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Competition law in India is governed by the Competition Act, 2002 (Competition Act), together with associated rules, regulations and guidance notes. The Competition Commission of India (CCI) is the exclusive statutory authority empowered to enforce the provisions of the Competition Act and regulate the merger control regime in India. The Competition Act provides that the CCI’s orders may be appealed before the National Company Law Appellate Tribunal (NCLAT). The final appellate authority for all decisions passed by the NCLAT is the Supreme Court of India. The CCI applies the standard of appreciable adverse effect on competition (AAEC) in its review of transactions seeking approval.

Regulatory framework

Sections 5 and 6 of the Competition Act require a pre-notification to the CCI, of all acquisitions, mergers and amalgamations, where the turnover or assets of the parties or groups breach the specified thresholds, or the deal value exceeds INR20 billion (USD 237 million), and the target has Substantial business operations (SBO) in India . The Competition Act along with the relevant rules, provide further guidance on various inclusions and exclusions for the computation of the transaction value, along with a test for determining whether the target enterprise has SBO in India (including specific guidance to determine whether a target enterprise provides digital services in India).

Separately, there are certain exemptions available from the notification requirement, including the “de-minimis target exemption”. Such de-minimis exemption is available where the target enterprise has either assets in India of not more than INR4.5 billion, or Indian turnover of not more than INR12.5 billion.

The merger control regime in India is generally mandatory and suspensory, with a limited exception for open market purchases, and transactions subject to review by the CCI cannot be consummated until merger clearance has been obtained or a review period of 150 calendar days has passed, whichever is earlier. Even global transactions triggering a notification requirement in India cannot be consummated without obtaining prior clearance from the CCI.

Approval process

There are two types of notification forms that may be filed with the CCI, a short form (i.e. Form I) and a long form (i.e. Form II). The determination of which form is to be filed with the CCI is done based on the parties’ overlaps (horizontal/vertical/complementary)/market shares. It is recommended that a Form II be filed when –

(i) the parties to the combination are competitors and have a combined market share in any of the relevant market in excess of 15%; or

(ii) the parties to the combination are active in complementary/vertically linked markets and the combined or individual market share in any of the relevant market is more than 25%.

For other cases, a Form I filing may be filed. Where parties have filed a Form I and the CCI believes that it requires detailed information in a Form II, it may require parties to file the notice in Form II.

Separately, a ‘green channel’ route is available for those transactions where the parties or their group entities and affiliates do not have any horizontal overlaps, potential or actual vertical relations, or complementary relations, in India. Such transactions will be deemed to be approved upon the acknowledgment by the CCI of filing of the notification form.

The merger review process in India broadly entails two phases. The total merger review period is 150 calendar days. However, there are several time exclusions built into the review timeline, which may effectively elongate this timeframe. These timelines do not include any time spent on a substantive pre-filing notification process prior to the formal submission, should the parties choose to pursue that option. Further, the CCI’s review clock does not begin until certain ‘defects’ identified by it are cleared by the parties.

(i) Phase I: Once a transaction has been notified, the CCI has 10 working days to notify parties of any defects or request additional information to cure defects. The CCI’s review clock starts once the identified defects are rectified. The CCI has 30 calendar days to form its prima facie opinion whether the transaction is likely to cause an AAEC in India. If the CCI does not issue a prima facie opinion within 30 calendar days, the transaction is deemed approved.

(ii) Show cause notice: If the CCI is of the prima facie opinion that the combination has or is likely to cause an AAEC, it will issue a show cause notice to the parties, seeking an explanation as to why a detailed investigation should not be conducted. Parties have 15 calendar days to respond to the show cause notice. At this stage, the CCI may request additional information from the parties, and they can also propose voluntary remedies to address the concerns expressed by the CCI in the notice.

(iii) Phase II: If the CCI is not satisfied with the response, it opens a Phase II investigation. If the CCI believes that the transaction could cause an AAEC, it issues a statement of objections, requiring the parties to explain why the transaction should be allowed to take effect, along with any modifications they believe may remedy the concerns of the CCI. If the CCI is not satisfied with the parties’ modifications, it can communicate its concerns and allow for revised modifications. The CCI may also propose certain modifications to the parties which the parties may or may not accept.

Typically, non-problematic transactions are approved by the CCI in 70-90 days, in Phase I itself. Only problematic transactions are moved to Phase II. Based on our experience, a Phase II approval may take seven months – up to a year. Pertinently, till date, the CCI has not blocked any combination.

In the case of failure to notify a notifiable transaction and consummation of the transaction (or a part of it) without the prior approval from the CCI, the CCI can impose a penalty up to 1% of the total turnover or assets or the value of the transaction, whichever is higher.

Challenges in the approval process

The approval process for mergers and acquisitions faces several challenges, starting with the non-binding pre-filing notification. The lack of formally binding guidance and absence of timelines for the pre-filing notification process may lead to delays. In addition, often the pre-filing notification team is different to the case team allotted at the time of formal review, which can negate the benefit of a pre-filing notification.

Prolonged review timelines further pose another challenge. While the CCI is mandated to clear combinations within 30 calendar days, complex transactions frequently extend beyond this deadline, leading to uncertainty and delays for the parties. This is largely on account of additional information sought by the CCI during the review process, including extensive overlap mapping with non-controlled entities which fall within the definition of “affiliate”.

Combinations in sectors such as telecom, digital and pharmaceuticals often attract heightened scrutiny, further complicating the approval process. While horizontal mergers traditionally attract greater scrutiny, increasingly the CCI has also been focused on vertical and conglomerate effects of mergers, requiring parties to advocate against potential foreclosure and portfolio effects, respectively.

Overcoming the challenges

Preparation of a thorough and accurate notification form after conducting detailed diligence, ensuring compliance with CCI regulations will mitigate the risk of delays from incomplete submissions as well as invalidations. Precisely defining the relevant markets in line with the CCI’s precedents, while presenting forward-looking market definitions, as well as providing proper market data will also be helpful in ensuring a quick approval. In complex mergers, a pre-filing notification (though non-binding) may be advisable to ensure that the CCI has engaged with the facts of the case, before a formal notification is filed.

Conducting detailed competition impact assessments addressing competitive theories of harm, preparing strategies to minimise anti-competitive effects and evaluating the need for structural or behavioural remedies in cases with concentrated markets, can also help smoothen the review. Active engagement with economists can often aid in supplementing the competitive assessment with sophisticated data analysis and economic arguments.

Finally, advocacy with the CCI case teams throughout the process to actively address their concerns is also crucial in obtaining a surprise-free and timely outcome.