Jump to:
- Changes to financial thresholds: What's new?
- Transitional provisions
- Material influence – a low threshold for triggering a notification requirement
- Key takeaways
In just over a decade of merger control in India, the Competition Commission of India (CCI) has established itself as a well-respected regulator on the global stage.
But competition policy does not stand still. Like many other competition authorities, the CCI has had to evaluate its tools and processes to ensure that they remain fit for purpose. A particular focus has been acquisitions of target companies where potential competition (e.g., from nascent competitors) may need to be preserved.
Against this backdrop, we see important developments in relation to Indian merger control. Specifically, we note the introduction of a new Deal Value Threshold (DVT), revision of the financial thresholds and changes to the "de minimis" regime (which exempts certain smaller transactions from the notification requirements).
The latest amendments to Indian merger control were enacted in April 2023 and finally enforced on 10 September 2024. These changes certainly modernize the regulatory environment, but what does a broader merger control regime mean for businesses and their advisors?
Changes to financial thresholds: What's new?
The DVT was introduced in India on 10 September 2024, following public consultation on the New Combination Regulations. This is the most significant change to the Indian merger control regime to date, as it introduces a new threshold according to which transactions need to be notified to the CCI where, regardless of the size of the target or the turnover or assets of the parties involved:
- the value of the deal globally is INR 20 billion (~USD 238 million) or more; and
- the target has "substantial business operations in India" (SBO).1
The standstill obligation pending approval following notification applies to all transactions (including global deals) meeting these thresholds. The DVT will also apply to deals that were signed but not closed before 10 September 2024. This means that parties to such deals will need to notify and wait for the CCI’s approval before closing. The DVT therefore introduces an additional regulatory hurdle for investments that might otherwise have escaped merger review in India due to low asset values and revenues.
The underlying rationale for this change is revealed in the 2019 report of the Competition Law Review Committee (CLRC)2 where it noted that, unlike other jurisdictions, “the Competition Act does not grant the CCI any residuary power to assess non-notifiable transactions."
The slew of acquisitions in recent years in the digital sector, which were not notified, might also have inspired the development. Indeed, the CLRC flagged "an enforcement gap regarding the ability of the CCI to review transactions in digital markets to test their anti-competitiveness under the present merger control regime."
While the DVT applies across all industry sectors, the New Combination Regulations include an industry-specific SBO criteria for entities providing internet services or digital content. This makes the DVT most relevant for M&A in the digital sector.
India is not alone in employing a DVT in its merger control rules. The USA rules include a "size of transaction" test, and Austria and Germany introduced a transaction value threshold into their merger control framework in 2017.3 Andreas Mundt, the head of Germany's competition agency, recently said that the “way forward” for regulators to catch "killer acquisitions" of smaller companies is to introduce transaction value thresholds.
Clearly, there is a risk (for the CCI and businesses alike) that the DVT will create uncertainty. Experience of a DVT in other countries (e.g., Germany and Austria) underlines the need to define concepts clearly in advance and to keep an open dialogue with stakeholders on how the DVT is working. In India, the New Combination Regulations has taken a broad approach on the following key issues:
| Key Issues | Relevant consideration for business | |
| Relevant deal value | Any valuable consideration (direct or indirect, current or future) including but not limited to:
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| The notion of "substantial business operations" in India |
If the target meets one of the following criteria, the SBO test in India is met:
Where a transaction involves the acquisition of a business division, the SBO test will apply proportionately to the "true target" for computing GMV, turnover and users. NB: The New Combination Regulations set an industry-specific SBO in India for businesses in the digital sector. Apart from meeting the GMV or turnover condition, which apply to them in the same way as other companies, entities providing internet services or digital content (Digital Service Providers) will also be deemed to have SBO in India if 10% or more of their annual average business users or end users are in India. |
In assessing whether the DVT applies, the CCI has chosen not to include exceptions that would have brought more nuance to the assessment. For example, all interconnected steps to a transaction or incidental arrangements to a transaction must be included when deal value is computed. There is a risk that this could lead to a skewed deal value, which does not reflect true market considerations.
Additionally, the catch-all approach taken by the CCI is likely to lead to a situation where, faced with any doubt, parties will tend to notify their transactions to be safe. This will place a heavy burden on the CCI's caseload as well as its prefiling consultation system.
Transitional provisions
As of 10 September 2024, the New Combination Regulations and the new Rules become applicable to all qualifying transactions, barring those that have not been completely consummated. Transactions that were previously exempt from notification to the CCI but now trigger the DVT and are yet to close or have been part-consummated are exempt from gun-jumping fines. However, they will still need to be notified to the CCI.
