Digital firms with Rs 500 crore turnover must seek CCI approval for M&As

Any transaction where the "deal value" exceeds Rs 2,000 crore would be notifiable for the CCI's approval, provided that the target entity has "substantial business operations" in India

Antitrust regulator Competition Commission of India (CCI) on Tuesday expanded the ambit of companies that would be required to seek its approval for mergers.

Under new regulations released on Tuesday, the CCI said companies with a turnover of more than Rs 500 crore or over 10 per cent of their global turnover in India in the previous financial year will be considered to have “substantial business operations in India” and would obtain its nod for mergers.

For digital services, the number of end users in India would be a key factor in determining “substantial India operations”.

These regulations came a day after the Ministry of Corporate Affairs notified the provisions of the law that came into effect from Tuesday. According to the notification, any transaction where the “deal value” exceeds Rs 2,000 crore would be notified for its approval, provided the target entity has “substantial operations in India”.

The CCI will determine the deal value looking at all forms of consideration over a period of two years prior to the transaction.

Earlier, the CCI would consider only asset and turnover as the criteria for the requirement of approvals of mergers and acquisitions. By bringing deal value threshold in the ambit of the Competition Act, the government has tried to capture mergers that may otherwise evade scrutiny under traditional “asset” or turnover-based threshold.

“In case there is no reasonably certain way of determining the deal value, the regulations require mandatory notification, if the target has substantial business operations in India,” said Shweta Shroff Chopra, partner, Shardul Amarchand Mangaldas & Co.

Chopra said the new test would capture many more transactions within the net, as the de minimis target-based exemption will not be available where the deal value threshold is met.

Experts say the changes could disrupt ongoing deals. “It would bring considerable uncertainty to deal timelines, and require urgent attention by all deal-making parties to ensure they do not fall foul of the law and attract penalties for gun jumping,” Chopra said.

Experts said the latest regulations mean that companies would need to urgently re-assess transactions signed or approved prior to September 10 but not yet fully consummated.

Vaibhav Choukse, partner (competition law) at JSA, said with the deal value threshold coming into effect, both the CCI’s operational load and the compliance requirements for parties would increase.

The CCI has also revised the exemptions available to companies from notifying mergers that may become inapplicable in certain cases. For instance, exemption for minority share acquisitions would not be applicable if it gives the right or ability access to commercially sensitive information. 

Moreover, the CCI has reduced the overall deal review timeline from 210 to 150 days, with a deemed automatic approval if no prima facie view is formed within the first 30 days. The initial review period has been shortened to 20 calendar days in the latest regulations.

“Parties will have to assess the implications of these changes to any of the on-going or the proposed transactions. This will also involve assessing inclusion of incidental arrangements or interconnected transactions,” said Abhay Joshi, partner at Economic Laws Practice.