On September 5, the Competition Commission of India (CCI) published draft regulations that would bring significant changes in its merger control regime. These regulations, along with the recent amendments to the Competition Act, 2002, seek to introduce some helpful changes that could impact dealmaking in India.

Due to the lack of an express mechanism in the Competition Act permitting on-market purchase of shares in listed companies, the CCI ended up penalising companies for breaching the standstill requirement. The recent amendments and the proposed regulations addresses this legislative gap. Acquisition of listed shares, off an exchange, will no longer attract sanctions, if the acquirers notify the CCI within 30 days of completing the acquisition and do not “influence” the target during CCI’s review. Similarly, to make the merger control rules more business-friendly, the CCI has broadened the opportunities to offer “remedies” for addressing competition concerns in select transactions. The Act currently offers only one formal opportunity for parties to propose remedies after the CCI expresses its preliminary opinion that the transaction may be anti-competitive.

Historically, the CCI first makes a remedy proposal, followed by a counter-offer from the parties, which the CCI could either accept, reject or modify. This formalistic approach limited the parties’ ability to voluntarily make a first offer (although in practice, the CCI had begun to accept voluntary remedy proposals). The draft regulations seek to create more opportunities for parties to offer remedies.

The Deal Value Threshold

One unhelpful introduction relates to the introduction of an additional notification threshold aimed at stopping “killer acquisitions” or deals that allow dominant firms to buy-out innovative firms to further their strength. Prior approval from the CCI will soon become mandatory for all transactions (involving targets with substantial business operations in India) valued at or above ₹2,000 crore. In defining “value of transaction”, the CCI appears to depart from its usual facilitative approach to instead anticipate and plug potential loopholes in the new threshold.

For example, the draft regulations require transacting parties to aggregate the value of all the transactions, involving the same target, undertaken in the preceding two years, to determine the value of a transaction on a specific date. Parties must also look two years into the future and aggregate the value of all arrangements (for example, IPR licensing or supply agreements) connected or  incidental to the transaction. This is likely to create more ambiguity than offer certainty. For example, in a two-year horizon, investors may invest funds through equity purchases multiple times in a start-up. While each investment may be unconnected with the earlier round, investors may need to notify their investments if they cross the ₹2,000 threshold in aggregate over two years and possibly even face CCI penalties for failure to notify earlier investments.

Likewise, parties to an otherwise not notifiable transaction may be required to predict and assign a numerical value to all of their commercial arrangements with the target, whether or not they are connected to the deal, only because the arrangement takes place within 2 years of the deal. This could discourage transacting parties from exploring ways to collaborate beyond mere financial investment.

CCI’s merger control regulations have consistently evolved to facilitate dealmaking in India. Unless reconsidered, the proposed tools to ascertain the value of a transaction will upset this approach.

(Authors are partner and co-founder and Counsel, respectively, with Axiom5 Law Chambers)

Published on November 5, 2023