Changes to asset and turnover thresholds and the de minimis exemption
The new rules increase the asset and turnover thresholds that trigger a notification to the CCI and increase the financial thresholds for benefitting from the scope of the de minimis exemption.4 The amendments also harmonize the application of the de minimis safe harbor so that it applies to all forms of transactions, including mergers and amalgamations (and not only to acquisitions, which was previously the case).
These are welcome developments, which will ensure that the Indian merger regime remains focused on transactions that are more likely to raise substantive competition issues. The expanded de minimis regime means that the merger control regime will not unduly burden SME M&A activity, much of which will be benign or pro-competitive.
However, it is noteworthy that the de minimis safe harbor will not be available for transactions that are notifiable because they have met the thresholds of the new DVT.
Material influence – a low threshold for triggering a notification requirement
Under Indian merger control rules, transactions that involve a change of control trigger a notification requirement (when other criteria are met). Although the law does not define "change of control," the CCI has interpreted this concept very broadly in its decisional practice, taking the view that it is not limited to the acquisition of outright voting control but can include situations where only a material influence is acquired over the management, affairs or strategic commercial decisions of a target.5
For example, in previous cases,6 the CCI had found control where a single investor present on the board of an enterprise, e.g., as a result of the investor’s industry expertise, which may lead to the investor's advice being followed by the remaining board members.
The latest amendments codify this approach. They confirm that, in determining whether there has been a change in control, the CCI will examine whether a buyer acquires at the least a "material influence" over a target business.
This change is not a surprise because the notion of "material influence" provides a competition authority a wide latitude for bringing transactions into its jurisdictional scope should it wish to review them.7
However, in the interests of clarity and predictability, it would be extremely useful if the CCI were to publish guidance on the factors that it will consider and weigh in its analysis of whether a material influence is acquired.8
Key takeaways
Merger control will incentivize further investment into India.
While strong and effective merger control undoubtedly has a positive role to play in attracting investment by assuring a level playing field, there is a careful balance to be struck. A positive sign is that CCI consulted with all relevant stakeholders on the new Combination Regulations and seems to have taken responses received on board when finalizing the regulations.
The enactment of the New Combination Regulations requires businesses to work more closely with advisors to determine exactly how to compute the value of their next transaction to determine if it will need notification to the CCI.
India is a key jurisdiction for foreign investment and the Indian government has been keen to promote the "ease of doing business in India." The latest amendments to the Indian merger control regime will undoubtedly lead to uncertainty. We will see if the CCI's regime can retain its current reputation for being user-friendly and efficient.
Immediate action required
The transitional provisions now require parties and advisors to assess (or re-assess) as a matter of priority implications of the changes on deals that have been signed but not yet closed. If based on such assessments, CCI approval is required, given the mandatory and suspensory nature of the Indian merger control rules, the parties must observe standstill obligations until the transaction is notified to and approved by the CCI.
Footnotes:
1. The Competition (Amendment) Act, 2023.
2. Report of the Competition Law Review Committee, July 2019.
3. While the EU Commission considered introducing value-based merger notification thresholds in 2019, it ultimately decided against this and instead interpreted Article 22 of the EUMR to allow Member States to refer transactions to the European Commission if they do not meet the national thresholds of individual EU Member States. It remains to be seen how the Commission will react to the recent judgment of the Court of Justice of the EU which invalidated the European Commission's review of such transactions via the use of Article 22 (Illumina/Grail). The recent referral by Italy of a deal it called in under its national thresholds to the European Commission under Article 22 (Nvidia/Run:AI) gives us a clue.
4. Interestingly, the UK earlier this year, through its newly introduced Digital Markets, Competition and Consumers Act has amended its merger control regime to include an adjusted safe harbor for mergers involving parties with low levels of UK turnover. The effect is that any merger involving only enterprises with a respective UK turnover of less than £10 m is exempt from UK merger review on competition grounds.
5. This approach appears similar to that of UK merger control. The UK regulator’s guidance indicates that an acquisition of 15% or more of a company's shares is liable to be examined to see whether the shareholder may be able to influence the policy of the target company (although a shareholding below 15% can in principle also give rise to material influence).
6. UltraTech Cement Limited: Combination Regn. No. C-2015/02/246.
7. See for example the AI partnership agreements under consideration in the UK (Amazon/Anthropic; Microsoft/Mistral; Microsoft/Inflection).
8. For example, the CMA has provided guidance on how it is likely to interpret the standard of material influence in its Merger Guidance (see publication).
This article is being provided as general information and does not constitute legal advice. Baker McKenzie does not practice Indian law and where Indian law advice is needed, we work closely with top India-qualified lawyers. We’d be happy to discuss your needs in India. For more information, please contact Mini Menon vandePol and Ashok Lalwani.
