Global mergers and acquisitions are set to come under the scrutiny of the Competition Commission of India (CCI) if the parties meet a specified customer base in India that the antitrust regulator will specify after public consultations, CCI chairperson Ashok Kumar Gupta said in an interview. Specifying a customer base in India for scrutinizing global transactions relevant to the Indian market is part of the government’s efforts to revamp competition regulation in a digital economy. In his first interview after the tabling of the Competition (Amendment) Bill in Parliament last week, Gupta explained how the proposed merger regulations, revamped leniency provisions and a ‘settlement and commitment’ scheme will change the regulatory landscape for businesses. Edited excerpts:
What are the goals of amending the Competition Act?
The bill’s scope is broad in terms of procedural and substantive amendments. It proposes broadening the scope of anti-competitive agreements, including facilitators of certain anti-competitive agreements within the framework of the law. It also reduces the time limit for approval of mergers and acquisitions and introduces the deal value threshold as an additional criterion for compulsory notification of mergers and acquisitions to CCI. The bill provides a limitation period for filing cases in addition to introducing a framework of settlement and commitment. It broadens and deepens the scope of inter-regulatory consultations and incentivizes parties in an ongoing cartel investigation in terms of lesser penalty to disclose information regarding other cartels (enhanced leniency provision). Overall, the thrust of the bill is to facilitate ease of doing business by providing regulatory certainty, a framework for a faster market correction and a trust-based business environment.
The bill introduces the ‘deal value threshold’ as an additional criterion for notifying M&As to CCI for approval. Why was this needed?
The bill introduces ‘value of transaction’ as another criterion for notifying M&As to CCI. If the value of any transaction or ‘deal value’ in the acquisition of any control, shares, voting rights, etc., exceeds ₹2,000 crore, it would require filing before CCI, provided that the target has substantial business operations in India, which may be specified through regulations. The provision is agnostic in nature and is not specifically directed at acquisitions in the digital ecosystem.
This proposal has its genesis in the recommendations of the Competition Law Review Committee (CLRC) that gave its report in 2019, where it was discussed that most acquisitions in digital markets derive value from data or some business innovation held by the target. In such acquisitions, the target may not have a huge asset base and may be offering products/services that are either free or generate insignificant turnover. This may be because the business model of companies in digital markets often does not generate significant revenue for a number of years, focusing initially on user growth. In such instances, the value of the target’s sales is a rather poor indicator of the transaction’s significance for competition. Thus, the traditional metrics of assets and turnover may not be adequate for capturing transactions in the digital ecosystem. Also, unlike many other jurisdictions, in India, unless the notification thresholds are met, CCI has no power to assess transactions, even if their potential competitive harm is evident.
Keeping the above in mind, the bill introduces the ‘value of transaction’ as another criterion for notifying mergers and acquisitions to CCI. No doubt, any new threshold must account for clear and objectively quantifiable standards for local nexus criteria. This will ensure that only those transactions with a significant economic link to India are caught by the threshold, and neither CCI nor the parties are burdened with unnecessary notifications. We will provide this clarity and certainty through regulations. Addressing competition concerns at the merger stage itself in such transactions will give certainty to stakeholders and ensure markets remain competitive and contestable.
How will you define ‘substantial business operations in India?
We will frame regulations very carefully. The current merger regulation criteria based on assets and turnover are very clear, but it deals primarily with traditional markets. In new age markets, assets and turnover, as recorded in the financial statements, may not reflect the complete market strength of the target. Think of entities having vast customer reach but with few assets in India, say WhatsApp. (Purchased by Facebook–now called Meta Platforms Inc.–in 2014 for $16 billion.) The idea of introducing deal value is to review transactions that meet the proposed valuation threshold of ₹2000 crore and also have substantial operations in India. For instance, the regulations may define substantial Indian operations based on market-facing factors such as the number of users or contracts etc., in India. If they do not have that kind of nexus in India, then they will not be covered under this provision. Let me add that these are some tentative thoughts, and a final view will emerge after intensive internal deliberations and public consultations. We would only want major transactions relevant to India to be notified and not be flooded by transactions not relevant to the Indian market. We are cognizant that benefits from any additional prescription should outweigh the regulatory burden. Public policy is always a balancing act. There will be public consultation on these regulations. We will start the consultation process once Parliament approves the bill.
How will the proposed ’commitment and settlement’ scheme work?
In recent years, many competition authorities have been granted the power to accept remedies from parties to an antitrust proceeding. The terminology and form of such negotiated remedies may vary from jurisdiction to jurisdiction – some refer to them as commitment decisions, others as settlement or consent orders.
While CCI has been empowered to grant leniency subject to riders in cartel cases under the existing framework, the Competition Act does not expressly recognize settlements or commitments. CLRC deliberated if there is a need to amend the law to empower CCI to pass settlement or commitment decisions or both. The committee considered the advantages of such negotiated remedies and agreed that procedural economy and efficiency of enforcement actions are driving factors for recognizing settlements and commitments in the Competition Act. Such mechanisms are likely to enable CCI to resolve antitrust cases faster and free up its scarce resources. Also, businesses can avoid long investigations and uncertainty.
The bill seeks to introduce a ‘settlement and commitment’ framework to reduce litigation. The settlement mechanism would apply to alleged contraventions related to certain anti-competitive agreements and abuse of dominance. An application for settlement may be filed only after receipt of the investigation report but prior to such time as may be prescribed by regulations, before the passing of the final order by the CCI. CCI may impose certain conditions, which may include a settlement amount. The bill also empowers CCI to accept commitments to address anti-competitive concerns raised. As envisaged in the bill, an application for commitment may only be submitted after an inquiry has been initiated by CCI, but within such time as may be prescribed by regulations, prior to the receipt of the investigation report by the party concerned.
The existing statutory framework already provides for lesser penalties for cartels in case of self-reporting. Thus, the commitment and settlement mechanism for certain anti-competitive agreements—that is, anti-competitive agreements other than cartels and abuse of dominance–would make the law holistic in providing trust-based solutions.