The Competition Commission of India (CCI) has taken a significant step towards modernising its merger control regulations. In an effort to capture high-profile mergers and acquisitions, particularly those that go unreported in the digital industry, the CCI has unveiled draft regulations that redefine the criteria for reporting such transactions.
Under these draft regulations, stakeholders and the public have until September 25 to provide feedback. The key focus is on determining the India nexus or significant business operations (SBO) in India that would trigger mandatory reporting to the CCI.
This development follows recent amendments to the Competition Act earlier this year, which established a ₹2,000 crore transaction value threshold, requiring CCI approval for deals above this limit. The aim was to address high-value offshore digital transactions that did not involve substantial assets or turnovers. A notable example was Facebook’s acquisition of WhatsApp, a multi-billion-dollar deal that fell below CCI’s merger notification threshold for traditional companies.
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Many digital transactions, especially those involving Big Tech companies, often lack significant assets or turnovers but are characterised by high valuations. Until now, these transactions remained outside the purview of CCI’s merger control.
To determine SBO in India, the CCI’s draft regulations outline three key criteria: the number of users, subscribers, customers, or visitors; gross merchandise value; and turnover. If any of these criteria exceed 10 per cent of the global figures during the twelve months preceding the relevant date, the transaction is considered to have SBO in India, necessitating merger control reporting.
This move aligns with global trends in addressing enforcement gaps in the digital industry, where transactions may involve substantial valuations but lack traditional markers of size like assets or turnover.
The release of these draft regulations follows the CCI’s issuance of draft regulations for settlement and commitment, indicating a comprehensive effort to modernise and adapt to the evolving landscape of digital mergers and acquisitions.
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Saksham Malik, Programme Manager, The Dialogue, a tech policy think-tank, said that draft regulations are a step in establishing a new-age merger control regime in India. The regulations can be strengthened by meaningful incorporation of the analysis and inputs that the industry as well as the legal and policy community will provide to its comments over the next 21 days, Malik added.
Deal value threshold was introduced with the intention of ensuring the transactions that were not notifiable to the commission earlier, especially in digital markets, can now be assessed by it. The draft regulations aim to expand on this by providing a broad and non-exhaustive list of considerations that can be included in the calculation of the deal value, Malik said.
Further, for a transaction to fall within the scope of the new threshold, the target entity needs to have a substantial business operations in India, the meaning of which is now included in the draft regulations, he noted.
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Nisha Kaur Uberoi, Partner and National Head—Competition, Trilegal, said that the draft merger regulations bring much awaited pro-business relief—be it the introduction of standstill obligations for takeovers, shortened merger review timelines and introduction of hearings at any stage of merger proceedings.
The introduction of the deal value thresholds and clarification on applicability of substantial business operations will enhance the caseload at the CCI and need immediate resourcing to be able to ensure continuing efficiency and efficacy of M&A timelines, she added.
However, the introduction of stringent notification requirements for Form -2 where any market exceeds stipulated thresholds, enhanced filing fees by 50 per cent and specified formats for modifications which lean towards divestitures will create additional burden on industry, she said
Samir Gandhi, Co founder & Partner, Axiom5 Law Chambers, said that the draft merger regulations published by the CCI are aimed at providing much needed clarity on the definition of “value of transaction” and “substantial business operations” in India, amongst other things.
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While the regulations are a good beginning, there is some room for further fine tuning.
While the description of “substantial business operations” is useful, there is some room for further discussion around how India-specific turnover is to be computed in digital markets, or how user or visitor numbers are to be computed, he said. This is essential as the SBO definition will apply across sectors and is not limited to technology companies alone, he added.
“We’re hopeful that the CCI consultations will provide stakeholders the much needed opportunity to address some of these issues”, Gandhi said.