M& A AND COMPETITION LAW

BACKGROUND
 The Competition Act, 2002 which replaced the
Monopolies and Restrictive Trade Practices Act, 1969
primarily covers
(i) anti-competitive agreements (Section 3),
(ii) abuse of dominance (Section 4), and (iii) combinations
(Section 5, 6, 20, 29, 30 and 31).
The Competition Commission of India (Procedure in regard
to the Transaction of Business relating to Combinations)
Regulations, 2011 (“Combination Regulations”) govern
the manner in which the CCI will regulate combinations
which have caused or are likely to cause an appreciable
adverse effect on competition (“AAEC”) in India.
WHAT ARE ANTI-COMPETITIVE
AGREEMENTS?
 The Competition Act essentially contemplates 2 kinds of
anti-competitive agreements – Horizontal Agreements
i.e. agreements between entities engaged in similar trade
of goods or provisions of services, and Vertical
Agreements i.e. agreements between entities in different
stages/levels of the chain of production, in respect of
production, supply, distribution, storage, sale or price of
goods or services.
 Anti-competitive agreements that cause or are likely to
cause an AAEC within India are void under the
provisions of the Competition Act.
 A horizontal agreement that
(i) determines purchase/sale prices, or
(ii) limits or controls production supply, markets, technical
development, investment or provision of services, or
(iii) shares the market or source of production or provision of
services, by allocation of geographical areas/type of goods
or services or number of customers in the market, or
(iv) results in bid rigging / collusive bidding, is presumed to have
an AAEC. On the other hand, vertical agreements, such as
tie-in arrangements, exclusive supply or distribution
agreements, etc., are examples where they can be considered
to have an AAEC
ABUSE OF DOMINANT POSITION
 An entity is considered to be in a dominant position if it
is able to operate independently of competitive forces in
India, or is able to affect its competitors or consumers or
the relevant market in India in its favor.
 The Competition Act prohibits an entity from abusing its
dominant position.
 Abuse of dominance would include imposing unfair or
discriminatory conditions or prices in purchase/sale of
goods or services and predatory pricing, limiting or
restricting production/provision of goods/ services,
technical or scientific development, indulging in
practices resulting in denial of market access, etc.
REGULATION OF COMBINATIONS
 In terms of the Competition Act, a ‘combination’
involves:
1. the acquisition of control, shares, voting rights, or
assets of an enterprise by a person;
2. acquisition of control of an enterprise where the acquirer
already has direct or indirect control of another
enterprise engaged in identical business; or
3. a merger or amalgamation between or amongst
enterprises; that cross the financial thresholds set out in
Section 5
 The financial thresholds for a combination are determined with
reference to
(i) the combined asset value and the turnover of the acquirer and the
target in the event of an acquisition, and the combined asset
value and the turnover of the combined resultant company, in the
event of an amalgamation or merger, and
(ii) the combined asset value and the turnover of the “group” to
which the target/resultant company will belong pursuant to the
proposed acquisition/merger.
(iii) Under Section 32 of the Competition Act, the CCI has been
conferred with extra-territorial jurisdiction, meaning that any
acquisition where assets/turnover are in India, and exceed
specified limits, would be subject to the scrutiny of the CCI, even
if the acquirer and target are located outside India
FINANCIAL THRESHOLDS
 The Competition Act prescribes financial thresholds
linked with assets/turnover for the purposes of
determining whether a particular transaction qualifies as
a ‘combination’.

