INDIA’S NEW MERGER CONTROL REGIME: ALIGNING WITH GLOBAL STANDARDS BY - RITU AMARNARAYAN & ANAND GEO
INDIA’S NEW MERGER CONTROL REGIME: ALIGNING WITH GLOBAL STANDARDS
AUTHORED BY - RITU
AMARNARAYAN & ANAND GEO
A.
Introduction
The Government of India
has notified several provisions of the Competition Amendment Act 2023 (the “Amendment
Act”) concerning merger control, along with the related rules. Additionally,
they have published the Competition Commission of India (Combinations)
Regulations, 2024 (“Revised Combination Regulations”). The Amendment Act,
rules, and Revised Combination Regulations came into effect on 10th September
2024 (“Merger Control Amendments”), marking a significant overhaul of
India’s merger control regime. The aim is to streamline the process and align
it with global standards.
The Ministry of
Corporate Affairs (“MCA”) plays a crucial role in the implementation and
oversight of these Revised Combination regulations. The MCA is responsible for
drafting and notifying the regulations, ensuring they align with the broader
objectives of promoting fair competition and protecting consumer interests. The
MCA also oversees compliance and enforcement, working closely with the
Competition Commission of India (“CCI”) to monitor and address any
issues that arise during the implementation phase.
The Revised Combination
Regulations have an overriding effect on all other regulations filed under the
Competition Act in matters relating to combinations. Initially, the amendment
proposed that both the acquiring and target companies must have substantial
business operations in India. However, based on recommendations from a
parliamentary panel, this requirement was refined to apply only to the target
entity[1].
B.
Key
Amendments and Changes
1.
Deal
Value Threshold
One of the most
significant changes in the Revised Combination Regulations, is the introduction
of a Deal Value Threshold (“DVT”). Transactions where the global deal
value exceeds ?2,000 crore (approximately $240 million) and the target company
has substantial business operations in India will now need to be notified and
require prior approval from the CCI[2]. If a transaction meets
both these criteria, it will not be eligible for the target-based exemption.
Transactions signed
before September 10, 2024, but not fully consummated by this date, will need to
be reassessed for the applicability of the DVT. If a transaction requires
notification, it must immediately observe standstill obligations (including at
a global level) until CCI approval is obtained, or it will attract penalties
for gun jumping. This amendment aligns India’s regulations with those of other
major economies, such as the United States and Germany, and aims to address
potential gaps left by traditional asset or turnover-based thresholds,
particularly in the context of digital markets[3].
In addition to the DVT
provision, the MCA has introduced new rules under the Competition (Minimum
Value of Assets or Turnover) Rules, 2024 (“Asset and Turnover Rules”).
These rules provide a safe harbour for certain combinations, exempting
transactions from CCI approval if the involved enterprise has assets less than
?450 crore and a turnover of less than ?1,250 crore. This threshold aims to
reduce the regulatory burden on smaller transactions that are unlikely to raise
anti-competitive concerns.
2.
Computing
the Value of the Transaction for DVT
The Revised Combination
Regulations state that the value of a transaction must include every valuable
consideration, whether direct or indirect, current or future, including but not
limited to any separately agreed consideration on account of any undertaking or
restriction imposed on any party (including, for example, non-compete fees).
3.
Determination
of “Substantial Business Operations in India”
Under the Revised
Combination Regulations, a target entity is considered to have “substantial
business operations in India” if it meets any of the following criteria:
·
Gross
Merchandise Value (“GMV”): The target’s GMV in India, in the twelve
months preceding the trigger event, is 10% or more of its global
GMV and exceeds INR 5 billion (approximately USD 60 million).
·
Turnover:
The target’s turnover in India, in the preceding financial year, is 10% or more
of its global turnover and exceeds INR 5 billion (approximately USD
60 million).
·
Digital
Services: Specifically for digital services, the target meets any of the
following conditions:
o
10%
or more of the target’s business users or end users are in India.
o
The
target’s GMV in India, in the twelve months preceding the trigger event, is 10%
or more of its global GMV.
o
The
target’s turnover in India, in the preceding financial year, is 10% or more of
its global turnover.
Further, the definition
of ‘digital service’ is broad and encompasses the provision of a service, one
or more pieces of digital content, or any other activity conducted via the
internet, with or without consideration, to end users or business users. This
is calculated based on the average number of such users over the past year
preceding the trigger event.
4.
Acquisitions
in the Ordinary Course of Business
This pertains to the acquisition
of shares within the ‘Ordinary Course of Business’ (“OCB”).
Historically, the Competition Commission of India (CCI) has interpreted OCB to
mean “revenue transactions conducted solely with the intent to benefit from
short-term price movements of securities.” However, the explanation to Rule 1
now restricts the application of OCB to the acquisition of shares or voting
rights exclusively by underwriters, stockbrokers, and mutual funds.
