The Competition (Amendment) Bill, 2022 (Bill), introduced in Parliament’s monsoon session, is the first time in the decade plus existence of the Competition Act, 2002, that some significant legislative changes have been proposed. But certain important amendments/ proposals are open to interpretation and could affect the ease of doing business.
The most important change from a merger control perspective is the proposal to introduce a notification threshold based on deal value — deal value threshold, or DVT. Currently, the Competition Act requires parties to a deal to notify the Competition Commission of India (CCI) only if certain asset and turnover based thresholds are crossed.
In the Indian context DVT was talked about to review transactions in digital markets which may escape antitrust scrutiny based on the assets and turnover thresholds. However, DVT as proposed in the Bill appears to be sector agnostic and requires transactions with a value greater than Rs 2000 crore where the “party to the transaction” has “substantial business operations in India” to be notified to the CCI.
The Bill leaves a lot to interpretation with respect to DVT. Regulatory certainty being one of the key parameters for “ease of doing business” for any country, businesses expect statutes to be clear and codified, especially those that determine the notification thresholds.
Interpreting “Value of Transaction”
The Bill provides an inclusive definition of transaction value i.e. “every valuable consideration, whether direct or indirect, or deferred…” This will cover monetary consideration, but it does not provide guidance on valuation of transactions not involving traditional consideration (such as share swaps), or those involving publicly listed shares.
Definitive guidance on calculating a deal’s value will provide much needed clarity. Understandably, it is challenging to capture all possible types of transaction consideration. Germany and Austria have tried to address this in their guidance on calculating transaction value in multiple scenarios. For example, these guidelines clarify that in mergers involving shares traded on a stock exchange, the “value of consideration” should be the market value of such shares.
Relevant Enterprise for the DVT
The Bill is unclear whether it is the acquirer or the target that needs to have substantial business operations in India. This may lead to false positives and capture transactions without any real nexus to India.
The purpose of DVT is to only catch transactions with an economic link to India. That purpose can be solved by applying the local nexus test only to the target entity. It will then cover only those transactions where the target has a significant nexus with India and can potentially impact competition due to change in control, etc.
“Substantial Business Operations in India”
The Bill allows CCI to determine the standard of “substantial business operations in India” through regulations. There should be clarity in the Competition Act itself to maintain certainty for businesses because CCI’s regulations are updated more regularly than the statute. The legislation should of course adopt metrics that take into account the dynamic nature of markets.
The Bill has been referred to the Joint Parliamentary Standing Committee on Finance. The panel can give recommendations on this issue with an objective to strike a balance between ensuring that transactions with the potential to impact competition in India are adequately reviewed, while ensuring companies are not burdened with unnecessary notifications.
In any event, the CCI has the power to regulate the post-combination conduct of a party, under its enforcement provisions. Guidance from countries like Germany and Austria which consider local nexus based on customer’s location and domestic turnover can be illustrative when developing standards of substantial business operations in India.
From a competition law perspective, India is at a confluence of implementing the learnings of the past decade of enforcement of the statute and foster an environment for the next phase of economic growth. This makes the timing and nature of these changes important.
The introduction of the DVT will certainly strengthen the CCI’s regulatory framework and by extension, its enforcement. However, currently, the DVT provisions are ambiguous and may affect the ease of doing business. The Standing Committee has an opportunity to onboard stakeholder’s suggestions towards a clearer implementation of proposed changes and avoid confusion for both businesses and the regulator.
Toshit Shandilya & Atish Ghoshal are lawyers with AZB & Partners. The views expressed are personal and should not be attributed to the firm.