Insights
August 23, 2019 4:45 pm

INDIA’S MERGER CONTROL REGIME GETS A “GREEN CHANNEL”

In 2018, the Indian government constituted a committee to review the Competition Act, 2002 (the “Competition Act”), and its rules and regulations.  On July 26, 2019, the committee released its report with various recommendations dealing with the functioning of the Competition Commission of India (the “CCI”), the merger control regime and on anti-competitive conduct.

Currently, the Competition Act mandates that all mergers and acquisitions that hit the asset and turnover thresholds have to be approved by the CCI.  In the absence of an approval, the transaction cannot be closed unless a period of two hundred and ten (210) days from the date of filing of the application has elapsed.

One of the committee’s recommendations was to introduce a green channel for clearance of certain types of mergers and acquisitions.  Taking a cue from the committee’s recommendations, the CCI has revised the merger control regulations to provide for deemed approval in respect of mergers and acquisitions having the below listed fact patterns:

  • if the parties to a transaction, their respective group entities or any entity in which they, directly or indirectly, hold shares and/or are in control do not produce or provide similar, identical or substitutable products or services, as the case may be;
  • if the parties to a transaction, their respective group entities or any entity in which they, directly or indirectly, hold shares and/or are in control are not engaged in any activity relating to production, supply, distribution, storage, sale and service, or trade of products or services which are at different stages or levels of the production chain (i.e., a deal involving forward or backward integration); and
  • if the parties to a transaction, their respective group entities or any entity in which they, directly or indirectly, hold shares and/or control are not engaged in any activity relating to the production, supply, distribution, storage, sale and service, or trade of products or services which are complementary to each other.

The foregoing transactions can be closed after the parties have filed the prescribed form with the CCI and have received an acknowledgment of the filing.  It must be noted that the parties must consider all plausible market definitions in assessing whether they are eligible to proceed under the green channel, and the filing must be made with complete and detailed information of the transaction as requested in the prescribed form.  If the CCI finds that the transaction was not eligible for the green channel or that the declaration provided by the parties as a part of the filing is incorrect, it can declare the filing and the deemed approval to be void ab initio, after giving the parties a hearing.

Our comments

The introduction of the green channel under India’s merger control regime is a welcome move.  It will significantly relax deal timelines and costs in cases where parties are not involved in similar or complementary businesses, or are not at different levels of the production chain.  Needless to say, the parties have to be absolutely certain that the transaction is eligible for the green channel, because an incorrect assessment can result in the deemed approval becoming void as also result in the levy of a penalty up to 1% of the total turnover or the assets involved in the combination, whichever is higher.

Therefore, it will be imperative for parties adopting this route to have a detailed pre-merger consultation with the CCI and also seek support of their advisors.  Having said so, given the risk of incurring a high penalty, it remains to be seen how many takers line up for this exemption.

Tags:
Competition, Corporate/M&A