The ₹2,000 crore transaction value threshold spelt out in the proposed amendments to Section 5—beyond which CCI prior approval is proposed to be mandated—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, said competition law experts.
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 have 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.
Now that situation will change with the proposed introduction of a new “value of transaction” threshold, said experts.
Under the “value of transaction” threshold criteria, companies looking to acquire control, shares, voting rights, etc. must seek the Competition Commission’s approval if the value of the transaction exceeds ₹2,000 crore.
Shweta Shroff Chopra, Partner, Competition Law, Shardul Amarchand Mangaldas & Co, said that the introduction of the deal value threshold is one of the most important changes proposed under the Bill.
“This change likely stems from the CCI’s inability so far to review a number of transactions in the digital and infrastructure space which were not reportable, as the assets and/or turnover value were below the deminimis 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,” Chopra said.
Anisha Chand, Partner, Khaitan & Co., said this proposed criteria on transaction value will give wider powers to CCI to look at transactions that were escaping scrutiny. “This will result in a higher number of transactions requiring prior approval from CCI, especially in the digital tech space where transaction values are enormous than the actual revenues the company may be generating,” she said.
Ritika Ganju, Partner, Phoenix Legal, said that the objective of the “deal value” criteria is for enabling the CCI to assess those transactions, which are significant but non-notifiable under the present merger control provisions.
Most jurisdictions have recognised an “enforcement gap” when it comes to high-profile transactions in the evolving digital industry, which may not have large sized assets or turnover but substantial valuation.
Other sweeping changes
On the anvil is the introduction of settlement and commitment mechanisms in cases of investigation in relation to anti-competitive agreements and abuse of dominance. This will help in the early closure of investigations and help reduce litigation, said Pritika Kumar, Founder of Cornellia Chambers.
Besides broadening the scope of anti-competitive agreements, the bill also seeks to speed up approvals of M&As and reduce litigation.
The Bill provides for the reduction of the time-limit for approval of combinations from two hundred and ten days to one hundred and fifty days and for the forming of a prima facie opinion by the Commission within twenty days for the expeditious approval of combinations.
Also, the Bill proposes the introduction of a limitation period of three years for filing information on anti-competitive agreements and abuses of dominant position before the Commission.
The Bill proposes to incentivise parties in an ongoing cartel investigation in terms of a lesser penalty for disclosing information regarding other cartels.
August 05, 2022