that such a combination has caused or is likely to cause an appreciable adverse effect on competition in India, it shall inquire into such a combination and in such an event, the Parties to the combination shall be required to notify the CCI by filing Form 1 along with a fee of Rs. 4 Mil. (USD 800,000). In cases where the parties to the combination have replied to the show cause notice issued to them by the CCI but the CCI is prima facie of the opinion that the combination has, or is likely to have, an appreciable adverse effect on competition, the CCI shall, within seven working days from the date of receipt of the response of the parties to the combination, or the receipt of the report from Director

The High Courts in India generally approve a Scheme of merger unless it is contrary to public interest or is patently unfair to any group of shareholders. The High Courts do not ordinarily interfere in the collective wisdom of the shareholders and/or creditors in approving a Scheme even in cases where two or more big companies have merged and issues relating to formation of a monopoly have been raised. The Competition Act does not permit a combination that causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India. For this purpose, various factors (see question 1.3) would be considered by the CCI. In the absence of precedents, it may be expected that the CCI would be guided by practices prevalent in some other comparable jurisdictions while investigating a combination.
4.2 What is the scope for the involvement of third parties (or complainants) in the regulatory scrutiny process?

Before approving a Scheme (that has been approved by the relevant majority of shareholders and the creditors), the High Court considers the reports filed by the Regional Director and also the Official Liquidator to ascertain that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest. In normal circumstances, no other person objects to a merger. However it is possible that a third party - like a minority shareholder, employee, creditor, any governmental or other authority, consumer organisation, etc. - may object to a Scheme. There are cases where objections have been made by such third parties. If there are any serious allegations, the High Court ordinarily considers such objections before taking a final decision. Instances of High Courts not sanctioning a Scheme on account of objections from such third parties are almost non-existent. Under the Competition Act, if the CCI, prima facie, is of the opinion that the combination has or is likely to have an appreciable adverse effect on combination, it shall direct the parties to the combination to publish the details of the combination. Any person (including member of the public) that may be adversely affected by such combination will have the right to file written objections. Given the scope of the Competition Act, it is likely that consumer organisations will play a major role in major transactions involving combinations. The CCI is also empowered to call upon experts in various fields, such as economics, accountancy, commerce, international trade, etc., to assist in the conduct of inquiry.

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4.3 What information gathering powers does the regulator enjoy in relation to the scrutiny of a merger? 5.2

India
Where competition problems are identified, is it possible to negotiate remedies which are acceptable to the parties?

The CCI has been vested with the same powers as a civil court under the Code of Civil Procedure, 1908 (CPC) in respect of matters including: (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring discovery and production of any document; (c) receiving evidence on affidavits; (d) issuing commissions for the examination of witnesses or documents; and (e) subject only to some limitations prescribed under the Indian Evidence Act, 1872, to requisition any public record or document or copy of such record or document from any office. Specifically, the CCI has powers to direct a person to produce books, records and other documents relating to any trade, the examination of which may be required by the CCI. If a person fails to comply with such directions of the CCI, the CCI may impose a penalty of Rs.100,000 (approximately USD 2,000) for each day during which the default continues, subject to a maximum of Rs. 10 Mil. (USD 200,000). If a party to a Combination makes a statement that is false in material particulars, or omits to state any material particular knowing it to be material, then the CCI may levy a penalty of not less than Rs.5 Mil. (USD 100,000) and up to Rs.10 Mil. (USD 200,000). Without prejudice to the foregoing, as a general provision, if a person wilfully furnishes wrong information or wilfully omits to furnish the required information to the CCI, the CCI may impose a penalty of up to Rs.10 Mil. (USD 200,000).
4.4 During the regulatory process, what provision is there for the protection of commercially sensitive information?

Where competition problems are identified, the CCI may propose modifications to the combination so that an appreciable adverse effect on competition may be eliminated. If the parties to the combination accept such modifications, then they shall carry out such modifications within the time specified by the CCI. The parties to the combination may also propose further amendments to such modifications proposed by the CCI within 30 days from the date on which the CCI suggests modifications. If the CCI agrees with such amendments proposed by the parties, then it will approve the combination on those amended terms. If the CCI does not accept such amendments, then the parties will have a further period of 30 days within which they shall accept the modifications as proposed by the CCI. Thus, it is possible to negotiate remedies that are acceptable to the parties and the CCI.
5.3 At what stage in the process can the negotiation of remedies be commenced?

