TerraLex Cross-Border Guide to Pre-Merger Notification Guide

Competition Act, 2002 (as amended) (“Competition Act”) stipulates that , any person or enterprise, who or which proposes to enter into a "Combination" (i.e. merger/acquisition/amalgamation), is required to file a notification with the Competition Commission of India (“Commission”), in the prescribed Form I, or Form II, along with the prescribed fee as specified under the Competition Commission of India (Combinations) Regulations, 2024 (“Combination Regulations”). The Combination Regulations were recently amended and made effective from 10 September 2024. The Competition Act does not prescribe any timeline for filing of notice. Nevertheless, the parties to a Combination will have to endeavour to file the notification as soon as possible since the combination cannot be consummated until receipt of an approval from the Commission or until the expiry of one hundred and fifty days from such notification to the Commission, whichever is earlier.

Merger notification in India is mandatory and suspensory. The Competition Act has made an exception for Combinations involving public financial institutions, foreign institutional investors, banks, or category I alternative investment fund that subscribe to shares or engage in financing or any acquisition pursuant to a loan or investment agreement. Additionally, an exception from seeking a prior approval is also provided to open offers or acquisitions on the regulated stock exchange. Such Combinations can be notified to the Commission post facto within the prescribed timelines to the Commission. However, in such cases, the acquirer is prevented from exercising its rights prior to receiving an approval from the Commission.

All transactions that result in mergers, amalgamations and acquisitions either by way of purchase of shares, assets, voting rights or control, are caught within the mandatory notification regime. However, exemptions are available to certain transactions, that are ordinarily not likely to cause an appreciable adverse effect on competition (“AAEC”).

The Competition Act prescribes jurisdictional thresholds based on (i) assets and turnover of the parties/ group (as applicable); and (ii) value of the transaction for mergers, acquisitions and amalgamations for notification.

Assets and Turnover Thresholds There are different assets and turnover thresholds prescribed for when both the parties are in India and when the Combination involves one or more foreign parties.

In India • Parties Test: Assets: INR 25 billion (~USD 240 million) or Turnover: INR 75 billion (~USD 900 million)

• Group Test: Assets: INR 100 billion (~USD 1.2 billion) or Turnover: INR 300 billion (~USD 3.6 billion)

Worldwide •Parties Test: Assets: USD 1.25 billion in worldwide assets, with INR 12.5 billion in India (~USD150 million) or Turnover: USD 3.75 billion in worldwide turnover, with INR 37.5 billion (~USD 450 million) in India

• Group Test: Assets: USD 5 billion in worldwide assets, with INR 12.5 billion (~USD150 million) in India or Turnover: USD 15 billion in worldwide turnover, with INR 37.5 billion (~USD 450 million) in India

Deal Value Thresholds Value of any transaction, that exceeds INR 20 billion (~USD 240 million) needs to be notified if the enterprise being acquired, taken control of, merged or amalgamated has substantial business operations (“SBO”) in India.

De Minimis Thresholds Transactions where the target has assets or turnover below the thresholds prescribed under the Competition (Minimum Value of Assets or Turnover) Rules, 2024 are exempt from the requirement of notification of the transaction to the Commission(“de minimis exemption”). The thresholds are as follows:

• Assets: INR 4.5 billion (~USD 54.63 million)
• Turnover: INR12.5 billion (~USD 149 million)

The Competition Act does not specifically contain provisions relating to joint ventures. By implication if a joint venture results in fulfilling any of the conditions and thresholds mentioned in point 4 above relating to Combinations, it would fall within the ambit of the pre-merger notification.

A transaction is required to be notified in India in the following situations:

(a) Under the assets and turnover thresholds when the parties exceed the thresholds specified for minimum assets or turnover in India. (b) Deal Value Thresholds: when the target has SBO in India.

The test for SBO is as follows:

Digital Sector: • Business or End Users Test: 10% or more of its total global number of such users in India OR • Gross Merchandise Value in India: Gross Merchandise Value for a period of 12 months preceding the relevant date on which transaction document is executed: 10% or more of its total global gross merchandise value OR • Turnover in India: Turnover during the preceding financial year: 10% or more of its global turnover is derived from all the products and services.

Other Sectors:

• Gross Merchandise Value in India: Gross Merchandise Value for a period of 12 months preceding the relevant date on which transaction document is executed: (i) 10% or more of its total global gross merchandise value; and (ii) more than INR 5 billion (~USD 59.65 million) OR • Turnover in India: Turnover during the preceding financial year: (i) 10% or more of its global turnover derived from all the products and services; and (ii) more than INR 5 billion (~59.65 million)

Substantial information is required to be furnished to the Commission under Form I or Form II. However, Form II requires much detailed information in comparison to Form I. The information required to be furnished relates to the Combination itself, shareholders, assets, turnover, approvals of the Boards, details of market shares, customers, products, IPRs, proposed market shares, competitors, distribution channel, export, price of acquisition etc. In practicality, the time taken to compile the information will differ in each case. The quantum of information would also depend upon the period for which the enterprises have been in existence. The time taken to collate the said information will depend upon variable factors like volume of information to be complied, availability of such information, etc. Further, as the information of both the acquirer and the target is required to be provided, therefore the time taken to coordinate and collect the information also plays a role in determining the timeline for collating such information.

