‘Large user base in India will bring global M&A under CCI’

What are the goals of amending the Competition Act?

The bill is broad in scope in terms of procedural and substantive amendments. It proposes to broaden the scope of anti-competition agreements, including the facilitation of certain anti-competition agreements within the framework of the law. It also reduces the time limit for approval of mergers and acquisitions and introduces deal value ceiling as an additional criterion for mandatory notification of mergers and acquisitions to CCI. The Bill provides for a limitation period for filing cases apart from introducing the settlement and commitment framework. It broadens and deepens the scope of inter-regulatory consultations and encourages parties in ongoing cartel investigations in the context of reduced penalties to disclose information about other cartels (increased leniency provision). Overall, the thrust of the bill is to facilitate ease of doing business by providing regulatory certainty, a framework for rapid market correction and a trust-based business environment.

The Bill introduces ‘Deal Value Threshold’ as an additional parameter to be communicated to M&AS for approval to CCI. Why was it needed?

The Bill introduces ‘transaction value’ as another criterion for CCI to notify M&As. If the value of any transaction or ‘deal value’ in the acquisition of any control, share, voting rights, etc., exceeds 2,000 crore, this would need to be filed before the CCI, provided the target has substantial business operations in India, as may be specified through regulations. The provision is agnostic in nature and is not specifically directed towards acquisitions in the digital ecosystem.

The proposal has its origins in the recommendations of the Competition Law Review Committee (CLRC), which gave its report in 2019, where it was discussed that most acquisitions in digital markets derive value from data or some business innovation held by the target. . In such acquisitions, the target may not have a large asset base and may offer products/services that are either free or generate negligible business. This may be because the business model of companies in digital markets often does not generate significant revenue for many years, initially focusing on user growth. In such instances, the price of a target’s sales is a poor indicator of the transaction’s importance to competition. Thus, traditional metrics of assets and turnover may not be sufficient to capture transactions in the digital ecosystem. Furthermore, unlike many other jurisdictions in India, CCIs have no power to assess transactions until their notification threshold is met, even if their potential competitive disadvantage is apparent.

In view of the above, the Bill introduces ‘transaction value’ as another criterion for notifying mergers and acquisitions to CCI. There is no doubt that any new limits must be accounted for by clearly and objectively quantitative standards for local collusion norms. This will ensure that only transactions with a significant economic link to India are intercepted by the border, and that neither the CCI nor the parties are burdened with unnecessary information. We will provide this clarity and certainty through rules. Addressing competition concerns at the merger stage itself in such transactions will provide certainty to stakeholders and ensure that markets remain competitive and competitive.

How would you define ‘substantial business operations’ in India?

We will prepare the rules very carefully. The existing merger regulation norms based on assets and turnover are very clear, but this mainly concerns traditional markets. In new age markets, assets and turnover, as recorded in financial statements, may not reflect the full market strength of the target. Think entities that have huge customer reach, but with few assets in India, WhatsApp says. (Bought by Facebook – now called Meta Platform Inc. – in 2014 for $16 billion.) The idea to introduce deal value is to review transactions that meet the proposed valuation range. 2000 crores and also has substantial operations in India. For example, regulations may define substantial Indian operations based on market-facing factors such as number of users or contracts, etc. in India. If they do not have that kind of alliance in India, they will not be covered under this provision. I would like to add that these are some tentative views, and a final view will emerge after intense internal deliberations and public consultations. We only want that the major transactions relating to India are notified and there is no flood of transactions not relevant to the Indian market. We are aware that the benefits from any additional prescriptions must outweigh the regulatory burden. Public policy is always a balancing act. These rules will be discussed with the public. We will start the consultation process after Parliament approves the Bill.

How will the proposed ‘Commitment and Settlement’ scheme work?

In recent years, a number of competition authorities have been empowered to accept remedies from parties to an antitrust proceeding. The terminology and form of such negotiated measures can vary from jurisdiction to jurisdiction – some refer to them as commitment decisions, others as settlement or consent orders.

While the CCI has been empowered under the current framework to grant leniency to riders in cartel cases, the Competition Act does not explicitly recognize settlements or commitments. The CLRC considered whether there was a need to amend the law to empower the CCI to pass compromise or commitment decisions or both. The Committee considered the benefits of such negotiating measures and agreed that the procedural economy and the efficiency of enforcement actions are factors for recognizing settlements and commitments in the Competition Act. Such a mechanism is likely to enable the CCI to resolve antitrust cases expeditiously and free up its scarce resources. Also, businesses can avoid lengthy scrutiny and uncertainty.

The Bill seeks to introduce a ‘settlement and commitment’ framework to reduce litigation. The settlement mechanism will apply to alleged breaches related to certain anti-competitive agreements and abuses of dominance. The application for disposal can be filed only after the receipt of the inquiry report, but before such time as may be prescribed by the rules, before the final order is passed by the CCI. CCI may impose certain conditions, which may include settlement amount. The Bill also empowers the CCI to accept commitments to address anti-competitive concerns raised. As envisaged in the Bill, an application for commitment can be made only after the inquiry has been initiated by the CCI, but within such time as may be prescribed by the rules, before the inquiry report is received by the party concerned. Is.

The existing statutory framework already provides for lesser penalties for cartels for self-reporting. Thus, commitment and settlement mechanisms to certain anti-competitive agreements—that is, anti-competition agreements other than cartels and abuses of dominance—would make the law holistic in providing trust-based solutions.

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