Anti-trust regulator to get a say in global digital M&As

After the government proposed to introduce a deal value threshold, global mergers and acquisitions in the digital space with an India connection are set to come under the purview of the country’s anti-trust regulator.

In amendments proposed to the Competition Act, the government said any deal with a value exceeding Rs 2,000 crore needs to be notified to the Competition Commission of India (CCI) if either of the two parties has a substantial business presence in the country.

CCI has been tasked with framing the definition of what will be construed as ‘substantial business presence’.
Legal experts are wary about how this India connection will be defined.

This is because a lower threshold could inadvertently bring hundreds of global deals with only a tenuous India connection under the purview of new law.

To avoid uncertainty in ongoing deals, the government should hold off on notifying the rules until the Commission frames the definition, they say.

“It will be critical for the CCI to define “substantial business operations in India” with a great degree of certainty and objectivity, to ensure that only transactions with a strong enough local connection to India are brought under review,” said Shweta Shroff-Chopra, partner – competition law at law firm Shardul Amarchand Mangaldas.

“Ambiguity may lead to a flood of precautionary notifications, as the penalties for non-compliance are as much as 1% of the total deal value,” she added.

Currently, corporate deals including mergers and acquisitions need to be notified to the CCI only if the parties involved have assets or turnover exceeding a certain threshold.

Specifically, if the asset size of the company is more than Rs 2,000 crore or if the turnover of the company is more than Rs 6,000 crore, CCI approval is a must.

The addition of asset value is aimed at bringing e-commerce and startup companies under the ambit of the rules.

Until now, such deals were not required to be notified since the companies in the sectors were typically asset-light and fell short of the minimum threshold prescribed.

“In order to avoid creating any uncertainty for global companies, the Union Government should hold off notifying these new provisions until CCI frames a proper definition of substantial business operations,” said Samir Gandhi, head of competition law, AZB partners. “Otherwise, it would create great uncertainty for the companies involved in global deals that may or may not have a significant India connection.”

Market participants also say that a lower threshold in the definition could lead to a scenario where the workload of the Commission increases significantly.

“The Commission should also conduct a cost-benefit analysis to ascertain what sort of transactions it intends to capture,” Gandhi added.

If the proposed law is passed by Parliament, India will become one of the few countries in the world that consider deal value as a criterion under anti-trust laws.

Currently, only Germany and Austria are learnt to have such a condition.

Experts say deal value is often a complicated calculation that may vary depending on what factors are considered and therefore many developed countries are still adopting a conservative approach towards introducing such a threshold.

The tweaks to the competition law come at a time when CCI is probing global technology companies including Amazon, Walmart-owned Flipkart, Google and Apple to ascertain if they have abused competition laws in India.

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After the government proposed to introduce a deal value threshold, global mergers and acquisitions in the digital space with an India connection are set to come under the purview of the country’s anti-trust regulator.

In amendments proposed to the Competition Act, the government said any deal with a value exceeding Rs 2,000 crore needs to be notified to the Competition Commission of India (CCI) if either of the two parties has a substantial business presence in the country.

CCI has been tasked with framing the definition of what will be construed as ‘substantial business presence’.

Legal experts are wary about how this India connection will be defined.

This is because a lower threshold could inadvertently bring hundreds of global deals with only a tenuous India connection under the purview of new law.

To avoid uncertainty in ongoing deals, the government should hold off on notifying the rules until the Commission frames the definition, they say.

“It will be critical for the CCI to define “substantial business operations in India” with a great degree of certainty and objectivity, to ensure that only transactions with a strong enough local connection to India are brought under review,” said Shweta Shroff-Chopra, partner – competition law at law firm Shardul Amarchand Mangaldas.

“Ambiguity may lead to a flood of precautionary notifications, as the penalties for non-compliance are as much as 1% of the total deal value,” she added.

Currently, corporate deals including mergers and acquisitions need to be notified to the CCI only if the parties involved have assets or turnover exceeding a certain threshold.

Specifically, if the asset size of the company is more than Rs 2,000 crore or if the turnover of the company is more than Rs 6,000 crore, CCI approval is a must.

The addition of asset value is aimed at bringing e-commerce and startup companies under the ambit of the rules.

Until now, such deals were not required to be notified since the companies in the sectors were typically asset-light and fell short of the minimum threshold prescribed.

“In order to avoid creating any uncertainty for global companies, the Union Government should hold off notifying these new provisions until CCI frames a proper definition of substantial business operations,” said Samir Gandhi, head of competition law, AZB partners. “Otherwise, it would create great uncertainty for the companies involved in global deals that may or may not have a significant India connection.”

Market participants also say that a lower threshold in the definition could lead to a scenario where the workload of the Commission increases significantly.

“The Commission should also conduct a cost-benefit analysis to ascertain what sort of transactions it intends to capture,” Gandhi added.

If the proposed law is passed by Parliament, India will become one of the few countries in the world that consider deal value as a criterion under anti-trust laws.

Currently, only Germany and Austria are learnt to have such a condition.

Experts say deal value is often a complicated calculation that may vary depending on what factors are considered and therefore many developed countries are still adopting a conservative approach towards introducing such a threshold.

The tweaks to the competition law come at a time when CCI is probing global technology companies including Amazon, Walmart-owned Flipkart, Google and Apple to ascertain if they have abused competition laws in India.

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