CCI releases draft norms for regulation of combinations

The Competition Commission of India has released draft norms for regulation of combinations that would help bring high-value mergers and acquisitions with substantial India operations, particularly those in the tech sector, within the antitrust regulator’s ambit.

The draft regulations provide for value of transaction and criteria for substantial business operations in India, form of notice for the proposed combination; exercise of rights in case of open offer and acquisitions on stock exchanges; amount of fee and mode of payment; procedure for filing notice and scrutiny of notice; and procedure for modification to the proposed combination. The CCI has sought stakeholder comments by September 25.

The draft norms come following the amendments to the Competition Act passed by Parliament earlier this year, which specify a deal value threshold of Rs 2,000 crore beyond which the approval of CCI is mandatory. It is expected to capture high value off shore transactions, especially in the digital sector, that may have an impact on the Indian markets, such as the acquisition of WhatsApp by Facebook.

According to the draft norms, the value of transaction would include “every valuable consideration, whether direct or indirect, immediate or deferred, cash or otherwise”. These could also be in the form of any covenant, undertaking, obligations or restrictions imposed on seller or any other person, other than acquirer, in the nature of noncompetition or otherwise, any arrangement entered into anytime during two years from the date on which the transaction would come into effect including but not limited to technology assistance, licensing of intellectual property rights, usage rights to any product, service or facility, supply of raw materials or finished goods, branding and marketing as well as any options and securities to be acquired at a later date.

For the purpose of calculating the substantial business operations in India, the draft norms have laid out three criteria – whether the number of its users, subscribers, customers, or visitors, at any point in time during a period of 12 preceding the relevant date is 10% or more of its total global number of users, subscribers; whether its gross merchandise value for the 12months preceding the relevant date is 10% or more of its total global gross merchandise value; or whether 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.

“Any person proposing to enter into an acquisition, merger or amalgamation may seek pre-filing consultation from the staff of the Commission to ascertain whether their transaction qualifies as a combination, or whether there is a requirement of giving notice under the Act,” said the norms.

Experts noted that the draft norms provide clarity on how to calculate the deal value threshold.

Anshuman Sakle, Partner at Khaitan & Co, said, “The CCI has provided clarity on how the DVT would be implemented as well as explained how the concept of substantial business operations in India would be examined.”

Sakle further said the CCI has also provided clarity on the on-market purchases can be made and going forward the potential gun jumping risks that were previously associated with such actions in situations of stake building would be eliminated. “This, in particular, is a very progressive and forward-looking change being implemented in Indian competition law,” he noted.

Saksham Malik, Programme Manager, The Dialogue noted that a transaction will be notifiable before the CCI, under the new deal value threshold, only if the entity being acquired has ‘substantial business operations in India’. “During the consultation period, the policy ecosystem needs to discuss two crucial points: firstly, whether the threshold of 10 per cent is high, low or sufficient and secondly, if the meaning and scope of certain parameters, especially ‘users’ needs to be further clarified,” he noted.