The negotiation of the remedies is expected to take place after the investigation is completed but before the CCI makes a final order on the combination in question (see question 5.1). The position will become clear only after the provisions of the Competition Act relating to Combinations come into force, and the CCI is able to take up Combination matters.
5.4 If a divestment remedy is required, does the merger authority have a standard approach to the terms and conditions to be applied to the divestment?

The CCI is restrained from disclosing any information obtained by it under the Competition Act without the previous permission of the person that has disclosed such information. This requirement will not however apply where such disclosure is required for purposes of the Competition Act or any other law. Parties to a combination are entitled to make requests to keep documents or parts thereof, confidential only if disclosure would result in disclosure of trade secrets or destruction or appreciable diminution of the commercial value of any information or can reasonably be expected to cause serious injury. The CCI may accept or reject such request. If after rejection of such request, and subject to disclosure being required for the purposes of the Competition Act or any other law, such documents shall be returned to the party and the information therein disregarded for the proceedings. The Draft Combination Regulations contain provisions relating to confidentiality of information provided.

The Competition Act provides that in case of a combination which has, or is likely to have, an appreciable adverse effect on competition, CCI may direct that the combination shall not take effect or propose appropriate modification to the combination if in the opinion of CCI the adverse effect can be eliminated by suitable modification to such combination. The Draft Combination Regulations invest CCI with the authority to appoint independent trustees, to oversee the modification if the CCI deems fit, and also contain the qualifications, etc. of the independent trustees. The said Regulations provide that independent trustees shall report to the CCI at the completion of each constituent activity to the modification and shall not accept the instructions from the parties to the combination. It is further specified that the responsibilities of the trustees shall be specified in the trustee mandate to be prescribed and approved by the CCI.
5.5 Can the parties complete the merger before the remedies have been complied with?

5 The End of the Process: Remedies, Appeals and Enforcement

5.1 How does the regulatory process end?

If the merger attracts the provisions of the Competition Act, the first stage of the regulatory process will end with the inquiry by the CCI, which ends with a decision of the CCI to either clear the merger or refer the merger to further investigation based on information available with the CCI. The second stage of the process will end after the investigation process is completed. At the end of this process: (a) the CCI may approve or reject the merger; or (b) the parties to the merger may accept the modification proposed by the CCI in order to eliminate the appreciable adverse effect on competition.

On approving the combination subject to carrying out appropriate modifications, the CCI would specify the terms, conditions and the time for all constituent activities giving effect to the proposed combination, and also call for a compliance report. If the modification is not carried out within the stipulated time limit, the CCI is empowered to issue appropriate directions. Further it is provided that no combination shall come into effect until 210 days have passed from the day on which the notice has been given to the CCI or the CCI has passed orders, which ever is earlier. Hence, the parties may be able to complete the merger before the remedies have been complied with, if approved by the CCI.

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5.6 How are any negotiated remedies enforced?

India
(See question 5.1.) An appeal against a decision of the CCI on merger clearance lies before the Competition Appellate Tribunal (CAT). Such appeal must be filed within a period of 60 days from the date on which a copy of the direction/decision/order is received. Delayed appeals may be filed if sufficient cause for the delay is shown. Decisions of the CAT may be appealed against, before the Supreme Court within a period of 60 days from the date of the communication of the decision/order of the CAT. Here again, delayed appeal may be condoned by the Supreme Court if sufficient cause is shown.
5.9 Is there a time limit for enforcement of merger control legislation?

If the parties fail to implement the negotiated terms then the CCI may issue appropriate directions which would include deeming such combination to have an appreciable adverse effect on competition. In such a case, the CCI may declare such combination void and the consequences (like reversing the acquisition or merger) may follow. In addition, such an act of the parties may also amount to contravention of the Order passed by the CCI and if there is no reasonable ground for such contravention, the contravening party may be liable to pay a fine of up to Rs.100,000 (USD 2,000) per day, subject to a maximum of Rs.10 Mil. (USD 200,000). If any person fails to pay such fine, such person shall be punishable with imprisonment for a term which may extend to 3 years or with fine which may extend to Rs.250 Mil. (USD 5 Mil.), or with both.
5.7 Will a clearance decision cover ancillary restrictions?

India

See question 3.6.

