A detailed perspective of the background, the present functioning and the future possibilities of the merger control regime in India as it unfolds with the passage of time by the architect of merger control in India.

1. P R E M E R G E R N O T I F I C AT I O N
The Past, Present, and Future of Merger Control Regime in India
BY K K SHARMA
B
e it USA, Canada or EU- history shows that com-
petition law has always received reluctant accep-
tance from businesses. In India- even post-
enforcement- the opposition against complete imple-
mentation of the Act refused to subside, owing to
sustained resistance from domestic stakeholders who
viewed the Act as an added layer of Government regu-
lation. The reasons given for continued opposition were
varied, and ranged from apprehension of Competition
Commission of India (CCI) sitting over and delaying
mergers clearances to question over the expertise of a
nascent CCI to review complex combinations.
In that backdrop, it was really remarkable that on
June 1, 2011, India brought into force merger control
provisions of the competition law, the Competition Act,
2002 (’’Act’’) for review of acquisitions, mergers and
amalgamations (called ‘‘combinations’’ under Indian
law).1
Thus, India formally entered into the club of
countries with a fully functional competition law re-
gime. Despite enactment of the Competition Act in
2003, major provisions of the Act could not be brought
in to force till as late as May 2009 on account of certain
legal challenges.
The opposition against bringing into force the en-
forcement provisions of the Act relating to merger con-
trol had its impact. Despite the competition law having
been functional in India, albeit partly, since as early as
May 2009, it took over two years for merger control to
be enforced. It goes to the credit of CCI for preparing
the draft merger control regulations even before the en-
forcement could become a reality. However, the fact
that the Act had certain areas which needed improve-
ment, harmonisation and, in some cases, plain typo-
graphical error removal were sufficient reasons to suc-
cessfully stall the efforts to implement merger review
regime in the country.
There was even a talk for first amending the Act be-
fore the provisions could be brought into force. How-
ever, good sense prevailed and the proposal was
shelved. It was decided to employ the provisions of
merger control and amend the same, if and when any
faults were found. It was the result of this changed out-
look, within the Government of India, that a beginning
towards a fully functional competition law regime in In-
dia could be made.
After extensive consultations by all stakeholders in
the industry, CCI issued the draft merger regulations on
May 11, 2011. Despite grim warnings to the contrary,
June 1, 2011 came and went without any grave dangers
to either the economy or the fast moving pace of the
normal business transactions such as mergers, amalga-
1
Notification dated March 4, 2011 http://www.cci.gov.in/
images/media/notifications/SO479%28E%29,480%28E%
29,481%28E%29,482%28E%29240611.pdf
K K Sharma is Chairman of KK Sharma Law
Offices in New Delhi, India. He formerly
served as Director General of the Competition
Commission of India. More details can be
found on www.kkslawoffices.com , and the
author can be reached on kksharma@
kkslawoffices.com or kksharmairs@
gmail.com
VOL. 105, NO. 2608 JULY 26, 2013
COPYRIGHT ஽ 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0003-6021
Antitrust & Trade
Regulation Report™

2. mations and acquisitions as was feared. It was business
as usual. On the contrary, international antitrust com-
munity welcomed2
the performance of Indian merger
control regime.
On account of the pressure of stakeholders, the first
draft of merger regulations was made in such a way
that the opponents of merger review did not get an op-
portunity to create unnecessary noise. The first form for
merger filing was such that, effectively, it was almost
discretionary to file a merger review. It was a big relief
to businesses but its utility for competition assessment
can be gauged from the fact that, despite being under
no obligation to do so, nearly all the merger filings, vol-
untarily, included the details of the transaction as well
as the reason why it was not to cause an appreciable ad-
verse effect on competition (AAEC), the substantive test
for evaluation of mergers in India. Despite having a
mandatory merger review regime, the first filing re-
quirements, practically, gave the merger filer entire dis-
cretion on which form to choose for filing: Form-I or
Form-II? Form-I is minimalistic in the information
sought. It is seen that a huge proportion of merger fil-
ings are in Form-I only.
The need for improvements in the regulations was
felt soon, especially vis-a-vis intra-group filings. A large
proportion of merger filings pertained to intra-group
combinations which did not change the control dynam-
ics of enterprise(s), but only served to clog the function-
ing of CCI merger shop (as they call in USA). Subse-
quently, to ease the burden on CCI, the regulations
were amended to eliminate the need for CCI review of
those combinations which did not result in change of
control of an enterprise(s).