This exemption is
applicable provided that the acquirer does not exceed the specified thresholds
of shares or voting rights, as outlined below:
·
Acquisition
of unsubscribed shares as an underwriter: Less than 25%
·
Acquisition
of shares as a stockbroker: Less than 25%
·
Acquisition
of shares as a mutual fund: Less than 10%
This refined definition
ensures that only specific entities can benefit from the OCB exemption,
maintaining a clear regulatory framework.
5.
De
Minimis Rules
The De Minimis Rules
formalize the existing de minimis thresholds as outlined in the MCA’s
notification dated 7 March, 2024 (De Minimis Notification). These rules
stipulate that a transaction does not require prior approval from CCI if the
target entity has either:
·
Assets
not exceeding INR 4.5 billion (approximately USD 54 million) in India, or
·
Turnover
not exceeding INR 12.5 billion (approximately USD 150 million) in India.
Unlike the De Minimis
Notification, the De Minimis Rules do not have an expiration date. Therefore,
unless these rules are amended or revoked, they will remain in force indefinitely.
6.
Exemption
for Categories of Combinations
The Exemption Rules
exempt certain categories of combinations from mandatory pre-notification
requirements, replacing the previous exemptions provided in the former CCI
(Procedure in regard to the transaction of business relating to combinations)
Regulations, 2011. The Exemption Rules are not significantly different from the
draft exemption rules released by the CCI earlier in March 2024. They also
propose a uniform test of ‘change in control,’ which refers to a change along
the spectrum of control. Similar to the DVT, transactions signed before
September 10, 2024, but not fully consummated by this date, will need to be
reassessed for the applicability of exemptions under the Exemption Rules. These
comprehensive changes are designed to modernize and streamline India’s merger
control regime, ensuring it remains robust and effective in a rapidly evolving
global market.
7.
Reduced
Review Timeline
The CCI has reduced the
timeline for merger reviews from 210 days to 150 days. This change aims to
expedite the approval process, reducing delays and making it more efficient for
businesses to complete their transactions[4].
8.
Exemption
from Standstill Obligations
The Revised Combination
Regulations provide exemptions from standstill obligations for open offers
triggered by the acquisition of a controlling stake through stock exchange
transactions. This amendment aims to make acquisition transactions more viable
by allowing parts of the deal to proceed before receiving CCI approval.
C.
Impact
on Businesses
These amendments are
expected to enhance the efficiency and effectiveness of the merger control
process in India. By reducing the review timeline and introducing a DVT, the
CCI aims to create a more business-friendly regulatory environment aligned with
international practices. The exemption from standstill obligations is
particularly beneficial for companies involved in stock exchange transactions,
as it allows them to proceed with certain aspects of the deal without waiting
for full regulatory approval.
D.
Conclusion
The Revised Combination
Regulations, represent a significant step forward in modernizing India’s merger
control regime. These changes are expected to foster a more competitive and
efficient market environment, benefiting both businesses and consumers. The
introduction of the DVT of Rs. 2000 crores for companies with substantial
business operations in India brings the CCI on par with global regulators like
those in the US, Germany, and Austria. However, the details will be crucial in
relation to enabling the regulations and the need for the CCI to enhance its
capacity to maintain its efficient track record of clearing M&A deals will
be key to ensuring that ease of doing business remains unaffected.
This may further impact
deals that are yet to be signed on or after 10th September, requiring them to
re-examine their reportability status to the CCI. However, deals that have
already been closed will not be impacted under the gun-jumping provision,
including those of the tranched deals. That said, in the case of multi-step or
tranched deals, you may still have to file with the CCI if the pending steps,
including the closed steps, attract the DVT. Along with this, the MCA has also
notified several other provisions around the Assets and Turnover Rules, as well
as the criteria for combinations.
[1] Trilegal, New Era for Indian
Merger Control Begins on 10 September 2024, 10 September 2024,
[2] Business Line, Centre expands
CCI’s deal scrutiny window via new ‘deal value threshold’ provision, 9
September 2024, Centre
expands CCI’s deal scrutiny window via new ‘deal value threshold’ provision -
The Hindu BusinessLine
[3] Business Today, Deal value
threshold for high-value acquisitions comes into force: major overhaul of CCI's
regime, 10Spetember 2024, Deal
value threshold for high-value acquisitions comes into force: major overhaul of
CCI's regime - BusinessToday
[4] Lexology, India's Merger Control
Regime Gets A Major Overhaul, 10 September 2024, India's
Merger Control Regime Gets A Major Overhaul - Lexology