6 Miscellaneous
6.1 To what extent does the merger authority in India liaise with those in other jurisdictions?

The CCI only inquires and investigates those aspects of a combination that may have a bearing on competition. The CCI does not declare the legality of the transaction from any other aspects of law (like for example, requirement for completing the merger under the Companies Act). Thus, a scheme of combination that has been cleared by the CCI may still be subject to challenges under any other provisions of law. It may however be noted that the provisions of the Competition Act are stated to have effect notwithstanding anything inconsistent therewith contained in any other law. It therefore appears that the CCI may be able to pass orders addressing some of the ancillary restrictions (like contractual obligations).
5.8 Can a decision on merger clearance be appealed?

The Competition Act enables the CCI to enter into any memorandum or arrangement with the prior approval of the Central Government, for purposes of discharging its duties or performing its functions. Since the CCI has only recently become operational, it is too early to state to what extent the CCI would liaise with the regulatory authorities in other jurisdictions.
6.2 Please identify the date as at which your answers are up to date.

In normal circumstances, a Scheme of merger approved by the High Court may be appealed to a Division Bench (a Bench consisting of two judges) of the same High Court and thereafter the Supreme Court.

July 30, 2010.

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Premnath Rai
PRA Law Offices W-126, Ground Floor Greater Kailash II New Delhi 110 048 India

P. Srinivasan
PRA Law Offices W-126, Ground Floor Greater Kailash II New Delhi 110 048 India

Tel: +91 11 4067 6701 Fax: +91 11 4067 6768 Email: prem@pralaw.in

Tel: +91 11 4067 6703 Fax: +91 11 4067 6768 Email: srini@pralaw.in

Premnath Rai is a founder member of PRA Law Offices (formerly known as Premnath Rai Associates), which focuses its practice in the areas of corporate, commercial and business laws. He has advised Indian and foreign clients on a variety of transactions involving mergers, acquisitions, takeovers, corporate restructuring, joint ventures and strategic alliances. Prior to moving to taking up private practice, he served as general counsel of Indian subsidiary of a leading international IT major. He is a graduate in Commerce (University of Mysore), Law (University of Bangalore) and a Fellow Member of the Institute of Company Secretaries of India. He has presented papers in national and international programmes and conferences and contributed articles to leading international publications.

P. Srinivasan is a Partner of PRA Law Offices (PRA Law), a New Delhi based law firm that focuses on corporate and commercial laws. In addition to being a lawyer, he is qualified in the areas of cost accounting, company secretarial and finance. He is one of the initial members in PRA Law. Before joining the firm, he worked in the financial services sector in a leading non-banking financial services company and as a senior associate with another Delhi based law firm. He focuses his practice in areas of corporate restructuring, competition and domestic & international trade laws including anti-dumping investigations, apart from general corporate and legal issues. He advises industry specific clients in sectors such as information technology, insurance & financial services, biotechnology & healthcare and not-for-profit organisations, apart from traditional manufacturing and services companies. He has contributed articles on mergers & acquisitions, competition law and has attended conferences and seminars on corporate restructuring, international tax and capital markets.

PRA LAW OFFICES Advocates

PRA LAW OFFICES (PRA Law) is a corporate and commercial law firm that focuses its practice in providing quality and solution oriented services. With the diverse knowledge, professional qualification and experience of members of PRA Law team, PRA Law constantly endeavors to provide solution oriented legal services. PRA Law has a good blend of Indian and international clients, commercial and not-for-profit organisations. As part of discharging its professional and societal responsibility, PRA Law renders pro-bono services. With its offices in New Delhi and Bangalore, India, and a network of professional associates in other major cities in India and abroad, PRA Law is well positioned to serve its clientele and cater to their needs. Members of PRA Law team devote a part of their time and efforts to specific focused areas of practice and actively participate in professional, industry and academic activities. PRA Law focuses its practice in its specialised domain of corporate and commercial laws including dispute resolution and litigation. PRA Law serves a wide range of client needs in Practice Horizontals and Practice Verticals. In Practice Horizontals, PRA Law has strong presence in the areas of in-bound and out-bound Investments, mergers and acquisitions, combinations, competition and anti-trust, joint ventures and collaborations, corporate and business structuring & restructuring, capital raising, legal due diligence, legal and regulatory audit, securities law, employment laws, corporate and tax litigation and arbitration. In Practice Verticals, PRA Law has strong presence in life and general insurance, information technology (IT) and IT Enabled Services, healthcare and hospitality, financial services, food and confectionery, biotech and pharmaceutical, in addition to advising clients in other sectors and projects.

Delhi Office W-126, Ground Floor, Greater Kailash II, New Delhi 110 048 Tel: (91-11) 40 67 67 67 Fax: (91-11) 40 67 67 68 Email: prem@pralaw.in

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