 A transaction that satisfies any of the following tests

shall be treated as a ‘Combination’:
TEST 1- INDIA ASSET & TURNOVER TEST
An acquisition where the parties to the acquisition, i.e.
the acquirer and the target, jointly have: ƒ
(ii) assets higher than INR 2000 crore; or
(ii) turnover higher than INR 6000 crore; or
ACQUIRER GROUP
A ‘group’ for the above purposes would mean two or
more enterprises that, directly or indirectly, are in a
position to –
 Exercise of not less than 50% or more of the voting
rights in the other enterprise; or
 Appoint more than fifty percent of the members of the
board of directors in the other enterprise, or
 Control the management or affairs of the other enterprise
TESTS- ACQUIRER GROUP
 Test 1 / India Asset Test and India Turnover Test –
In India
(i) assets higher than INR 8000 crores; or
(ii) turnover higher than INR 24000 crores; or
 Test 2 / Global Asset Test and Global Turnover Test –
(i) Total assets in India or outside higher than USD 4
billion of which assets in India are higher than INR
1000 crore; or
(ii) total turnover in India or outside is higher than USD 12
billion of which turnover in India should be higher
than INR 3000 crores.
SMALL COMPANY EXEMPTION
 The Central Government has exempted certain enterprises from the
provisions of Section 5 of the Act.
 Such enterprises are those that are party to any form of combination
described under Section 5 of the Act – acquisitions and mergers /
amalgamations alike – and, where the value of assets of the target entity
or the merged entity is not more than INR 3.5 billion in India or turnover
is not more than INR 10 billion.
 Further, the exemption also extends to specific situations where a portion
of an enterprise or division or business is being acquired, taken control of,
merged or amalgamated with another enterprise. In such cases, the value
of assets and turnover of the said portion will be the relevant assets and
turnover to be taken into account for the purposes of this exemption.
 This results in the entire enterprise value being disregarded in cases where
it is the commercial intent for the acquirer to acquire only a portion of an
enterprise. However, this exemption is only valid until March 04, 2021,
unless further extended.
PRE-FILING CONSULTATION
 Any enterprise which proposes to enter into a
combination may submit a request in writing to the CCI,
for an informal and verbal consultation with the officials
of the CCI about filing such proposed ‘combination’.
However, advice provided by the CCI during such pre-
filing consultation is not binding on the CCI.
MANDATORY REPORTING BEFORE
CONSUMMATION
 Section 6 makes void any combination which causes or
is likely to cause an AAEC within India.
 Accordingly, section 6 of the Competition Act requires
every acquirer to notify the CCI of a combination.
 The CCI must form a prima facie opinion on whether a
combination has caused or is likely to cause an AAEC
within the relevant market in India, within 30 days of
filing.
 The combination can be consummated only after the
expiry of 210 days from the date on which notice is
given to the CCI, or after the CCI has passed an order
approving the combination.
MULTIPLE TRANCHES
 In order to ensure that
 all the combinations arising from small individual transactions which otherwise
in isolation may not qualify the financial thresholds mentioned above
 but along with inter-connected or inter-dependent transactions may qualify the
financial thresholds, are notified to CCI,
 the Combinations Regulations provide that in a situation where the ultimate
intended effect of a business transaction is achieved by way of a series of steps
or smaller individual transactions which are inter-connected or inter-dependent
on each other,
 one or more of which may amount to a combination, a single notice, covering
all these transactions, may be filed by the parties to the combination
 Further, the Combinations Regulations were amended in 2014, wherein a
provision was inserted that mandates companies to notify CCI if the substance
of the transaction and any structure of the transaction(s), comprises a
combination, and that has the effect of avoiding notice in respect of the whole or
a part of the combination shall be disregarded.
GREEN CHANNEL
 In furtherance of the Government of India’s ease of doing
business initiatives, the CCI introduced certain important
amendments to its Combination Regulations on August 13,
2019 (“2019 Amendment Regulations”) with came into effect
from August 15, 2019.
 The 2019 Amendment Regulations provide for a green
channel route whereby parties that meet the criteria described
by the CCI need not wait for the approval of the CCI to
consummate a notifiable transaction (‘Green Channel’).
 Once the acknowledgment of the form filed under this Green
Channel route has been received by the parties, the transaction
will be deemed approved and the parties will be able to
consummate the transaction immediately.
