The Competition (Amendment) Bill, 2023, passed by the Indian Parliament on 3 April 2023, is set to introduce a number of key changes to streamline the Competition Commission of India’s merger review process. These key changes include introduction of deal value thresholds, codification of the standard of ‘control’, shortened review timelines for the CCI, and relaxations for the notification of open market purchases to the CCI.
Deal Value Thresholds
Currently, the Indian competition law regime only prescribes asset and turnover based thresholds and if either test is met (and no exemption is available), a notification is required. The Bill proposes the introduction of an additional threshold, requiring notification of transactions with a deal value in excess of INR 2,000 crore,where either party has “substantial business operations in India”. What will qualify as “substantial business operations in India” is set to be prescribed in regulations that will be issued by the CCI.
This change stems from the CCI’s inability to review a number of transactions in the digital and infrastructure sectors which are not notifiable, as the assets and / or turnover value are below the jurisdictional thresholds.
It remains to be seen what test is adopted by the CCI for assessing “substantial business operations in India”. If the net is cast too wide, it may lead to a flood of additional transactions having to be notified to the CCI. Given that the proposed deal value thresholds are fairly low, it also remains to be seen how the CCI will seek to define the deal value, especially since consideration of the transactions may be structured in multiple ways.
Quotes
- Shweta Shroff Chopra, Partner
“The introduction of deal value thresholds is one of the most important changes proposed under the Bill. It stems from the CCI’s inability so far to review a number of transactions in the digital and infrastructure space (including killer acquisitions) which were not reportable, as the assets and / or turnover value were below the de minimis target exemption thresholds. While this change will increase the CCI’s merger review jurisdiction, a lot will depend on how the CCI determines ‘substantial local nexus’ for the target.”
- Gauri Chhabra, Partner
“India will join a growing number of jurisdictions proposing to introduce deal value thresholds in their merger control framework. If introduced, parties will need to be very mindful while assessing notifiability requirements in India as potentially even foreign to foreign transactions (with a presence / subsidiaries in India) could be caught.”
Open Market Purchases
In India, no notifiable transaction can be consummated, wholly or partly, prior to the CCI’s approval. In the past, this suspensory regime has created hurdles for transactions involving open market purchases. As such acquisitions must be undertaken instantaneously and without prior disclosure to the public and given the price sensitivity, the requirements to notify the CCI and defer consummation till approval could render the transaction commercially unviable. In the past, there have been several gun jumping cases owing to the parties’ inability to defer the consummation of open market purchases.
Recognising these difficulties, in a welcome move, the Bill relaxes the timeline to notify open-market purchases and allows parties to notify a transaction after completing the purchase (the CCI is yet to notify the timelines for the notification through regulations). However, the acquirer will not be allowed to exercise any ownership or beneficial rights or interest in such securities, including voting rights and receipt of dividend or any other distributions, till the CCI approves the acquisition. This change will enable parties to complete open-market purchases, along with a timely notification to the CCI and alleviate gun-jumping risks.
While the change has been described as a welcome change, it remains to be seen what degree of relief the CCI’s upcoming regulations will provide to stakeholders.
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Naval Chopra, Partner
“In the past, the suspensory regime has created hurdles for transactions involving open market purchases / stock market acquisitions, and has even been the subject of gun jumping fines. Many investors will breathe a sigh of relief once the change for open market purchases is introduced”.
Revised Timelines
The CCI will now have an overall 150 calendar days to complete their review of a transaction, significantly reduced from the earlier 210 calendar days review period. Though welcome, the tighter deadline will put more pressure on the CCI and parties in complex cases, and heighten the risk of invalidation of filings.
The shortened review timeline means that substantive pre-filing consultations and early engagement with the CCI case team will be critical for avoiding invalidations and other timing issues, especially on global deals where coordinating approval timelines across jurisdictions is critical.
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Aparna Mehra, Partner
“The shortened review timeline means that substantive pre-filing consultations and early engagement with the CCI case team will be critical for avoiding invalidations and other timing issues, especially on global deals where any delays in the CCI’s approval process can derail the overall timelines”.
Control
The standard of ‘control’ is often critical in determining whether a transaction will have to be notified. Over time, the CCI has shifted from the test of exercising ‘decisive influence’ to the lower standard of ‘material influence’ over the management, affairs or strategic commercial decisions of an enterprise. The Bill proposes to codify the lowest standard of control, i.e., “material influence”, without reference to the matrix of factors which need to be assessed in determining how this standard is satisfied.
As such, while the amendment endeavours to provide clarity on the scope of ‘control’, there remains continued ambiguity in the scope of material influence and how it is to be interpreted in different circumstances. The CCI could provide guidance through regulations on this aspect.
