Close on the heels of Centre notifying ‘deal value threshold’ provisions under Competition law, the Competition Commission of India (CCI) has come out with comprehensive ‘Combination’ regulations to guide their implementation.
The latest regulations define specific criteria for determining an ‘India nexus’ (Substantial Business Operations in India) in relation to deal value thresholds.
From Tuesday, India requires all Mergers & Acquisitions (M&As) above ₹2,000 crore in deal value to mandatorily obtain CCI approval. This has been stipulated through the ‘deal value threshold’ provisions in competition law.
To determine SBO in India, the CCI’s regulations have now specified 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 to CCI. Also a monetary threshold of ₹500 crore has been prescribed in addition to the three specified objective criteria.
Dinoo Muthappa, Partner, AZB & Partners, said that the Government of India’s new merger regulations, which introduce the Deal Value Threshold (DVT), take effect on Tuesday without transitional relief. Any transaction valued over ₹2000 crore ($237 million) must now be notified to the CCI and placed under immediate standstill obligations.
This landmark regulatory shift, first hinted at in the 2023 Amendments to the Competition Act, 2002, impacts both signed but not closed and signed and partially closed deals, with some immunity from gun-jumping penalties, she said.
“Companies with Indian market ties must reevaluate their compliance strategies to mitigate potential legal and financial risks under this new regime”, Muthappa added.
Anshuman Sakle, Partner at Khaitan & Co, said that the first important change is that the Combination Regulations define the substantial business operations in India test for the deal value threshold. “The test appears to be reasonable and appropriate and the comments sought from stakeholders appear to have been considered and the enforced threshold appears more practical”, Sakle said.
Sakle also highlighted that the filing fee for Form I has been increased from ₹20 lakhs to ₹30 lakhs, and the fee for Form II has been increased from ₹65 lakhs to ₹90 lakhs.
Nisha Kaur Uberoi, Partner& Chair, Competition Law, JSA Advocates & Solicitors, said there are some welcome changes for industry in the Combination regulations including shorter merger review timelines, exemption from gun jumping in listed company creeping acquisitions subject to conditions and hearings available at request of the merging parties. “Given the edifice of merger control is a certainty, the combination regulations amendments will further enhance the efficacy of the CCI.
However, Uberoi added, “Given lower control thresholds and the introduction of the deal value threshold, massive capacity enhancement at the CCI will be needed, which will lead to a significant spike in notified transactions.”
Ravisekhar Nair, Partner in the Economic Laws Practice, said that the introduction of a “Deal Value Threshold” and related regulations expand the CCI’s jurisdiction to cover transactions that otherwise fall outside the traditional asset—or turnover-based thresholds for notification.
This key provision puts merger control review of ongoing and planned transactions at centre stage.
“The exclusion of the ₹500 crore monetary thresholds for Digital Services entities when determining whether they have “Substantial Business Operations” in India will have a direct bearing on transactions in the digital space. This is something the CCI is clearly interested in covering under the amended merger control provisions”, Nair added.
Other changes introduced through the multiple MCA notifications aim to streamline and clarify critical learnings from the previous 13+ years of merger enforcement by the CCI.
“The transition provision introduced under Regulation 34 of the new Combination Regulations will require transacting parties and Deal advisors to quickly assess implications of ongoing but yet to be consummated deals”, Nair added.
Shweta Shroff Chopra, Partner, Shardul Amarchand Mangaldas & Co. said that in determining the value of the transaction, the CCI will look at all forms of consideration (including share swaps, non-compete fees, call options, earn-outs, etc.) as well as include any ancillary agreements (such as technology/IP licenses, supply arrangements etc.) for a period of 2 years prior to the transaction. “If there is no reasonably certain way of determining the deal value, the Regulations require mandatory notification, if the target has substantial business operations in India. This new test will capture many more transactions within the net, as the de minimis target based exemption will not be available where the deal value threshold is met”, Chopra said.
On reduced timelines for merger review by CCI to 150 days from 210 days earlier, Chopra said “in practice however, there are significant time exclusions specified in the regulations, which may render this reduced timeframe a dead letter”.
Also, the regulations introduce the ability to pull-and-refile a notification during Phase I, which may be utilised where the CCI needs additional review time and the parties do not wish the transaction to go into a detailed investigation, she added.
Chopra also said that the transitional provisions are draconian, in that the new thresholds and exemptions apply immediately, requiring an urgent re-assessment of transactions signed/approved prior to 10 September 2024 but not yet fully consummated, as per the new rules and regulations and possible pre-approval from the CCI.
WHAT IS DEAL VALUE THRESHOLD?
The “deal value threshold” (DVT) refers to a criterion used to determine whether a merger or acquisition must be notified to CCI for review and approval.
This threshold is typically based on the total value of the transaction rather than the turnover or market share of the involved companies.
It aims to capture significant deals that might otherwise evade scrutiny under traditional “asset” or turnover-based thresholds, especially in sectors where market valuations can be very high despite lower “book value” or revenues, such as the digital and tech industries.