An additional criterion in mergers and acquisitions (M&As) may require digital businesses to secure approval from the Competition Commission of India (CCI), the anti-trust regulator.
The government is set to introduce a minimum threshold “transaction value” of Rs 2,000 crore (around $250 million) for any deal as a criterion for notification to the anti-trust regulator if the entity being acquired has substantial operations in India.
The new criterion is learnt to be part of the proposed amendments to the two-decade-old Competition law, which is expected to be tabled in the ongoing monsoon session of Parliament.
At present, companies in the process of M&A must seek the CCI’s approval in relation to asset size and turnover, as defined in the Competition Act. Deals at enterprise level require regulatory approval if the asset size is over Rs 2,000 crore or the turnover is above Rs 6,000 crore. In the case of group level, it should be above Rs 8,000 crore (asset size) and Rs 24,000 crore (turnover), respectively.
The CCI at present provides exemption if the target entity had assets worth less than Rs 350 crore or a turnover less than Rs 1,000 crore in the financial year prior to merger or acquisition. The transaction/deal value being proposed as a new criterion in addition to the existing ones will be applicable to deals in both the digital and non-digital space.
The amendments, if they are cleared, will cover deals in the digital space, which is usually exempt from notification to the CCI on account of low assets and turnover even if the deal size is large.
Several important deals in the digital space, like Facebook-WhatsApp ($22 billion), FB-Instagram ($1 billion), Microsoft-LinkedIn ($26.2 billion), have escaped CCI scrutiny due to current regulations.
ADDING FLEXIBILITY
- Changes to certain definitions such as ‘relevant product market’, ‘group’, ‘control’, ‘enterprise’ to provide clarity
- Broadening scope of anti-competitive agreement to curb hub-and-spoke cartels
- Reducing time limit for merger approval to 150 days
- Introducing ‘value of transactions’ as an additional criterion for notifying CCI
- 25% of penalty amount — imposed by the CCI for an appeal to be admitted in NCLAT — to be deposited
“This is the most significant proposal because it will likely result in M&As in the digital economy to be notified to the CCI. M&As in the digital space often escaped scrutiny by the CCI as the value of assets and turnover of the target were below the de minimis exemption thresholds,” said Akshay S Nanda, partner, competition and data protection, Saraf and Partners.
Nanda said the new rule would be applicable if a party to the transaction had substantial operations in India. What substantial operations are will be determined through regulation by the antitrust regulator.
The government may widen the scope of anti-competitive agreements to include a party that facilitates an anti-competitive horizontal agreement (cartel agreement). Essentially any third-party entity that facilitates a cartel can be penalised under the competition laws.
This is primarily to punish hub-and-spoke cartels. The competition law prohibits anti-competitive agreements of two types: Between competitors and between enterprises situated at different levels of production and distribution chain. There was no provision in the law to punish hub-and-spoke cartels.
“On the enforcement front, there could be a settlement procedure in non-cartel cases like abuse of dominance and vertical restraint and introduction of a ‘leniency plus’ policy allowing an enterprise which files for leniency in one cartel and also helps in discovering a new/separate cartel to receive a reduction in penalty for both the existing and newly discovered cartels,” said Vaibhav Choukse, partner & head of competition law practice, JSA.
The government may propose reducing the overall timeline for approving merger deals to 150 days from 210 days now, while reducing the timeline for companies for notifying deals with CCI to 20 days from the current 30 days.
Some changes in the settlement and commitments provisions for parties undergoing investigation could also be part of the amendments. Parties can make offers to the CCI to settle the matter or commitments to address the anti-competitive or abusive conduct to close the investigation.
Besides, for any appeal before the appellate tribunal, i.e, NCLAT – the appellant needs to deposit 25 per cent of the penalty imposed by the CCI for the appeal to be admitted and heard.
The centre may also set a limitation period for the regulator. It may suggest that CCI shall not entertain any information or reference (complaint) beyond the period of three years from the date of cause of action. However, the CCI may condone the delay if it is satisfied with the reasons given by the parties.
This apart, there could be an increase in the penalty for making false statements or omissions to furnish material information to the CCI from Rs one crore to Rs five crores.
