Jurisdiction - India
India – The Need to ‘Remedy’ Merger Remedies.

17 March, 2015


Mergers between corporations are primarily motivated by the desire to recognize synergies from complementary business interests that enhance their ability to compete in the market. Competition authorities world over undertake a careful juggling act to preserve the efficiencies that could arise from a merger and protect the consumer from anti-competitive harm. The Competition Commission of India (‘CCI’) tests merger activity of a certain size that is notified under the Competition Act, 2002 (‘Act’) for its ability to cause an appreciable adverse effect on competition (‘AAEC’) on the relevant market(s) in India. A finding of AAEC could prompt CCI to either prohibit the merger, or allow its implementation subject to certain conditions/ modifications, commonly known as ‘merger remedies’. This article examines the manner of formulation and implementation of structural remedies within the regulatory framework in India.

The AAEC test is an economic assessment of the competitive effects of a combination (merger/ acquisition/ amalgamation), including factors such as the existence of barriers to entry, countervailing buying power, efficiencies generated by the transaction, and the level of effective competition that will likely remain in the market. The first three years of merger control in India have seen the unconditional approval of close to 200 transactions, but it was only in December 2014, that CCI ‘conditionally’ approved a combination subject to the acceptance of a substantive remedies package by the parties1 in the matter of acquisition of Ranbaxy Laboratories by Sun Pharmaceuticals (‘Sun/Ranbaxy’). This is in sharp contrast to, for instance, the European Commission, which between 1990 and January 2015, has cleared 352 mergers subject to commitments, of which 245 transactions were cleared in Phase I, and the remaining 107 in Phase II. 2

Merger remedies aim to prevent competitive harm while encouraging benefits such as efficiencies, cost reduction and innovation that are likely to arise from a transaction. Remedies are by definition, case-specific, and broadly speaking, depending on the competition concerns in question, are either (i) structural, i.e., some form of structural change in the form of divestitures of business assets or shareholdings to unlink competitors, access remedies and IP based remedies, or (ii) behavioral, i.e., enabling measures that adjust commercial dealings and/or control outcomes such as the imposition of price caps. While structural remedies are primarily used to restore the balance of competition in the relevant market, behavioral remedies are designed to modify or constrain the behavior of merging firms for a certain period. It is critical to ensure that any remedies package, whether structural, behavioral or both, balances the competitive efficiencies generated by the merger vis-à-vis the potential extent of consumer harm. This finds favour with CCI’s own test for determining AAEC set out above.

In India, Section 31 of the Act enables CCI to propose modifications (merger remedies) that it believes could effectively eliminate AAEC concerns. However, the Act and the attendant regulations are silent on the manner of formulation of such modifications and the parameters to gauge their suitability to resolve specific competition concerns. This is further complicated by the absence of any guidance on the levels of market concentration [in terms of market shares, Herfindahl-Hirschman Index values (‘HHI’) and concentration ratio 4 (‘CR4’) ratios] that could be viewed by the CCI as being problematic, which as a consequence pose concerns for the parties engaging in the merger.

The only substantive guidance in India with regard to structural remedies is limited to the Sun/Ranbaxy decision which required the divestment of seven overlapping medicinal formulation products (1 product from Sun Pharmaceutical Industries (‘SUN’) and 6 from Ranbaxy Laboratories (‘RL’). According to CCI, the divestment package maintains the existing level of competition in the relevant markets in India by creating viable, effective, independent and longterm competitors. CCI appears to focus its analysis on the ‘market shares’ of the merging parties and the number of competitors in each relevant market, which is similar to its approach in the Jet Etihad3 case. The Sun/Ranbaxy decision prevents parties from giving effect to the proposed combination before they entered into definitive sale and purchase agreements with specific CCI approved purchasers in respect of the divestiture assets. CCI also reserves the right to appoint a third party divestiture agency to ensure the divestiture takes place in the prescribed manner, in the event the parties fail to do so.

