Refining India’s Green Channel—A case for De Minimis exemptions in Merger Control

In the dynamic landscape of global competition law, India's merger control regime stands at a crucial juncture. The Green Channel Route, introduced by the antitrust regulator, Competition Commission of India (CCI), in August 2019 marked a significant stride towards streamlining merger approvals. While this initiative has been a step in the right direction, recent experiences suggest that there is room for further refinement, particularly in cases of minimal competitive overlaps. As we approach the fifth anniversary of this initiative, it is imperative to critically examine its efficacy and propose refinements that could further enhance India's competitive landscape.

The Green Channel: Promise and Pitfalls

The ‘Green Channel’ Route under Regulation 5A of the Competition Commission of India, (Procedure in regard to the transaction of business relating to combinations) Regulations 2011, (as amended in 2019) allows for automatic approval of specified combinations on the day they are notified to the CCI if the parties and their respective group entities and/or affiliates exhibit no horizontal, vertical, or complementary overlaps i.e. a ‘zero overlap’ criterion. This initiative, born from the recommendations of the Competition Law Review Committee in 2019, aimed to reduce regulatory burden and align India with global best practices. With 106 combinations processed since its inception, the route has undeniably injected efficiency into India's merger control framework.

However, the high threshold of the ‘zero overlap’ criterion referred above appears to have inadvertently created a bottleneck in merger control approvals. Then there is also the temporal aspect—consideration of both current and potential future overlaps. This expansive scope creates a technical minefield for practitioners. The requirement to assess ‘plausible’ markets introduces an element of subjectivity that can be particularly challenging in dynamic sectors or for conglomerate mergers. As a result, transactions with minimal, competitively insignificant overlaps find themselves ineligible for this expedited route, facing prolonged review periods that can adversely impact deal timelines and increase transaction costs.

Tracing the CCI’s jurisprudence on Green Channel approvals

In 2021, the CCI deemed approved the notification made by International Finance Corporation (IFC) for the acquisition of an equity stake in Dodla Dairy (Dodla) despite a vertical relationship between the parties as IFC had a ‘miniscule shareholding’ of 5% (accompanied by certain rights which did not qualify as major control rights) in another online food retailer ‘BigBasket’ through which Dodla had a limited retail presence (in a single Indian State with negligible sales forming an insignificant part of Dodla’s annual revenue).

Subsequently, in 2022, the CCI was notified by BW Investment Ltd. (Kroll Group) of its intent to acquire shares and management rights in Rabo Equity Management Company Ltd. (Rabobank Group), the investment manager of India Agri Business Fund II Limited (AIBF II). Although AIBF II’s portfolio companies were engaged in the same broad segment of the relevant market, the acquisition was deemed approved, with the CCI taking note of no real overlaps in terms of ‘actual business activities’ at the narrow level and considering the combined market shares of the relevant portfolio companies of much less than 1%.

However, in a notification made two months later, the CCI changed its stance by rejecting the practice of parties availing green channel for deals with minor overlaps. It penalised Platinum Owl C 2018 RSC Limited (acting as trustee of Platinum Jasmine A 2018 Trust) and TPG Upswing Limited who sought to acquire UPL SAS Limited for not disclosing a minor overlap. This overlap involved TPG Upswing’s stake in UPL Corporation Limited and its subsidiary Arysta, which operates in the same business sector as UPL SAS Limited.

It is worth noting that the Draft Competition Commission of India (Green Channel) Rules, 2024 by India's Ministry of Corporate Affairs, do not appear to address this apparent inconsistency.

A case for a De Minimis Threshold

The crux of the issues lies in the binary nature of the current framework—either there is an overlap, or there isn't. This black-and-white approach fails to account for the nuanced realities of modern markets. The authors have made a recent representation to the Indian Ministry of Finance proposing a more calibrated approach: introducing a de minimis threshold within the Green Channel Route.

This proposal suggests amending Regulation 5A of the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 to incorporate objective criteria as a bright-line test for evaluating non-contentious transactions. Specifically, it recommends including transactions with actual or potential overlaps within 1%-2% in identified product and geographical markets under the Green Channel framework, to potentially address the current binary nature of an overlap assessment.

Global Perspectives: Learning from International Best Practices

This contemplation of a de minimis threshold in India is not in isolation. The proposal resonates with a global trend towards more nuanced and efficient merger control regimes:

1. European Union: The European Commission's 2023 Merger Simplification Package introduces new categories eligible for simplified treatment, including cases where combined market shares are below 50% and the market concentration index is below 150.
2. Australia: The Australian Competition and Consumer Commission (ACCC) employs a ‘pre-assessment’ process as part of its informal merger review guidelines for transactions that pose a low risk of substantially lessening competition, with such pre-assessment often concluding within two weeks of notification.
3. South Korea: The Korea Fair Trade Commission (KFTC) has expanded the scope of transactions exempt from merger control effective from August 2024, including certain mergers between parent companies and subsidiaries.
4. Canada: The Competition Bureau's Procedures Guide for Notifiable Transactions and Advance Ruling Certificates (ARC); and ‘No-Action Letter’ process (pursuant to subsections 113(b) and 123(2) of the Canadian Competition Act) which provides a mechanism for the Commissioner to expedite approval of non-contentious mergers, offering parties increased certainty and efficiency.
5. Mexico: The Federal Economic Competition Law provides for a simplified procedure (Procedimiento Por Notoriedad) for mergers that clearly do not hinder competition, with decisions possible within 15 working days.

These international examples underscore a common theme: the recognition that not all overlaps are equal, and that regulatory resources are best focused on transactions with genuine competitive concerns.

Economic Rationale: Beyond Regulatory Efficiency

The introduction of a de minimis threshold is not merely about administrative convenience. It carries significant economic implications:

1. Reduced Transaction Costs: By allowing transactions with minimal overlaps to proceed through the expedited green channel route, businesses can save substantial time and resources, potentially encouraging more efficiency-enhancing mergers.
2. Enhanced Legal Certainty: Clear guidelines for self-assessment would provide domestic and foreign businesses with predictability, stimulating more merger activity and foreign direct investment.
3. Optimal Resource Allocation: Allowing the CCI to focus its resources on complex cases that significantly impact market dynamics could lead to robust enforcement where it matters most.
4. Innovation and Competitiveness: In rapidly evolving markets, especially in the digital sphere, the ability to execute mergers swiftly can be crucial for innovation and maintaining global competitiveness.
5. Macroeconomic Benefits: An efficient merger control regime contributes to broader economic goals such as the ease of doing business.

The Digital Dimension: Adapting to New Market Realities

As India's competition law evolves to address the unique challenges posed by digital markets, the need for streamlining non-contentious merger approvals becomes even more crucial. A nimble merger control regime becomes even more pronounced in digital markets which feature rapid innovation cycles and network effects that can quickly alter competitive dynamics. A de minimis threshold, coupled with a rebuttable presumption mechanism—where parties can present evidence to rebut presumptions of ineligibility for minor and speculative overlaps—could provide the flexibility needed to navigate this complex landscape effectively.

Conclusion

The proposed de minimis threshold is not a relaxation of standards, but rather a recalibration that recognizes the nuances of modern market dynamics. For antitrust practitioners, it necessitates a recalibration of M&A strategies, compliance programs, and deal risk assessments.

Rohan Kumar is a Partner at a Mumbai based law firm.

Mahir Shaparia is an Associate at Quillon Partners.

Views mentioned in this article are authors’ personal views and it does not reflect the views of their organization.