 To avail of the benefit of the Green Channel route, the qualifying
criteria is that the parties to the combination, their group entities
and each of their, direct or indirect investee entities (even an
investment of a single share in a company shall make such
company an investee entity) should not:
(i) produce/provide similar or identical or substitutable product or
service or;
(ii) engage in any activity relating to production, supply,
distribution, storage, sale and service or trade in product or
service which are at different stage or level of production chain
or;
(iii) engage in any activity relating to production, supply
distribution, storage, sale and service or trade in product or
service which are complementary to each other.
 The acquirer would also be required to make a positive
declaration confirming that the combination falls under the
Green Channel (meaning there are no overlaps at any level as
discussed above).
 If it is found that either such declaration or any other statement
made by the acquirer in the form is incorrect then the form and
deemed approval of the CCI shall both be considered void ab
initio.
 The parties will however have an opportunity to be heard
before the CCI renders the approval void ab initio.
EXCEPTION TO FILING
Schedule I to the Combination Regulations specifies
certain categories of transactions which are ordinarily
not likely to have an AAEC and therefore would not
normally require to be notified to the CCI which inter
alia include: ƒ
 Acquisitions of shares or voting rights as an investment
or in the ordinary course of business as long as the total
shares or voting rights held by the acquirer directly or
indirectly is less than 25% of the total shares or voting
rights of the company, and as long as control is not
acquired.
 Acquisition of not more than 5% shares or voting rights in any
financial year (on a gross basis) by an acquirer or its group, if
(a) the acquirer or its group already hold 25% or more of the
shares or voting rights of the acquired enterprise but do not
hold 50% or more shares of voting rights of the acquired
enterprise either prior to or after such acquisition and (b) joint
or sole control is not acquired.
 Acquisition by an acquirer who already holds 50% or more
shares or voting rights except in cases where the transaction
results in a transfer from joint control to sole control. ƒ
 An acquisition of assets unrelated to the business of the
acquirer, or acquired solely as an investment or in the ordinary
course of business, other than an acquisition of a substantial
business operation.
 Acquisitions of shares or voting rights pursuant to a bonus or
rights issues, or buyback of shares, not leading to acquisition of
control. ƒ
 Acquisition of shares or voting rights or assets within the same
group, except where the acquired enterprise is jointly
controlled by enterprises that are not part of the same group
 Acquisitions of stock-in-trade, raw materials, stores and spares,
trade receivables and other similar current assets (in the
ordinary course of business).
 Merger or amalgamation:
 (i) of holding and subsidiary company and/ or (ii) of companies
which are majority held by the same group.
 However, the merger or amalgamation must not lead to the transfer
of joint control to sole control.
 A share subscription, financing facility or any acquisition by a public
financial institution, foreign institutional investor, bank or venture
capital fund (“VCF”) pursuant to any loan or investment agreement,
would not qualify as a combination that will be regulated by the CCI,
and such transactions are exempt from the Combination related
provisions under the Competition Act. However, such public
financial institution, FII, bank or VCF is required to notify the CCI
of the details of the acquisition within 7 days of completion of the
acquisition
 Impact on transactions involving listed companies: In
combination involving listed companies, a primary transaction
may trigger notification with CCI and subsequent open offer
obligation under the Takeover Code.
 In cases where clearance from the CCI is not received within
the statutory time period required to complete the open offer as
prescribed under the Takeover Code, then as per the Takeover
Code, SEBI may direct the acquirer to pay interest to
shareholders for the delay beyond the maximum period within
which the tendering shareholders are required to be paid.
Examples
NHK AUTOMOTIVE AND BOMBAY
BURMAH TRADING CORPORATION
 NHK itself is a wholly owned subsidiary of NHK Japan
and NHK Japan has presence in India through its
subsidiary NHK Springs.
 The first aspect therefore examined was the nature and
purpose of combination.
 The Acquirers stated that NHI Japan wishes to expand its
presence in India.
 The relevant product market in this case was that of
manufacture and supply of customized springs for
industrial application in the automotive sector.
