The approval from the fair trade watchdog paves the way for Deepak Fertilizers to make an open offer to acquire further 26 per cent stake in Mangalore Chemicals and Fertilisers Ltd (MCFL).
CCI said the deal "is not likely to have appreciable adverse effect on competition in India".
Under the deal, Deepak Fertilizers' subsidiary SCM Soilfert would acquire up to 26 per cent shareholding in MCFL through an open offer in addition to 0.8 per cent stake buy through open market. MCFL is part of Vijay Mallya's UB Group.
CCI approval pertains to both transactions.
"It is observed that in the chemicals segment, the product portfolios of MCFL and DFPCL (Deepak Fertilizers and Petrochemicals Corporation Ltd) are different as the chemical products of MCFL are not substitutable with those of DFPCL and vice versa," CCI said in an order dated July 30, but made public today.
Noting that the overlap between the two companies was restricted to the fertiliser segment, CCI also observed that Deepak Fertilizer did not manufacture urea while MCFL's share in that market was "minimal".
"Further, it is also noted that with respect to almost all their overlapping fertiliser products, the parties' presence is through trading only," the order said.
Deepak Fertilizers as well as Zuari are looking to takeover MCFL.
Capital market regulator Sebi, which had given its go-ahead to the proposed stake purchase by Deepak Fertilizer and Zuari Group in MCFL, had also ruled that their respective open offers can commence only after CCI nod.
Zuari Group is also in the race to buy additional 26 per cent stake in MCFL and CCI order in this regard is awaited.
Either of the two open offers can start only within 12 working days from receiving CCI approval for the second deal.
The battle for MCFL between Deepak Fertilizers and Zuari Group was triggered in April 2013 when the latter bought about 10 per cent stake in Vijay Mallya firm through open market.
Later, Deepak Fertilizers acquired 24.46 per cent stake in MCFL in July 2013. Then, Zuari group increased its stake to 16.43 per cent in the same month.
Earlier this year, Deepak Fertilizers further hiked its shareholding in MCFL to 25.31 per cent -- thereby triggering the mandatory open offer clause under Sebi norms.
In May, UB Group joined hands with the Zuari to ward off a hostile takeover bid by Deepak Fertilizers for MCFL.
Since Saroj Poddar-led Zuari group along with UB Group is looking to purchase 26 per cent in MCFL, they have to make an open offer under Sebi rules.