2018 witnessed generally swift and speedy approvals by the CCI. Yet again the CCI showed its maturity whether it was dealing with cases under the new Insolvency and Bankruptcy Code 2016 (Insolvency Code) or with high profile mergers such as Walmart/Flipkart and Siemens/Alstom.

This past year in the Indian merger control regime has seen an interesting mix of some new trends and challenges. The Competition Commission of India (CCI) approved over 60 proposed combinations. As before, there were no prohibitions but 3 cases raised concerns of an appreciable adverse effect on competition (AAEC) and resulted in remedies. The CCI has continued to demonstrate that it is a constructive yet watchful regulator, and that it is open to consider extensive remedies that allay its concerns in relation to an AAEC in India, rather than blocking a transaction.

2018 witnessed generally swift and speedy approvals by the CCI. Yet again the CCI showed its maturity whether it was dealing with cases under the new Insolvency and Bankruptcy Code 2016 (Insolvency Code) or with high profile mergers such as Walmart/Flipkart and Siemens/Alstom.

In 2018, the CCI cracked down, as never before, on procedural violations of merger control rules, with a number of investigations being launched and fines being imposed, including on UltraTech for the non-furnishing of information (in the first ever penalty of its kind) and on Bharti Airtel for entering into a locked box arrangement.

In relation to remedies, the CCI was innovative in: (i) imposing hybrid and untested remedies in the Bayer/Monsanto merger[1]; and (ii) accepting voluntary commitments which removed structural link between the parties in the acquisition of Fortis Hospitals by Northern TK Ventures.[2]

This article discusses the key highlights and developments of 2018.

Insolvency and Merger Control

In light of the introduction of the time-bound insolvency resolution process under the Insolvency Code, the CCI was very closely involved in the review of several insolvency cases. Initially, there were apprehensions as to how both laws could work harmoniously.

The CCI reviewed about 10 transactions under the newly enacted Insolvency Code such as Tata/Bhushan Steel, AION and JSW/Monnet and ArcelorMittal /Essar. Of these, 6 pertained to the steel industry. Given the tight timelines prescribed by the Insolvency Code, each of these combinations (which the CCI found had no AAEC in India) was speedily reviewed and cleared.

Gun Jumping

The merger control regime in India is suspensory in nature. Simply put, parties cannot take any steps towards closing a transaction before receipt of the CCI’s approval in relation to the combination.

Under Section 43A of the Competition Act, 2002 (Act) the CCI has the power to impose penalties for a failure to notify the CCI and/or gun-jumping. In 2018, the CCI imposed penalties in approximately 13 such cases.

For the first time, the CCI provided guidance and clarity on the scope of the ‘standstill’ obligations. In LT Foods, the CCI found that the acquirer had agreed to certain measures contrary to the standstill obligation, such as handing over inventories, making introductions to the supplier’s sellers, restrictions on promotional selling and restrictions on the seller entering existing territories). The CCI pointed out that the Act prohibited not only completion of the transaction but also any coordination between the parties, pending receipt of the CCI approval.

In 2018, the CCI also penalized various companies on grounds such as: (i) the advance payment of cash consideration; (ii) acquisitions of the right to use spectrum without seeking prior approval of the CCI and (ii) providing bank guarantees/loans to the target prior to CCI approval.

Notably, the CCI also came heavily down on arrangements akin to a “locked-box” mechanism which have become popular in M&A transactions in recent years. In August, Bharti Airtel’s acquisition of Tata Teleservices was penalized by the CCI for having a valuation mechanism which, according to the CCI, allowed the acquirer potentially to have operational control on the target from the ‘notional date’ set in the agreement and reduced the target’s incentives to compete with the acquirer before consummating the transaction. Although, due to confidentiality of the privately agreed terms, the specific mechanism objected to by the CCI was not been disclosed in the public order, it appears that the CCI was concerned about the valuation mechanism where the methodology of computing leakages in the value of the target, made the target susceptible to the acquirer’s commercial influence, pending receipt of the CCI approval.

Remedies/Modifications

Remedies are playing an increasingly important role in the review process of the CCI. There has been active use by the CCI of its power to require remedies to address competition concerns before clearance. In the past year, the CCI has accepted a broad range of structural and non-structural remedies. It must be added that, in cases of significant horizontal overlaps, the CCI continues to prefer structural remedies over behavioural remedies.

One of the key cases on remedies in 2018 was the well-known Bayer/Monsanto merger. It was the fourth and last transaction in the recent consolidation in the agrochemical and seeds industry worldwide. In 2017, the CCI had analysed Dow/Dupont, Agrium/Potash and ChemChina/Syngenta, requiring significant remedies in approving those transactions.

Bayer/Monsanto went through a lengthy phase II review conditional on Bayer offering India-specific remedies. These remedies included both structural and behavioural remedies, including a set of remedies requiring Bayer to license on fair, reasonable and non-discriminatory (FRAND) terms. In reviewing the transaction, the CCI closely coordinated with competition law authorities in other jurisdictions.

In another case involving the proposed combination of industrial gas companies Linde/Praxair, the CCI approved the combination after accepting modifications involving divestments of Linde India’s shareholding in a joint venture and divestiture of some of the parties’ plant and cylinder filing stations.

Interestingly, towards the end of the year, in Northern TK Ventures’ acquisition of Fortis Healthcare, the focus of the CCI was on removing any common structural links between two competitors and not on imposing any structural remedies by way of divestment. This was also the first case in which a life-long ring-fencing obligation was imposed by the CCI. It was noted that the acquirer’s group, IHH Healthcare had an existing joint venture (JV) with Apollo Hospitals for operating another hospital. Thus the acquirer (along with its group entities), the JV partner (Apollo), the JV and the target were all present

in similar businesses. In order to avoid the JV being used as a common platform for coordinated behaviour by the competing companies, the CCI accepted a number of voluntary commitments made by the acquirer ensuring that the JV and the combined entity would operate as separate, independent and competitive businesses. This including the removal of interlocking directorates.

Key Developments

In a welcome move, to ease doing business in India, the CCI made a number of amendments to the Combination Regulations,[1] particularly allowing parties to ‘pull and refile’ a merger notification and enabling parties to offer modifications (remedies) in response to a show cause notice, before the commencement of a detailed Phase II investigation.

Against this backdrop of smoothing the process of merger control, in July 2018 the CCI also introduced an online ‘do-it yourself’ tool kit to help stakeholders assess the notifiability of a transaction.

In November 2018, Mr. Ashok Kumar Gupta was appointed as the Chairperson of the CCI and will remain in office until October 2022.

The Competition Law Review Committee was set up in September to review the Act “in view of the changing business environment and to bring necessary changes if required”. The study of merger guidelines is specifically mentioned in the terms of reference. It will be interesting to see whether there will be any changes in the Indian merger control regime in 2019.