 The range of products in this market definition is wide.
 Products can be classified on the basis of shape (coil springs,
flat springs, machined springs).
 They can be classified on the basis of industrial application
(automotive industry, railway carriage, rolling stock, desktops,
laptops hard disk etc).
 They can also be distinguished on the basis of process, cold
formed or hot formed.
 In each product segment howsoever classified the above parties
have a presence.
 The wide range of products distinguished on well defined
criteria in the above case brings to focus the scope of supply
substitution by other suppliers in terms of switching from one
product to another.
 It was interesting to observe how technology as seen in product
differentiation (or even in the process used) and in terms of
price differentials can create opacity in market contours.
 Switching product lines of possible competitors depends on
costs of switching.
 By a process of elimination the relevant market was defined.
 The complexity of this case lay in analyzing the product
overlap of the parties involved where it looked the entire
sequence was associated with one or the other company of the
acquirer and of the entity acquired.
 Assurance that there was no product overlap or geographic
overlap and whether the parties to the combination could lead
to strong vertical linkages information on which was sought
after the filing.
 The SNNIP test was not used in this case. Discussions were held with
customers.
 Market studies on springs were used and there was no data constraint at the
macro level as the sector was well represented by associations. SNNIP
however was not required as the relevant market was the OEM segment for 2-
wheeler’.
 Functional inter changeability or product substitutability is not an issue in
customized markets customized as these markets by the main customers and
in this case most of them are well known international brands.
 There are two parts to the relevant market - original equipment market
(OEM) for components and spare parts.
 It was observed that every major automobile manufacturer in India invites
several lines of suppliers for OEM components thereby ensuring competitive
play of market forces.
 Further technical collaborations among the selected vendors ensured that the
vendors were not dominant The OEM segment is almost 80% of market
share.
 The Commission on detailed analysis based on the facts on
record and other details gleaned from several sources including
the acquirers themselves opined that the proposed transaction
is not likely to give rise to any adverse competition concern
ALOK INDUSTRIES AND GRABAL ALOK
IMPEX
 The scope for market domination through vertical
linkages was analyzed in this case
 Alok Industries and Grabal Alok Impex both belonged to
the same group and under the same management, having
operation in textile industries with the difference that
AIL manufactures apparel fabrics, home textiles,
garments and polyester yarn. GAIL produces
embroidered products.
 The concern of the Commission was whether the
combination would enable a dominant company to
emerge.
 Investigations and analysis revealed that although the parties
are in the same broad market the individual products do not
overlap and are not identical or substitutable products.
 Moreover both parties are involved in independent activities
including sourcing of raw materials have minimal vertical
relationships
SML ISUZU, ISUZU JAPAN AND
SUMITOMO
 SML Isuzu was engaged in the business of
manufacturing and sale of four wheeled commercial
vehicles, earlier known as Swaraj Mazda Limited.
 Sumitomo, holding 54.96% equity shares in SML Isuzu,
supplied power trains and chassis components to SML
Isuzu.
 After the proposed combination (acquisition), Sumitomo
and Isuzu (Japan) would hold 43.96% and 15% equity
shares respectively in SML Isuzu.
 According to the Notification No S.O. 481 dated 4th March
2011 issued by the Government of India, group exercising less
than 50% of the voting rights in other enterprises are exempt
from the provisions of section 5 of the Competition Act.
 The Commission took note of the said notification and decided
accordingly.
 As there was no horizontal overlap as assessed by the
Commission, it opined that the present acquisition is not likely
to have an appreciable adverse effect on the competition in
India and therefore, was approved by the Commission.
NIPPON STEEL CORPORATION AND
SUMITOMO METAL
 Nippon Steel Corporation engaged in the sale of steel
products and Sumitomo Metal in the business of
manufacturing and sale of variety of iron and steel
products, NSC being present in India through its group
companies which included Nippon Steel India Pvt
Limited.
