Author: Rishita Chatterjee
Fourth year student at Jindal Global Law School, O.P Jindal Global University, Sonipat
I. Introduction
Over the past decade, merger remedies have garnered closer scrutiny, with adverse experiences often exposing difficulties in implementing effective remedies. Nonetheless, despite shortcomings, regulators continue to rely on them. Regardless of criticism, traditional merger remedies, primarily behavioural and structural, continue to act as essential mechanisms for enforcing competition law. Before delving into the analysis it is imperative to understand why a merger transaction may require a remedy.
Most M&A transactions are not inherently anticompetitive, and in fact have the potential to benefit consumers. Competition law and antitrust regulators attempt to correct only those transactions which are likely to substantially lessen competition in a relevant market. In judications like the European Commission (E.C.)T, the competition authority's decision not to approve a transaction equates to a deal being blocked. In contrast, in a ‘democratic capitalist’ structure like the United States, competition authorities must challenge the transaction in a court to block its consummation. In both instances, a primary mechanism to resolve competition concerns is to require potential remedies that eliminate these competitive concerns.
As the Supreme Court in United States v E.I. du Pont de Nemours & Co. states, "the key to the whole question of an antitrust remedy is identifying the measures effective to restore competition". Each merger remedy is designed to preserve competition that would otherwise be eliminated because of the transaction's consummation. Hence, the first point of consideration is determining the type and scope of potential competitive harm. This essay aims to understand the structure of merger remedies from a regulatory perspective, focusing on anticompetitive remedies in India, and tracing their nature, mechanism and, most importantly, efficiency.
II. A look at CCI: How does India view remedies?
Antitrust law in India is governed by the Competition Act 2002 ('Act') and a series of regulations. The Competition Commission of India ('CCI'), being the national competition regulator, is primarily responsible for enforcing the Act.
The CCI, on several occasions, while reviewing a combination transaction, required a party to provide a merger remedy when it believed that it might cause an appreciable adverse effect on competition ('AAEC'), prohibited under Section 3(1) of the Act. In such an instance, the CCI will issue a notice of "show cause" under Section 29 of the Act. This allows two alternatives. First, the parties may propose a remedy along with detailed information on how to implement them, showing that the proposal removes AAEC concerns, before the CCI issues an order. Alternatively, the parties may propose alternatives to the CCI’s proposed orders, which the CCI may consider, as seen in Holcim v Lafarge and Sun Pharmaceutical v Ranbaxy Laboratories. The idea behind the ex-ante review of combinations is to "restrain those combinations, which, if allowed to go forward, would likely adversely affect competition in the relevant market”. At its core, the purpose of any remedy must be proportionate, effective, and appropriate while viewing specific facts and tailoring the remedies.
Remedies are categorized as structural and behavioural.
Structural Remedies affect the market's competitive structure and improve the conditions for competition by creating new market participants through divestitures, A divesture, is a partial or full sale of a company's assets or operations, and is usually exercised on horizontal mergers. As seen in Holcim v Lafarge, the CCI ordered the divestment of two specific plants to remove "unilateral and coordinated" effects on the grey cement market of India.
Behavioural Remedies regulate the ongoing conduct of the parties engaged in the transaction concerned. This can further be categorized into both positive remedies (where a conduct is mandated) and negative remedies (where a conduct is prohibited). These mechanisms vary from "price capping" to the introduction of new pricing structures. The CCI issued a purely behavioural remedy to offset foreclosure effects in Larsen & Toubro Limited v Schneider Electric India Pvt Ltd & MacRichie Investments Pte Ltd, where the parties were mandated to commit to long-term price caps and exclusive licensing technology.
CCI is progressively working towards adopting a more robust competition law framework, aligning with advanced jurisdictions like the United States and the European Union. However, Indian competition law currently lacks detailed guidance on critical aspects, such as merger control for horizontal and vertical combinations. This absence leads to inconsistencies and open-ended approaches, including the issuance of general orders without clear explanations of methodologies or approaches. As a result, combinations are often approved based on voluntary or behavioural remedies proposed by the parties, which are challenging to monitor—especially given the periodic turnover of the CCI’s chairperson and members every five years.
III. Trends in CCI Approval of Combinations
Structural remedies, like divestments and Intellectual Property transfers, directly address competitive harm, while behavioural remedies involve commitments to alter the conduct of businesses in certain ways post-merger. Although there is no straitjacket formula, behavioural remedies are often considered when structural modifications are not feasible. For example, the CCI prefers structural remedies to mitigate competitive concerns, as seen in PVR/DLF. However, in several instances, the CCI combined both structural and behavioural mechanisms. For example, in the Hyundai/Ola case, the CCI stipulated that the strategic partnership with Ola would be non-exclusive and that Ola's algorithm would not give preferential treatment to drivers based on the brand of their vehicles to ensure equitable treatment in the taxi market space.