In particular, given this is a regime in which CCI, rather than parties, proposes modifications, there is no discussion of the procedure adopted in order to identify assets, particularly whether CCI applies the principle of proportionality in order to select the minimum set of assets that must necessarily be divested in order to resolve the competitive concerns. It also remains unclear whether the purpose of remedies under Act and the attendant regulations is to remove competition concerns or restore status quo ante, a decision that will impact the reach of the divestment, both in terms of businesses and geographies.

Both the Indian merger control regime and CCI, in the Sun/Ranbaxy decision, are also silent on certain other aspects such as the consideration of potential efficiencies that could arise from the transaction. Efficiencies in particular are critical to merger review for their ability to offset otherwise anti-competitive effects that stem from increased concentration. Regulators are particularly conscious of remedies that generate efficiencies in some relevant markets and harm others. In other cases, certain types of efficiencies could also inherently strengthen market power, but these scenarios remain unaddressed by the CCI.
Therefore, despite the Sun/Ranbaxy decision, the business community remains none the wiser about the manner of identification of assets, the post-divestment market share thresholds that were considered acceptable by CCI, and CCI’s assessment of potential corrective measures and its analysis of efficiencies arising from the combination.

Several other jurisdictions including the European Union (‘EU’), the United Kingdom and the United States of America (‘US’) have implemented guidelines on merger remedies, which provide a cogent framework for the approach of the respective agencies to the selection, design and implementation of remedies in merger inquiries, including an in-depth analysis of efficiencies. While there is no black letter threshold for the degree of market concentration that is considered permissible, Horizontal Merger guidelines adopted by both the US4 and EU5 articulate certain levels of market concentration and stipulate factors that are considered while determining whether a combination would be considered acceptable or problematic. Moreover, these principles have developed over the course of time, in the form of precedents as well. As a result, merging parties can, to a significant extent, evaluate their combined presence in the market, and if necessary, voluntarily offer binding commitments to competition regulators.

India is critical to the business community, both domestic and international, and it is imperative for a relatively new regulator to formulate rules and standards on merger remedies, similar to those adopted by more mature competition law jurisdictions. In this context, given the lack of guidance on the aspect of permissible levels of market concentration levels in India, it would be beneficial for the CCI to explicitly allow itself to be guided by the tests evolved in these jurisdictions and adopt / craft similar provisions in due course. Particularly in the context of global mergers, given CCI’s tendency to track developments in other jurisdictions, this would enable parties that offer remedies elsewhere to consider voluntarily proposing upfront modifications in India.

With the recent entry into inter-agency cooperation agreements with regulators in the EU, US, Canada and Australia, CCI has already taken significant steps to bring Indian merger control regulations in line with global best practices. Guiding principles on merger remedies, with transparent parameters to measure acceptable levels of market concentration, will enable parties to offer upfront remedies to resolve potential competition concerns, and assist CCI with the effective enforcement of the Indian merger control regime.

End Notes:

1 Combination Registration Number C-2014 /05 /170 approved on 5 December 2014.

2 See: http://ec.europa.eu/competiton/mergers/statistics.pdf 

3 Combination Registration Number C-2013/05/122 approved on 13 December 2013

4 § 5.3 of the Horizontal Merger Guidelines, by the US Department of Justice and Federal Trade Commission [August 19, 2010]; Available at: http://www.justice.gov/atr/public/guidelines/hmg-2010.html#5c

5 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings. [Official Journal C 31 of 05.02.2004]; Available at: http://europa.eu/legislation_summaries/ competition/firms/l26107_en.htm


For further information, please contact:


Zia Mody, AZB & Partners
[email protected]


Abhijit Joshi, AZB & Partners 
[email protected]

Shuva Mandal, AZB & Partners 
[email protected]


Samir Gandhi, AZB & Partners
[email protected]

Percy Billimoria, AZB & Partners 
[email protected]


Aditya Bhat, AZB & Partners 
[email protected]

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