Cross-Border Mergers & the Role of CCI under Indian Law

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Cross-Border Mergers & the Role of CCI under Indian Law

Written by Savya Sharma

Table of Contents

Introduction

In the era of globalization, cross-border mergers and acquisitions (M&As) have emerged as powerful instruments for expanding business operations, accessing new markets, and achieving synergies. Indian companies are increasingly participating in outbound and inbound mergers, while foreign investors view India as a dynamic and lucrative market. With the rising number of such transactions, regulatory oversight becomes crucial to ensure that M&As do not adversely impact market competition.

In India, the Competition Commission of India (CCI) plays a central role in scrutinizing mergers and acquisitions to prevent the creation of monopolies or unfair trade practices. The Competition Act, 2002, empowers the CCI to regulate combinations, including cross-border transactions, that may have an appreciable adverse effect on competition (AAEC) in India.

This article explores the legal framework governing cross-border mergers in India and the pivotal role of the CCI in maintaining market competitiveness, examining statutory provisions, thresholds, procedures, and landmark rulings.

Understanding Cross-Border Mergers

A cross-border merger involves the combination of two or more entities registered in different jurisdictions. These transactions can take the following forms:

  • Inbound Merger: A foreign company merges into an Indian company.
  • Outbound Merger: An Indian company merges into a foreign company.
  • Merger of Foreign Entities with Indian Business Presence: Where at least one of the merging parties has operations, assets, or revenue in India.

Such mergers are not only driven by business synergies but also trigger various regulatory compliances—corporate law, tax law, foreign exchange law, and competition law.

  1. Companies Act, 2013
    • Section 234 of the Act and the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 provide the legal basis for cross-border mergers.
    • Allows mergers between an Indian company and a foreign company from specified jurisdictions (currently 10 countries, including the USA, UK, Germany, etc.).
    • Requires approval from:
      • National Company Law Tribunal (NCLT)
      • Reserve Bank of India (RBI)
      • Sectoral regulators (e.g., SEBI, IRDAI, etc.)
  2. FEMA Regulations
    • The Foreign Exchange Management (Cross Border Merger) Regulations, 2018, issued by RBI, regulate the inflow and outflow of capital in such mergers.
    • Ensure compliance with India’s foreign exchange laws and capital account convertibility.
  3. Competition Act, 2002
    • Sections 5 and 6 of the Act deal with combinations, which include mergers, acquisitions, and amalgamations.
    • The Competition Commission of India (CCI) is the key authority that evaluates whether a transaction may have an AAEC in India.

Thresholds for CCI Notification

Under the Competition Act, a combination is notifiable to the CCI if it meets or exceeds certain asset or turnover thresholds, as defined under Section 5.

The current thresholds (as of the latest notification) are:

A. Parties Test

  • Combined assets in India > ₹2,000 crore, OR
  • Combined turnover in India > ₹6,000 crore.

B. Group Test

  • The group to which the merged entity will belong has:
    • Assets in India > ₹8,000 crore, OR
    • Turnover in India > ₹24,000 crore.

C. Worldwide Thresholds

  • Combined assets > USD 1 billion (including ₹1,000 crore in India), OR
  • Combined turnover > USD 3 billion (including ₹3,000 crore in India).

Note: Even if the merger takes place between two foreign entities, it must be notified to the CCI if the thresholds above are met and the transaction has a “local nexus”—i.e., it affects the Indian market.

Role of CCI in Cross-Border Mergers

1. Assessing Appreciable Adverse Effect on Competition (AAEC)

The CCI’s main task is to determine whether a combination is likely to cause an AAEC in the relevant market in India. The assessment is based on factors like:

  • Market share of the combined entity
  • Level of concentration in the market
  • Potential foreclosure of competition
  • Consumer benefits (innovation, lower prices)
  • Barriers to entry

If no AAEC is found, the CCI gives approval. If concerns exist, the parties may propose modifications, or the CCI may block the deal.

2. Pre-Merger Notification (Form I or II)

Parties must file Form I (short form) or Form II (detailed form, if the market share exceeds prescribed limits). The CCI aims to complete the review within 210 days, but in most cases, approval is granted within 30-60 working days.

3. Confidentiality and International Cooperation

In cross-border deals, parties often request confidentiality. The CCI also cooperates with other competition regulators globally (e.g., US FTC, EU Commission) to assess the global impact of mergers.

4. Suo Motu Inquiry

Even if a merger is not notified, the CCI can initiate a suo motu investigation within 1 year of the deal’s consummation if it believes the combination may harm competition.

Recent Cross-Border M&A Deals Reviewed by CCI

1. Bayer AG – Monsanto Merger (2018)

  • A global merger between two agrochemical giants.
  • CCI approved the deal with modifications, including divestments in India to maintain market competition.

2. Walmart – Flipkart Deal (2018)

  • US-based Walmart’s acquisition of a majority stake in Flipkart.
  • CCI cleared the deal as it did not raise competition concerns in the retail or e-commerce market.

3. Linde – Praxair Merger (2018)

  • A global gas company merger.
  • CCI approved it subject to divestiture of overlapping businesses in India.

These cases underscore the importance of the CCI in ensuring that cross-border deals do not stifle Indian market competition.

Exemptions and Fast-Track Approvals

  1. De Minimis Exemption
    • If the target has assets < ₹350 crore or turnover < ₹1,000 crore in India, the transaction is exempt from notification.
    • Helpful for small cross-border acquisitions involving startups or small Indian businesses.
  2. Green Channel Route (2019)
    • Automatic approval route for combinations with no horizontal or vertical overlap.
    • Applicable to certain categories of cross-border deals, encouraging faster clearances.

Challenges and Compliance Considerations

  1. Overlapping Jurisdictions
    • Parties must comply with multiple regulators (NCLT, RBI, SEBI, CCI), making the process complex and time-consuming.
  2. Burden of Documentation
    • Filing requirements under Form II can be voluminous and require detailed market data and analysis.
  3. Global Coordination
    • Multi-jurisdictional mergers need coordination across antitrust agencies globally to avoid inconsistent rulings.
  4. Evolving Definitions
    • Determining the “relevant market” is not always straightforward, especially in tech and digital sectors.

Conclusion

The role of the Competition Commission of India (CCI) in regulating cross-border mergers is critical for ensuring a level playing field, preventing abuse of dominance, and safeguarding consumer welfare. With India’s growing integration into the global economy and increasing M&A activity, CCI’s oversight provides a robust framework to review transactions that have cross-border implications for the Indian market.

For businesses and legal advisors, early assessment of CCI thresholds, understanding market impact, and compliance planning are essential for smooth transaction execution. As India continues to fine-tune its competition regime and align with global best practices, the CCI is poised to play an even more significant role in shaping the country’s M&A landscape.