Changes in the Competition Amendment Bill have been prompted by deals in the digital space
Hitherto, the CCI has been reviewing mergers, amalgamations and acquisitions on the basis of ‘asset’ or ‘turnover’, as per the Competition Act, 2002.
In introducing the concept of transaction value to mergers & acquisition deals to ascertain whether they are impinging on competition, India joins a growing number of jurisdictions that have altered their merger control framework. The Competition (Amendment) Bill 2022 proposes that transactions valued in excess of Rs 2,000 crore need to be notified to the Competition Commission of India (CCI). The transaction value would include every valuable consideration, whether direct, indirect, or deferred. Importantly, the Bill also proposes that if either one of the parties has “substantial business operations in India”, the regulator would need to be informed. Hitherto, the CCI has been reviewing mergers, amalgamations and acquisitions on the basis of ‘asset’ or ‘turnover’, as per the Competition Act, 2002.
The change seems to have been prompted by the M&A activity in the digital space; these transactions derive their value from the data that the target company has access to or some innovative product or service. CCI is, therefore, unable to review many of these deals since their assets or turnover value is below the prescribed thresholds. As experts point out, the target may be operating in a sector where no large assets are required for the operations; revenues are generated from services. However, it is quite possible a merger or a buyout of such a business by a big tech giant—much like it happened with Facebook and WhatsApp in 2014—could create a formidable entity and have a bearing on the competitive landscape. At the same time, it is important to properly define and assess “substantial business operations in India”; the Bill does call for clear parameters in this regard. The Commission should not be flooded with notificationsm, but neither should relevant deals escape the regulator.
Also Read: Settlement a good option
Possibly influenced by rules in foreign jurisdictions, the Bill proposes the settlement of proceedings initiated. While this would free up scarce and expensive resources and time—the regulatory and judicial systems are overburdened—there is some discomfort about how proper this would be. Settlements are not new to India; the Securities & Exchange Board of India, for instance, enables settlements. A hefty penalty and warning could act as a deterrent and minimise infractions. In the matter of control, the Bill puts forward the lowest standard of control, namely, “material influence”. It doesn’t really refer to the matrix of factors that need to be assessed in determining how this standard is to be met. As such, while the intention is clearly to provide clarity, there may remain continued ambiguity in the scope of ‘material influence’. However, there is a need to change the existing definition of “control” in the Competition Act, which experts say, is somewhat broad. In earlier decisions, the CCI interpreted control as the ability to exercise “decisive influence” over strategic, commercial issues or the ability to cause a deadlock. More recently, it has felt control should be determined across a range—from de jure control on the one hand to “material influence” on the other.
Importantly, the Bill seeks to shorten timelines for processes across the board. For instance, the overall period for the CCI to arrive at a decision on a transaction is proposed to be reduced from 210 days to 150 days, which can be extended by 30 days. While the intention cannot be faulted, this might call for rigorous pre-filing consultations, especially where overseas entities are involved. Experts caution it could lead to more “invalidations” so that CCI can re-start the review clock.