Key Changes To The Competition Act, 2002

Certain amendments have been introduced to the Indian merger control regime under the Competition Act, 2002 (“Competition Act”) and the regulations framed thereunder, key among which are as follows:

1. Introduction of Deal Value Thresholds: Transactions will require prior notification to the Competition Commission of India (“CCI”) (even where the de minimis or Target Exemption is applicable) where (i) the ‘value' of such transaction (e., consideration payable) is more than INR 20 billion (approximately USD 238 million / EUR 215 million), and (ii) the target has “substantial business operations in India”. See Section I below for further details.
2. Overlaps where right to access CSI exists: The CCI has introduced a change to the definition of “affiliate” to include entities which have the right to access commercially sensitive information, increasing the category of entities relevant for mapping overlaps in notifiable transactions. See Section II below for further details.
3. CCI review timelines have been reduced: (a) from 30 working days to 30 days for provision of its “prima facie view” on notified transactions; and (b) from 210 days to 150 days for its final decision. In addition, the CCI will now be required to consider and issue first requests for information within 10 days of a filing being made.
4. Creeping acquisitions of less than 5%, resulting in a total shareholding of less than 10% in the target enterprise will not require the prior approval of the CCI even where there are overlaps between the parties, subject to certain conditions. See Section IV below for further details.
5. Open offers and acquisitions of securities on stock exchanges which require the approval of the CCI are now permitted to be completed without such prior approval subject to certain conditions. See Section III below for further details.

Section I: Introduction of Deal Value Thresholds

Pursuant to the new deal value thresholds (“DVTs”), acquisitions (of control, shares, voting rights or assets) of an enterprise, mergers and amalgamations will require the prior approval of the CCI where (i) the consideration payable for transaction is more than INR 20 billion (approximately USD 238 million / EUR 215 million), and (ii) the enterprise being acquired (i.e., the target) has substantial business operations in India, even where the Target Exemption is applicable.

The DVTs will apply to transactions which come into effect (wholly or partly) on or after September 10, 2024, irrespective of whether such transactions were subject to approval requirements under the Competition Act prior to this date. However, in the event such transactions have come into effect partly on or after September 10, 2024, penalties with respect to gun-jumping will not be applicable to such transactions.

1. The “value” of a transaction is defined as every valuable consideration, whether direct or indirect, immediate or deferred, cash or otherwise, and will need to be determined based on the following:
   1. This will include, inter alia, consideration for:
      • any covenant, undertaking, obligations or restrictions imposed on the seller or any other person;
      • all inter-connected steps and transactions;
      • related or incidental arrangements payable during two years from the date on which the transaction comes into effect, including technology assistance agreements, licensing of intellectual property rights, product, service or facility usage rights, supply of raw materials or finished goods, branding and marketing;
      • any acquisitions by the acquirer group in the target during the period of two years before the date of execution of transaction documents; and
      • call options assuming full exercise of such options.
   2. In case of an open offer under the regulations issued by Securities and Exchange Board of India, full subscription to the offer should be assumed;
   3. The value of the transaction does not include transaction costs such as fees payable for legal advice, to investment banks, to regulators, to statutory authorities, etc.;
   4. In case of merger or amalgamation or where true and complete value of the transaction is not recorded in the transaction documents, the value of that transaction will be as considered by the board of directors (or equivalent authority) of the relevant party; and
   5. If the value of a transaction cannot be established with reasonable certainty, the value of the transaction may be considered to exceed the DVT ‘value' threshold of INR 20 billion.
2. Substantial business operations in India: An enterprise shall be deemed to have ‘substantial business operations in India', if:
   1. its gross merchandise value (for the period of 12 months prior to the date of execution of binding documents) in India is 10% or more of its total global gross merchandise value, and more than INR 5 billion; or
   2. its turnover during the preceding financial year in India is 10% or more of its total global turnover derived from all the products and services, and more than INR 5 billion;
   3. for digital services provided, the number of its business users or end users in India is 10% or more of its total global number of such users. Note that the minimum threshold of the target's turnover, or gross merchandise value exceeding INR 5 billion (applicable at (i) and (ii) above) is not applicable to enterprises providing digital services.

The amendments also clarify as follows:

1. “gross merchandise value” means cash, receivables, or other consideration either for or facilitating, sale of goods and/ or provision of services, by an enterprise, on its own or as an agent or otherwise;
2. “digital service” means the provision of a service or one or more pieces of digital content, or any other activity by means of an internet whether for consideration or otherwise to the end user or business user, as the case may be;
3. “business user” means any natural or legal person supplying or providing goods or services, including through the use of digital services; and
4. “end user” means any natural or legal person using digital services other than as a business user, for informational or transactional purpose.

Section II: Overlap assessment

The CCI has changed the test of considering entities which are affiliates, and therefore are relevant when considering whether parties overlap in business activities (applicable only to transactions which require notification to the CCI). The key change is at (c) below.

Section III: Open Offers and Acquisitions on Stock Exchanges

Open offers, and acquisitions of convertible shares or securities on a regulated stock exchange, can now come into effect prior to receipt of the approval of the CCI provided:

1. the notice of such an acquisition is filed with the CCI within 30 days from the date of the first acquisition of such shares;
2. the acquirer does not exercise any ownership or beneficial right or interest in such shares or convertible securities until the CCI approves such acquisition. However, the acquirer may avail economic benefits such as dividend or any other distribution, subscription to rights issue, bonus shares, stock-splits and buy-back of securities, and exercise voting rights only in matters relating to liquidation and/or insolvency proceedings; and
3. the acquirer (including its group and affiliates) does not directly or indirectly, influence the target enterprise, in any manner.

Section IV: Changes to Exemptions

There are also certain changes to the exemptions available under the Competition Act for transactions that are ordinarily not likely to cause an appreciable adverse effect on competition in India. Two key changes are as follows:

1. Intra group acquisition exemption: The intra group acquisition exemption (applicable to intra-group acquisitions of shares or voting rights of the target enterprise) has been deleted. However, intra group acquisitions of shares or voting rights may still be exempt in instances where the acquirer or its group entities, prior to acquisition, has more than 50% shares or voting rights in the target enterprise, provided there is no change in control of the target enterprise; and
2. Creeping acquisitions of less than 5%, resulting in a total shareholding of less than 10% in the target enterprise may now be permissible even in situations where there are overlaps between the parties, and the acquirer already has a board seat or an observer seat in the target enterprise.

This insight/article is intended only as a general discussion of issues and is not intended for any solicitation of work. It should not be regarded as legal advice and no legal or business decision should be based on its content.