The CCI has mandated structural remedies in 23% of cases, favouring behavioural remedies in 47% and hybrids in 30% of instances. The CCI evaluates factors outlined in Section 20(4) to determine AAEC in combinations. The CCI has tailored remedies to specific cases, often opting for divestitures when high market shares or concentration levels are involved, as in Z.F. Friedrichshafen and Abbott Laboratories, where voluntary divestitures addressed market power concerns. The CCI has also considered nontraditional remedies, such as technology transfers, as in the Metso/Outotec case, marking a shift towards adaptability.
IV. Observations: How has Implementation of Remedies Shaped Antitrust Regulation in India
Since the early 1990s, Indian competition law policy regime has focused on a liberalized possibility of industrial restriction and consolidation. In line with this, the CCI has demonstrated a willingness to explore remedies rather than following the E.C.'s habit of blocking transactions. This reflects a commitment to understanding the businesses involved, as seen in Metso/Outotec, where site visits were conducted to assess business models. While the CCI has shown a longstanding favour for structural remedies in cases of significant horizontal overlaps, it has been flexible in adopting more quasi-structural solutions.
The CCI tailors remedies to specific cases, avoiding a one-size-fits-all approach and engaging in detailed discussions with parties to eliminate any identified competitive harm. Only a small percentage of notified combinations in India have undergone a Phase II inquiry, resulting in approvals with remedies and independent monitoring agents. While the CCI is aligning its practices with international standards, it still lacks comprehensive merger assessment guidelines, leading to inconsistencies and challenges in monitoring behavioural remedies. The Competition (Amendment) Act (2023) introduces significant changes, including a deal value threshold for scrutinizing offshore acquisitions of potential competitors. The draft Competition Commission of India (Combinations) Regulations, 2023, aims to clarify transaction definitions and streamline notification processes. To maintain competitive integrity, effective guidelines for remedy implementation and monitoring are essential as India adopts global best practices.
CCI’s decisions show that the CCI has been attempting to neutralise the adverse effects of abuse of market dominance to facilitate a competitive and robust antitrust regime. The CCI has conducted exhaustive reviews of proposed mergers in only around 5% to 6% of the total 900 matters, typically under Form II or during Phase I/II reviews. The remaining 94% of the combinations are cleared in Phase I (Form I) without any remedial measures or adjustments. In very few cases where remedies are deemed necessary, CCI appoints an external independent Monitoring Agency to conduct and oversee the activities involved in the combination. The agency works under the guidance of the CCI and submits a report at the end of the combination and after the completion of the remedies However, there is an ongoing debate whether the CCI must strictly follow all principles of natural justice including notice and hearing of the Respondents --before passing orders under Section 27 of the Act. The judicial precedent shows that the CCI is not required to notify or hear parties at the investigative stage as the prima facie order directing the DG’s investigation is considered an administrative inquiry rather than a final order. Hence, in the absence of statutory requirements, adherence to natural justice by the CCI remains discretionary. While the CCI has increasingly served notices and heard parties, inconsistent practices create unfairness and delays. Uniform amendments are needed to ensure equal opportunities for all parties, and to enhance procedural efficiency and fairness.
The CCI prioritizes remedies over blocking transactions with AAEC concerns, tailoring solutions on a case-to-case basis, as seen in Metso/Outotec, where site visits were conducted to understand business activities. It prefers structural remedies for significant horizontal overlaps and engages in detailed discussions to ensure remedies address competitive harm effectively.
Despite being a commendable attempt at process optimization and conducive business environment development, lack of clear guidance on some key concepts like overlap complementarity has created confusion. This has hindered business from embracing the GCR entirely and threatens the objective of easing the process of merger approval. Further, the lack of well-defined timelines for the decision of applications adds to the delays, leaving corporations in a state of uncertainty for a longer period, which may further negatively affect their strategic investments and operational activities.
IV. Concluding Remarks
Correcting these shortcomings requires the CCI to review and strengthen its regulatory regime. The CCI can provide greater clarity and certainty to businesses by providing clear and consistent guidelines for overlap assessment and other critical parameters. Introducing time-bound application processing will improve the speed of decision-making while reducing economic and operational burdens that businesses have to face in the waiting period. Reviewing stringent regulations, including gun-jumping penalties and opportunities for post-transaction review, may also help in the creation of a more flexible and balanced regulatory environment. These reforms would then enable the CCI to effectively make the GCR more potent and simultaneously reinforce its role in developing a competitive and growth-oriented business environment.
Note: This article has been reviewed by Mr. Steve Levitsky (Merger Clearance and Antitrust Counseling, Manhattan, New York, United States) at the Tier II Stage.