INDIA: An Introduction to Competition/Antitrust

New Era of Merger Control: Deal Value Threshold Enforced in India

10 September 2024 marked a new era for the merger control regime in India as several highly anticipated provisions of the Competition (Amendment) Act, 2023 along with enabling rules came into effect via five separate notifications from the Ministry of Corporate Affairs. Notably, the Competition Commission of India (CCI) also notified the CCI (Combinations) Regulations, 2024 (New Combination Regulations) and the Competition (Criteria for Exemption of Combinations) Rules, 2024 to replace the existing CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011.

Some significant changes, inter alia, include:

1. enforcement of deal value threshold (DVT);
2. revised set of exempted transactions;
3. clarity in the definition of “control” which would have an impact on PE/VC deals;
4. defined eligibility criteria for green channel route (fast-track clearance for certain combinations that do not present any competition concerns);
5. codification of a scheme of voluntary modifications wherein parties can propose certain voluntary modifications to alleviate competition concerns arising from any combinations and to not hinder the approval process; and
6. shorter merger review timelines.

Out of these, DVT has attracted considerable attention.

What is DVT?

DVT has been introduced as an additional criterion for determining the notifiability of a transaction before the CCI through the addition of Section 5(d) in the Competition Act, 2002. Jurisdictional thresholds were previously only assessed through assets and turnover to determine whether a transaction is notifiable. The notification requirement will now be triggered even if DVT is triggered. DVT is triggered if the value of any transaction in connection with the acquisition of any control, shares, voting rights or assets of an enterprise, merger or amalgamation exceeds USD240 million and the target has substantial business operations in India (SBOI). DVT will therefore only be triggered if this twin test is satisfied.

"Value of transaction"

The New Combination Regulations clarify that the “value of transaction” for DVT will include every valuable consideration, whether direct or indirect, immediate or deferred, cash or otherwise. This includes the consideration attributable to:

1. any obligation even if it is agreed to separately;
2. inter-connected transactions;
3. incidental commercial arrangements entered within two years of the closing of the notifiable transaction (such as technology assistance; licensing of IPR; usage rights of any product/service/facility; supply of raw materials or finished goods; branding; and marketing);
4. call option assuming full exercise of such option; and
5. the likelihood of any uncertain future event specified under the transaction documents as per best estimates of the acquirer. The ancillary transaction costs such as legal, statutory, regulatory fees, etc are excluded. Notably, where the value of the transaction cannot be determined with certainty, then such value as considered by the board of directors while approving the transaction or the best estimates available from the transaction documents will be considered. Further, if such estimation is also not possible, then DVT will be deemed as met and the transaction will have to be notified. DVT is therefore intended to be a catch-all provision.

SBOI

An enterprise is deemed to have SBOI if any of the following criteria are met:

1. business users or end users for digital services in India is 10% or more of the total global number of such users;
2. gross merchandise value (GMV) in the 12 months preceding the relevant date in India is 10% or more of its total global GMV. For non-digital services, the GMV must also exceed INR500 crore; and
3. turnover during the preceding financial year in India is 10% or more of its total global turnover. For non-digital services, the turnover must also exceed INR500 crore.

“Digital services” in this regard include the provision of all services or digital content or any other activity by means of the internet to the end user (who use digital services for informational or transactional purposes) or business user (who use digital services for supplying or providing goods or services), whether or not consideration is paid for the same. This further reiterates the sector-agnostic nature of DVT.

Unlike other jurisdictions where provisions similar to DVT exist such as Germany and Austria, the CCI has outlined the specific criteria for SBOI to provide clarity. However, such expansive criteria cast a wide net as determining the notifiability of a transaction is no longer limited to the traditional asset or turnover test and market presence in terms of business operations will play a key role. This also leads to a situation where deals cannot be structured to circumvent DVT as one needs to look at the actual number of users, revenue, etc for assessing SBOI.

Implications on Businesses

DVT was introduced with an intention to capture transactions in the digital technology space that escaped CCI’s scrutiny for not meeting the prescribed asset and turnover thresholds, also dubbed killer acquisitions. However, it is sector-agnostic and therefore applicable to all transactions that meet the twin test of transaction value and SBOI. This also indicates the regulators' heightened ex-ante focus on merger control to prevent any anticipatory harm.

With DVT coming into effect, transactions that are still in the execution stage must be revaluated to check if the notification requirement is triggered. Furthermore, any transactions that trigger the DVT cannot avail of the de minimis exemption as there is no carve-out.

However, warning bells do not seem necessary as CCI’s decisional practice indicates a pro-merger regime, with not a single transaction being refused approval on account of likely appreciable adverse effects on competition. The regulator has been very proactive in its approach and shows tremendous sensitivity in support of businesses, with multiple opportunities to engage in meaningful discussion to alleviate any competition concerns arising during the approval process. CCI’s party-centric intention is further cemented with the codification of the scheme of voluntary modifications.

Conclusion

The expansive criteria of DVT are likely to increase the compliance burden of parties as well as that of the CCI, especially in light of the truncated merger review timelines. However, overall the DVT is a welcome move as it reflects the legislative intention of catching up with evolving markets. It also brings India’s merger regime up to par (and even ahead) of several jurisdictions.