Introduction

In 2018, the Ministry of Corporate Affairs (‘MCA’) constituted the Competition Law Review Committee (‘CLRC’) to review the existing competition law regime and suggest substantive and procedural changes, with inputs from key stakeholders. The CLRC submitted its report to the MCA in July 2019, which contemplated a new threshold apart from the existing asset and turnover threshold, to adapt to the evolving digital market. The key recommendation of CLRC was to enable the Central Government to formulate new thresholds to notify a transaction based on broad parameters, whenever necessary.

Pursuant to this, the MCA floated a draft Competition Amendment Bill, 2020 (‘Draft Bill 2020’) enabling the Central Government to prescribe additional thresholds to notify a transaction in consultation with the Competition Commission of India (‘CCI’), on which public comments were invited. Competition (Amendment) Bill, 2022 (‘2022 Bill’) was introduced without a public consultation and included new amendments. One of these amendments was the ‘Deal Value Threshold’ (‘DVT’), which provided that any transaction having a deal value of more than INR 2,000 crore (approx. USD 242 million) would require an approval from the CCI, if the parties to the transaction had substantial business operations (‘SBO’) in India. However, under the 2022 Bill, it was not clear, whether either the acquirer or the target or both were required to have substantial business operations in India.

Thereafter, the 2022 Bill was referred to the Parliamentary Standing Committee on Finance which submitted its report with recommendations in December 2022. This led to the Competition (Amendment) Bill 2023 (‘2023 Bill’). The 2023 Bill addressed the ambiguity under the 2022 Bill and clarified that it is the target that needs to have substantial business operations in India, irrespective of the purchaser’s India presence. The 2023 Bill received Presidential assent in April 2023 after being passed by both houses of the Parliament and led to the Competition (Amendment) Act 2023 (‘Amendment Act 2023’).

What is DVT?

The DVT framework includes the Amendment Act 2023 through the insertion of Section 5(d) and the CCI (Combinations) Regulations, 2024 (‘Combination Regulations’) notified by the MCA in September 2024.

Amendment Act 2023

Transacting parties previously benefitted from the de minimis/target exemption. However, such parties will now have to seek a prior mandatory approval from the CCI if their deal value meets the DVT criteria under the Amendment Act 2023. Under it, a transaction with: (i) (global) deal value crossing INR 2,000 crores (approx. USD 267 million); and (ii) where the target has SBO in India, will require notification to the CCI, irrespective of the revenue earned by the target in India or assets in India.

Combination Regulations

The Combination Regulations outline the criteria for determining the transaction value under the DVT, which applies when the target has SBO in India. These regulations establish that transaction value encompasses all types of consideration, whether direct or indirect, immediate or deferred, as well as any value associated with inter-connected transactions. Importantly, the calculation includes payments for covenants, technology assistance agreements, intellectual property licensing, and any other arrangements that may occur as part of the transaction. Future payments must not be discounted to present value, and costs associated with legal advice or fees to investment banks and regulatory authorities are excluded from the overall transaction value. It is noteworthy that the explanation uses the term ‘consideration’ which is used in Germany’s version of the ‘size of transaction’. Germany uses consideration as the metric for determining transaction thresholds. The United States, however, has a more objective method (Hart–Scott–Rodino Antitrust Improvements Act) of calculating the size of transaction which uses the fair market value as the metric.

Further, to meet the criteria for SBO, the target must have either a Gross Merchandise Value (‘GMV’) in India that is 10% or more of its global value and exceed INR 500 crores (approx. USD 60 million), or a turnover in India that is 10% or more of its global turnover and surpasses INR 500 crores (approx. USD 60 million). Notably, for transactions involving digital services, the monetary threshold of INR 500 crores (approx. USD 60 million) is excluded. Instead, the criteria for SBO in this context can be met if the target has 10% or more of its business users or end users in India compared to the global number, if its GMV in India in the 12 months preceding the transaction date is 10% or more of the global value, or if its turnover in India in the preceding financial year is 10% or more of its global turnover. Germany adopts a sector-specific approach in this regard. For instance, it says that in digital markets, the assessment criterion should be the number of active monthly users in Germany.

Does Deal Value Threshold Fill the Gap?

Although DVT is sector agnostic, it was fundamentally meant for digital and new-age markets. In such markets, owing to their innovative business approaches, new players can potentially impede competition even though their assets and turnover may be minimal. The DVT enables the CCI to scrutinise such deals that could potentially have a significant impact on the market. By reviewing these transactions, the CCI can assess whether they are likely to reduce competition or lead to anti-competitive practices. This helps ensure a fair and competitive business environment in the country.

In India, several high-impact mergers and acquisitions have gone unexamined by the CCI due to the de minimis exemption, which allowed companies with minimal physical assets or turnover to bypass regulatory scrutiny. These transactions, despite having substantial market influence, were not assessed for their potential effects on competition.

While the CCI has the power to act retrospectively through ex-post assessments, this approach has limitations. By the time the CCI steps in after a merger or acquisition is completed, the negative effects on competition may have already taken root, including the consolidation of market power or the elimination of competitors. In contrast, the DVT allows for an ex-ante scrutiny, which overcomes such limitations.

Conclusion

The introduction of the DVT marks a significant step forward in tailoring India’s competition law according to the contemporary business landscape of India. By addressing the limitations of the traditional asset and turnover thresholds, the DVT allows the CCI to proactively assess high-value transactions that could have significant market implications. This ex-ante approach is crucial in preventing anti-competitive effects, such as market concentration or the elimination of competition, before they occur, thereby fostering a fair and competitive market environment. As India’s digital economy continues to grow, the DVT ensures that the regulatory framework evolves in step with market dynamics, safeguarding long-term market health and promoting innovation.