 By virtue of the proposed merger, the parties would have
entered into an integration agreement in order to
integrate all of their business including the core business
of steel making and steel fabrication. In India, the
operations of the parties to the combination mainly
related to the sale of various types of steel products.
 The Commission analysed that the parties were engaged in
manufacturing of various steel products ranging from crude
steel to finished steel.
 Steel product may be distinguished on the basis such as
composition, application, and physical characteristics.
 On the basis of the above, two broad categories of steel are flat
steel and long steel the parties were found to have eight
similar/ identical/substitutable products which included steel
bars, wire rods, heavy medium plates.
 HR steel Sheets and Cols, CR Steel sheets and cols, surface
treated steel sheets, NO’s and seamless pipes.
 The Commission was of the opinion that it may not be
necessary to define the relevant market for the purpose of
assessment of the proposed merger, notwithstanding that the
parties stated that they were engaged in the sale of eight
similar/ identical/substitutable steel products in India, as the
competitive assessment did not change substantially, even if
the relevant market in respect of the steel products which the
parties sold, was not conclusively delineated.
GS MACE HOLDINGS LIMITED AND MAX
INDIA LIMITED
 Another case that requires a mention here is the
acquisition filed by GS Mace Holdings Limited, a
Mauritius based sub account of the Goldman Sachs & Co
which is a Foreign Institutional Investor, for acquisition
of the shares of Max India Limited.
 The details of the said acquisition was filed inform III
and till date is the only case filed so.
 As a result of the acquisition of shares in Max, the
acquirer’s shares had increased to 15.602% of the issued
and the paid up equity share capital of Max.
 The Commission observed that the provisions of sub section (4)
of section 6 of the Act apply to share subscription or financing
facility or any acquisition by a public financial institution,
foreign institutional investor, bank or venture capital fund, only
if it is made pursuant to any covenant of a loan agreement or
investment agreement.
 In pursuant to the amended Combination Regulations, acquirer
holding 25% of the voting rights or shares, is not likely to cause
an AAEC in India, and now in respect of such acquisitions,
notice under section 6 (2) need not normally be filed.
 Therefore, in view of the amended regulations the Commission
was of the view that the proposed merger was not likely to have
any AAEC on competition in India.
INVESTIGATION OF COMBINATIONS
 Show cause Notice: Where the Commission is prima
facie of the opinion that the proposed combination is
likely to cause appreciable adverse effect of competition
(AAEC) in the relevant market, then the Commission
shall issue a show cause notice to parties to show as to
why investigation with respect to such combination shall
not be conducted (Section 29)
 DG’s Report: On receipt of response of parties, the
Director General (DG) is called upon to prepare a report
on the proposed combination.
 Invite Objections from Public: Thereafter, the
Commission within seven days from the date of response
of parties or report of the DG whichever is later shall
direct the parties to publish the details of the
combination for bringing the combination within the
knowledge of the public or the person affected or likely
to be affected by the proposed combination.
 Additional Information: If Commission feels the
necessity, then under Section 29(4) of the Competition
Act, the Commission can call upon the parties for such
additional information.  On receipt of all required
information, the Commission shall deal with the
combination in the manner enumerated under Section 31
of the Competition Act.
 Section 31
Section 31 of the Act provides for the orders of the
Commission on certain combinations. The orders under this
statutory provision can broadly classified as under:
 Where the Commission is of the opinion that the
combination is not likely to have an AAEC then it shall by
order approve the combination.
 Where Commission is of opinion that combination is likely
to have an AAEC then it shall order that combination shall
not take place.
 Where Commission is of the opinion that combination is
likely to have an AAEC but such adverse effect can be
eliminated by modification to such combination then the
Commission may propose modification to the combination
to the parties.
Section 20
 Section 20 of the Competition Act empowers the
Commission to inquire into a combination either suo
motu or on receipt of information relating to acquisition
whether such combination has caused or is likely to
cause an AAEC in the relevant market in India