New draft regulations aim to usher in new age merger control regime; spells out criteria for determining SBO in India
In early September, the Competition Commission of India (CCI) published a consultation paper proposing the CCI (Combinations) Regulations, 2023. The proposed code will replace the existing rules from 2011. It will also take into account amendments made by Parliament to the Competition Act earlier this year. Comments on the proposed draft rules are invited until September 25.
In April this year, the Competition (Amendment) Act, 2023 was enforced following its passage by both Houses of the Parliament. The changes in the competition law include a requirement for companies with “substantial business operations” (SBO) in India to seek antitrust permissions for all deals where the transaction value exceeds 20 billion rupees ($243 million). Previously, the Competition Commission of India examined deals based on companies’ asset size and turnover.
To determine SBO in India, the CCI’s draft regulations outline three key criteria: the number of users, subscribers, customers, or visitors; gross merchandise value; and turnover. If any of these criteria exceed 10 per cent of the global figures during the twelve months preceding the relevant date, the transaction is considered to have SBO in India, necessitating merger control reporting.
Listing the main features of the draft law, the authors make significant remarks concerning the criterion of the value of transactions on digital markets. It is noted that although the enterprises being acquired have minimal assets and turnover, they may have huge potential in terms of valuable data, technologies and market information etc. Hence, there is a necessity for a definite threshold.
“The current merger regulation criteria based on assets and turnover are very clear, but it deals primarily with traditional markets. In new age markets, assets and turnover, as recorded in the financial statements, may not reflect the complete market strength of the target,”
stated last year, Ashok Kumar Gupta, then chairman of the Competition Commission of India.
An often-cited example of this paradigm was Facebook’s acquisition of WhatsApp which did not require the competition regulator’s clearance for traditional companies.
According to Anshuman Sakle, Partner at Khaitan & Co, the overall changes are progressive and have been implemented after much deliberation.
“Certain high-value transactions which earlier were able to escape scrutiny would be caught in the CCI’s net and would allow the regulator to assess the impact from transactions in the relevant markets,”
he told The Hindu.