The highlights of the first amendments to the combi-
nation regulations, of February 2012, by CCI are as un-
der:
s Acquisitions of shares or voting rights pursuant to
buy backs or subscription of rights issue (without
the restriction of their ‘entitled proportion’), not
leading to acquisition of control, included in
Schedule I which lists transactions exempt from
filing merger review.
s Exemption from merger review if the cumulative
share purchase is below 25% ( earlier 15%)
s Distinction for filling up Form-I and Form-II for
different types of transactions was removed, lead-
ing to clarity and uniformity.
s No filing requirement for intra-group mergers or
amalgamations involving enterprises wholly
owned by group companies.
s The Company Secretary of the company, duly au-
thorised by the Board, was authorised to sign
Form I/II, in addition to those persons specified
under the general regulations.
On gaining further experience, the combination regu-
lations were amended once again by CCI in April 2013.
The main changes were as under:
s Where one of the enterprises had more than 50%
shares or voting rights of the other enterprise, fil-
ing of notice with CCI for mergers/amalgamations
involving these two enterprises was not needed.
Similarly, if more than 50% shares or voting rights
in each of such enterprises are held by enter-
prise(s) within the same group, no notice was
needed.
s Exemption from merger review by CCI if the ac-
quisition is less than 5% of the shares or voting
rights of the company in a financial year, where
the acquirer already holds 25%-50% of the shares
or voting rights of the company.
s Some rationalisation in the categories of exemp-
tion for acquisition of certain current assets like
stock-in-trade, raw materials, etc.
It has been more than two years since the merger
control regime was established; it seems the time is
right to look at the performance of CCI in this vital area
of competition law. Upon notification of combination
regulations, there was great excitement as well as
doubts about the rules being laid down by the competi-
tion agency of India. There was a great curiosity about
CCI—especially about its capability to deliver. Till that
time, despite the provisions relating to anti-competitive
agreements and abuse of dominant position having
been enforced, orders of CCI hardly had any impact on
market dynamics. The performance of CCI was rela-
tively slow as compared to the performance to some its
neighbours. China enacted and brought into force its
Anti-Monopoly law much before India. The Coca-Cola
case became a flag-bearer for development of merger-
control law in China. Similarly, Competition Commis-
sion of Pakistan, commendably, exposed cartels and is-
sued government advisories within 18 months of its es-
tablishment.
India opted for a mandatory filing regime. As on date,
broadly speaking, with minor exceptions, the thresh-
olds, for triggering the filing requirements, are as un-
der:
Operations
of Combin-
ing Parties
Combining Par-
ties
Group to which Combining Par-
ties (post merger) belong
India Total value of as-
sets > Rs.1500/-
crores or turnover
Rs.4500/- crores.
Total value of assets of more than
Rs.6000/- crores or turnover of more
than Rs.18000/- crores
India or Out-
side
Aggregate value of
assets > $750 mn
(including at least
in India Rs.750
crores or turnover
> $2250 mn (in-
cldg. at least turn-
over of Rs.2250
crores in India).
Aggregate value of assets of more than
$3 bn (including at least assets of Rs.750
crores in India) or turnover of $9 bn (in-
cluding Rs.2250 crores turnover in In-
dia.)
2
http://www.ibanet.org/Article/Detail.aspx?
ArticleUid=73c4fdd7-9776-41cd-8fbb-3a7dd96c8c7c
2
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3. It becomes apparent that the above thresholds are,
perhaps, the highest in the world. Interestingly, even
the default merger filing form, Form-I, is also, perhaps,
the simplest in the world. After having faced the severe
criticisms initially for having a very burdensome filing
form and low thresholds, these may appear to be quite
stark revelations to many.
Starting from June 1, 2011, till the end of June 2013,
more than 120 merger cases has been reviewed by the
CCI. There have been studies3
which have indicated
that the average time of merger review by CCI has been
a little over a fortnight- speedy by any standards espe-
cially for a new agency commencing operations in the
midst of questions about its effectiveness. So far,
nearly, all the merger filings have been in the simple
form—Form-I. The primary reason for introducing this
was that any procedural burden on businesses in filing
could have been used as a tool by the opponents of
merger control to further postpone the enforcement.
The cases filed on Form-II have been extremely minis-
cule. These were the only cases where some horizontal
overlap amongst products and services was admitted by
the parties. Prior to these cases, in no case any horizon-
tal overlap between products and services was either
admitted or claimed by the CCI during the merger re-
view.
