Global transactions worth over ₹2,000 crore under CCI scrutiny from Tuesday

New Delhi: The Competition Commission of India (CCI) on Monday said that global mergers and acquisitions (M&A) involving digital entities with a transaction value exceeding ₹Companies worth Rs 2,000 crore, including those with significant operations in India, will need its approval, effective from Tuesday, even if they do not meet other asset and sales criteria to be eligible for approval.

The CCI move effectively creates a new class of global M&A that requires its approval in India. It is part of its efforts to cover deals involving digital economy companies that have high valuations and can impact markets but do not meet the traditional threshold of merger regulation involving assets and sales.

The new merger rules, based on the value of the transaction, were introduced into law by an amendment to the Competition Act in April 2023, but have already been announced.

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In comparison, the $19 billion global acquisition of WhatsApp by Meta Platforms Inc. (formerly Facebook Inc.) in 2014 was not caught by the CCI’s merger rules, despite the companies’ market reach in India, as the transaction did not meet the asset and turnover requirements applicable in India.

“Newly notified changes to merger control regulations herald the single largest overhaul of India’s merger control regime – introduction of a transaction value threshold ₹“2,000 crore for companies with significant business operations in India,” said Nisha Kaur Uberoi, partner and head of competition law at JSA Advocates & Solicitors.

“It puts CCIs on par with global regulators like the US, Germany and Austria. However, the devil is in the details – enabling regulations and the need for CCIs to enhance their ability to maintain their successful M&A settlement track record will be key to ensuring that the ease of doing business remains intact,” Uberoi added.

Policymakers believe that in their early years, digital companies focus on increasing customer numbers by giving them access to large amounts of data and pricing. Yet transactions involving them remain outside the control of competition regulators. Reducing the number of players in a market is a key criterion that regulators consider when assessing the potential negative impact of a transaction on competition.

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The sales and asset thresholds for merger regulation were originally set in the Competition Act 2002 and were later amended in light of inflation. Following the latest changes, the thresholds are now 150% higher than the levels set in the 2002 Act.

In 2016, the thresholds were revised to include transactions between companies with total assets ₹2000 crores or ₹6,000 crore turnover in India. These were amended in March this year, allowing transactions between companies with total assets ₹2500 crore or turnover ₹7,500 crore requiring CCI approval.

For companies operating cross-border, the threshold is currently $1.25 billion in total assets, of which at least ₹In India, there should be 1,250 crore or $3.75 billion in turnover for all parties to the transaction, of which ₹3,750 crore is expected to come from India.

However, these thresholds do not apply to digital companies as they may not have the physical assets and turnover necessary to meet the CCI criteria.

Rahul Rai, partner at Axiom5 Law Chambers Llp, said the changes to the competition law introduced in April 2023 have resulted in significant changes to the merger rules.

To simplify the application process, the ministry has also notified a list of transactions that are exempt from reporting under the Competition Act. The new rules on exempt transactions provide clear and concise guidelines, addressing the often confusing interpretation of earlier exemptions. “These changes clearly reflect the government’s determination to enhance the ease of doing business in India,” Rai said.