All filing information mandated under Form I and Form II is required to be furnished to the Commission. However, if the Parties to Combination do not have any horizontal, vertical or complementary overlaps, an abridged version of Form I with minimal information about the Parties and the Combination can be filed with the Commission for an automatic approval.

Yes, the prescribed fee is as follows:

• The fee prescribed for the notification filed under Form I of the Combination Regulation is INR 3 million (~USD 35,940)
• The fee prescribed for the notification filed under Form II of the Combination Regulation is INR 9 million (~USD 107,820).

The Competition Act does not stipulate any deadline for filing a notice, however, no notifiable transaction can be consummated until Commission approves the Combination or 150 days have elapsed since the notice was filed and no prima facie opinion has been formed by the Commission. The notice can be filed anytime after the definitive documents relating to the Combination are signed.

No notifiable transaction can be completed or proceed until Commission approves the Combination or 150 days have elapsed since the notice was filed and no prima facie opinion has been formed by the Commission. Thus, Parties are mandatorily required to wait until combination is approved or deemed to have been approved on lapse of 150 days as explained above.

The Commission is required to form a prima facie opinion within 30 days of receiving the notice in Form I or Form II as to whether or not the Combination is likely to cause or has caused an AAEC. This is referred to as Phase I of the review period. The Commission is empowered to stop the approval clock to seek further information from the Parties and the clock re-starts once the information/clarification has been provided. In Phase I if the Commission does not form an opinion within 150 days, the Combination is deemed to be approved.

If Commission is of prima facie opinion that the combination causes or is likely to cause an AAEC, the Combination has to undergo an in-depth review in Phase II which does not have any outer time limit.

While these are statutory periods, the practical time period taken by the Commission to clear a Combination depends upon the facts and gravity of each transaction.

Failure to notify a transaction that exceeds the notification threshold or consummation of a transaction without notification or before expiry of the waiting period entails a penalty up to 1% of the total turnover or the assets, or the value of transaction whichever is higher, of the "Combination". Further, the Commission may also initiate an enquiry into such transaction and direct the defaulting party to file notice in terms of the Combination Regulations.

The central government, the state government, local authority, enterprise, or any person, who is aggrieved by any direction, decision or order of the Commission can file an appeal before the National Company Law Appellate Tribunal.

However, Commission is barred from initiating any inquiry into the Combination that has taken effect after expiry of one year from the date of consummation of the transaction. This time period shall not apply when the approval has been obtained by misrepresentation or omission of material facts.

The Commission may impose a penalty ranging from INR 5 million (~USD 62,705) to INR 500 million (~USD 6,016,485) for providing false information or omitting to provide material information pertaining to the Combination.

The Competition Act does not provide for such protection.

The Commission is the statutory authority under the Competition Act which regulates anti-competitive practices and reviews merger transactions. The Commission is a regulatory and quasi-judicial authority.

Parties to a Combination can claim confidentiality over sensitive business information provided to the Commission for assessing the transaction. As such, Parties can file a (i) confidential; and (ii) a non-confidential version of the notice before the Commission.

The notice filed by the Parties is not a public document and third parties are not entitled to ask for a copy of the confidential or non-confidential version of the notice. Moreover, when parties claim confidentiality over information provided in the notice, such information cannot be used by the Commission in the public version of their order. Additionally, a summary of the Combination, not containing any confidential information is published on the website of the Commission.

Combinations are likely to face challenges when they cause or are likely to cause an AAEC.

The Commission can be consulted prior to and during a merger review process. The Commission provides for pre-notification consultation, wherein the parties to the Combination can approach the Commission officials for informal and verbal consultation before filing notification under the Competition Act.

Other investment controls/authorities are:

• The Foreign Exchange Management Act, 1999, which regulates foreign investment in India.
• The Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, which regulates foreign direct investment into the country by prescribing sectoral investment caps and conditions.
• The Insurance Regulatory and Development Authority Act, 1999 which regulates foreign investment in the insurance sector.
• SEBI’s SEBI (Substantial Acquisition of Shares and Take-over) Regulations, 2011 which regulate mergers and acquisitions.
• The Telecom Regulatory Authority of India Act, 1997 which regulates the telecom sector.
• The Banking Regulation Act, 1949 which regulates the banking companies.