In a welcome development, the Competition Commission of India (‘CCI’), by way of a gazette notification dated August 13, 2019 (‘Amendment’), has introduced certain amendments to its merger control regulations, i.e., the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Amendment Regulations, 2011 (‘Combination Regulations’). The amendments are effective from 15 August 2019. The key changes include:
A. Deemed approval of non-overlap transactions filed under a newly-introduced ‘green channel’ regime on the basis of parties’ self-assessment of overlaps (i.e., horizontal, vertical and complementary). Such filings are to be considered void if CCI disagrees with the parties’ self-assessment.
B. Additional information requirements in CCI’s short form.
These amendments have been explained below.
A. ‘Green Channel’ Notifications Based on Parties’ Self-Assessment – filing and deemed approval
Transactions that breach a specified set of monetary thresholds and are not eligible for any available exemptions are required to be pre-notified for CCI’s approval (‘Notifiable Transactions’). The Amendment now allows Notifiable Transactions that don’t involve any form of ‘overlaps’ in the activities of the parties (vertical, horizontal or ‘complementary’) to be notified to CCI under a ‘Green Channel’ (‘GC Regime’). Such transactions will be deemed approved on receiving an acknowledgment on filing; and parties will no longer have to wait for CCI’s approval before giving effect to them. The Amendment does however prescribe a strict test for what kinds of ‘no overlap’ transactions qualify for the GC Regime:
• Parties: Absence of overlaps will have to be confirmed, not only among transacting parties, but also their respective groups and any entity in which parties, directly or indirectly, hold shares and/or exercise control.
• Markets: Overlaps are usually examined in the context of a ‘relevant market’. A transaction qualifies for the GC Regime only where parties don’t overlap in ‘any plausible relevant market(s)’, including narrowly defined relevant markets.
• Nature of overlaps: Parties must rule out any horizontal overlaps (i.e., they must not produce or provide similar or identical or substitutable products or services), vertical overlaps (i.e., they must not be engaged in commercial activities at different levels of production chain); and complementary businesses (i.e., they must not be engaged in any complementary activities).
In addition, a GC Regime transaction needs to be notified in an amended short form I (‘Short Form’) along with a declaration that attests to (i) the lack of overlaps between transacting parties and (ii) the proposed transaction not causing an appreciable adverse effect on competition (‘Self-Assessment Declaration’). Notably, if CCI concludes that the transaction did not qualify for the GC Regime or that the Self-Assessment Declaration was incorrect, the notice and the ‘deemed approval’ shall be void ab initio and CCI shall ‘deal with the combination in accordance with the provisions of the Act’. Before coming to this conclusion, CCI shall hear the notifying parties.
B. Amendments to the Short Notification Form:
The Amendment also makes certain changes to the Short Form, which is filed for transactions involving low market shares in overlapping markets (i.e., <15% for horizontal overlap and < 25% for vertical overlap). These include:
• Limiting the provision of market-facing details (e.g., parties’ market shares, details of top competitors etc.) only in situations where transacting parties/groups have overlapping businesses.
• Disclosure of complementary commercial activities. Estimating the extent of foreign investment, if any, on account of the transaction.
• For transactions involving overlaps, market share details need to be provided for three years (as opposed to the earlier requirement of one year), along with the additional requirement of explaining the market structure and details of recent entry and exit into the market.
C. Key takeaways
Welcome development, but with limited applicability: Although the ‘fast-track’ approval process under the GC Regime is a welcome development and looks to ease doing business in India, its impact is likely to be curtailed on account of strict conditions governing its applicability. For instance, the existence of any investment, no matter how limited (arguably even one share), in an ‘overlapping’ business, is sufficient to rule out the application of the GC Regime. Further, if parties opt for the GC Regime and implement any part of the transaction (based on the deemed approval from CCI) and CCI were to subsequently disagree, there is a risk of CCI initiating ‘gun-jumping’ proceedings (on the basis that the approval received was void ab initio).
Additional market facing details: The Amendment clarifies that market facing details now need to be provided only in respect of transactions involving ‘overlaps’. However, the Amendment enhances the existing market-facing information details that were required in the Short Form by (i) importing additional requirements from the long form (e.g., three-year market share information, recent entry and exit details); and (ii) introducing the need to map overlaps of ‘complementary’ and ‘supplementary’ services, neither of which have been defined by the Amendment.