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Corporate Affairs Ministry (MCA) is set to firm up the rules to operationalise critical provisions of the Competition (Amendment) Act 2023, which has been the most comprehensive overhaul of the existing competition law since its original enactment in 2002.
With these rules, the much awaited provisions relating to “deal value threshold” for notifying M&As, green channel route and de-minimis exemptions will come into effect.
MCA is likely to float the draft rules on these areas for public consultations in July first week and final notification of rules is likely to take place by mid-August, sources said.
The Competition (Amendment) Act 2023 — which was introduced in Lok Sabha on August 5 last year—got Presidential assent on April 11 this year. Several provisions of this Act were put into effect from May 18.
One of the major substantive provisions that has come into effect on May 18 include, hub and spoke cartels, which cover hybrid anti-competitive agreements and facilitators/ non-participants who had ‘intended to participate’ in the cartel.
Deal value threshold
The provision of “deal value threshold” in the Competition (Amendment) Act 2023 targets offshore digital transaction of high valuation and states that any deal that has a value of more than ₹2,000 crores (about $242 million) needs to get an approval of Competition Commission of India (CCI) before heading towards the combination.
This deal value threshold provision is expected to have the most impact on high profile transactions in the evolving digital industry, as well as new age enterprises involved in M&A transactions.
Industry is keenly awaiting the norms on how the parameters and perimeters on which “India nexus” will be determined.
Many digital business transactions, especially the big tech’s offshore ones, do not involve large assets or turnover but were consummated with high valuations. These deals did not, until now, fall under the CCI lens as part of merger control, although the companies involved in the transaction had substantial business interests in India. They had not come under CCI scrutiny as the merger control criteria in the existing competition law were based on “assets” and “turnover” thresholds. It did not cover deal values as a criteria for M&A notification to CCI.
Also read: Centre notifies Competition (amendment) Act, withholds stringent penalty norms
Now that the situation has changed with the introduction of value of transaction threshold. Under the “value of transactions” threshold criteria, companies looking to acquire control, shares, voting rights, etc., must seek CCI approval if the value of transaction exceeds ₹2,000 crore.
Indications are that the rules being framed by MCA will also spell out a formula for revision of the threshold.
It maybe recalled that the Standing Committee on Finance headed by Jayant Sinha had recommended periodic revision of the basic deal value threshold of ₹2,000 crore and its indexation to inflation.
Green channel route
Green channel route is already in vogue as a procedure, but now the Competition (Amendment) Act, 2023, has formally included this route to the Competition Act.
The introduction of the ‘Green Channel Route’ in law is another step forward in the ‘Ease of Doing Business’ initiative of the Government.
Where there is a merger or acquisition and there is no horizontal, vertical, or complementary overlap between the companies, then deemed approval can be given on the same day the application is filed.
Also read: 25% of filings made to CCI are via Green Channel route: Sangeeta Verma
Under ‘green channel’ route, certain combinations (M&A) would be eligible for deemed approval in a trust-based framework.
De-minimis exemption
The de minimis or small target exemption is an absolute exemption available to transactions where the asset value in India does not exceed ₹350 crore or the revenue from India does not exceed ₹1,000 crore.
Indications are that MCA would issue rules to specify that the de-minimis exemption will not be available where the deal value threshold is breached.
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