A look at the journey of progression of enforcement
of merger control in India shows a very slow movement.
The prompt clearances by CCI have been widely appre-
ciated4
. One possibility may be that all the cases com-
ing before CCI really had no competitive concerns.
However, where do we go from here? If we look at the
Indian thresholds, nearly the highest in the world,
wherein only the big ticket acquisitions, mergers and
amalgamations come under CCI scanner, it is very
much possible that some transactions can have influ-
ence on market dynamics and can be dealt in a detailed
manner by CCI. The modification mechanism (called
‘‘remedies’’ elsewhere) has not yet been tried and tested
in full.
However, there is a slow upward progression. Gradu-
ally, the CCI is increasing the rigour of review. There
have been exceptions where the CCI examined the
agreements in detail and directed modification of cer-
tain combinations to change some of the conditions
considered anti-competitive. Two cases stand out. One
is Orchid Chemicals and Pharmaceuticals Ltd. (Combi-
nation Reg. No. C-2012/09/79) and the other is Mylan
Inc. (Combination Reg. No. C-2013/04/116).
In its order dated 20.06.2013, in the case of Mylan
Inc. (Combination Registration No. C-2013/04/116), CCI
has accepted the modifications offered by the parties
under regulation 19(2) of the combinations regulations.
Similarly, in the case of Orchid Chemicals and Pharma-
ceuticals, CCI observed ‘‘non compete obligations, if
deemed necessary to be incorporated, should be rea-
sonable particularly in respect of (a) the duration over
which such restraint is enforceable; and (b) the busi-
ness activities, geographical areas and person(s) sub-
ject to such restraint, so as to ensure that such obliga-
tions do not result in an appreciable adverse effect on
competition.’’5
In these cases, the provisions of Regulation 19(2) of
the combination regulations were put into practice. Un-
der these regulations—similar to undertakings in EU—
the parties to the combination can come forward with
modifications to the combinations on their own which
may be accepted by the CCI.
However, there may be second opinions on some of
the actions of CCI. As an example, the notice for acqui-
sition given by GSPC Distribution Networks Limited
(‘‘GDNL’’) to acquire Gujarat Gas Company Ltd.
(GGCL) (Combination Registration No.: C-2012/11/88)
is also a case in point. In this case, an undertaking was
taken from GGCL to modify the agreements of GGCL
with its customers. Object of this exercise is not known.
This kind of action is fascinating and sometimes ques-
tionable.
The question which arises is if one party is acquiring
another enterprise, whether the future conduct of the
combined entity is relevant or the past. If an agreement
being ordinarily entered into with its clients comes to
the knowledge of CCI during a merger filing, should
CCI start examining it in addition to the review of
merger filing? Or ideally speaking, should such cases
be dealt in a different manner? In merger control, it is
the counterfactual (situation where the merger has not
happened) which is important for evaluating the impact
of merger on competition in the market. If counterfac-
tual does not reveal any in adverse impact on the com-
petitive environment for the product under question, is
it alright to get entangled in secondary issues. The
question remains as to whether to focus on the issue at
hand or let the secondary issues tag along. What the
CCI did in the above case was to allow the merger but
accepted undertakings to modify the agreements.
The rapid speed of CCI approvals has surely gone
down well with the businesses and has helped quell the
noise about CCI becoming another government regula-
tor delaying business transactions and raising the cost
of business. This has surely helped CCI win over some
of its detractors. The percentage of economists working
as experts in CCI (approx. 40%) shows that the impor-
tance of economic analysis has been well recognised.
This compares well with even the most mature antitrust
jurisdictions. One thing can certainly be said and that is
the CCI is not shying away from learning from experi-
ence. As detailed earlier, two significant amendments
have taken place in merger regulations till now. Both
these amendments were aimed at ensuring a more
workable and practical merger control review in India.
On the whole, it can be said that CCI has, generally, be-
gun on a good start on merger review. Having travelled
safely so far, we hope that the functioning of CCI will
only improve in future.3
http://www.slashdocs.com/qispu/combination-review-in-
india-a-mid-year-review-by-kk-sharma-part-1.html
4
http://www.ibanet.org/Article/Detail.aspx?
ArticleUid=73c4fdd7-9776-41cd-8fbb-3a7dd96c8c7c
5
http://www.cci.gov.in/May2011/OrderOfCommission/
CombinationOrders/C-2012-09-79.pdf
3
ANTITRUST & TRADE REGULATION REPORT ISSN 0003-6021 BNA 7-26-13