1.1. On September 5, 2023, the Competition Commission of India (“CCI”) published the draft Competition Commission of India (Combinations) Regulations, 20231 (“Draft Combination Regulations”), inviting public comments. Relevant stakeholders can submit their comments with the CCI, till September 25, 2023.2 The Draft Combination Regulations have been published pursuant to the Competition (Amendment) Act, 20233 (“Amendment Act”) 4 which inter alia amended provisions related to the merger control. However, several of these amendments are yet to come into effect as they require corresponding regulations to iron out the details. The Draft Combination Regulations, in addition to paving way for the implementation of the newly introduced merger control provisions of the Amendment Act, also replace the CCI (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”).5
1.2. The most noteworthy aspect of the Draft Combination Regulations is the guidance provided for assessing the notifiability requirement of mergers and acquisitions to the CCI, under the new criteria, namely the deal value threshold (”DVT”). Several other important changes to the merger control regime have also been introduced such as, (i) the codification of the pre-filing consultation (“PFC”) process, (ii) introduction of a new format for offering modifications in a notified transaction, (iii) limited exemption from standstill obligations for open market purchases, etc. The key features of the Draft Combination Regulations are dealt with in detail below:
2. KEY PROPOSED AMEDMENTS OF THE DRAFT COMBINATION REGULATIONS
A. Deal value threshold
2.1. One of the notable changes introduced by the Amendment Act is introduction of the DVT. The CCI will now be able to review transactions where: (i) the global deal value is in excess of INR 2,000 crore (approximately USD 244 million6 ); and (ii) the party acquired, taken control of, merged or amalgamated, has ’substantial business operations in India’. The Draft Combination Regulations provide guidance on ascertaining the “value of transaction” and “substantial business operations in India.”
2.2. Value of transaction: The value of transaction is defined in an expansive manner and includes “every valuable consideration, whether direct or indirect, immediate or deferred, cash or otherwise”. It is clarified that it shall include the consideration for: (i) non-compete fees; (ii) all incidental arrangements entered between the parties within last 2 (two) years of the transaction, including technology assistance agreements, licensing of intellectual property rights, and supply of materials, etc.; (iii) the value of all inter-connected steps, undertaken by the acquirer/ acquirer group and the target during a period of 2 (two) years prior to the instant transaction; (iv) options and securities to be acquired (assuming full exercise of such option); and (v) any contingency. It is further clarified, if the transaction value is not captured in the transaction documents, the transaction value considered by the board of directors (or similar approving authority) should be considered. Moreover, if the precise value of transaction cannot be established with “reasonable certainty”, the notifying party should presume that the DVT has been breached, and file a prior notification with the CCI accordingly.
2.3. Substantial business operations of the target: The target will be deemed to have substantial business operations in India, if 10% ( ten per cent) of its global: (i) users, subscribers, customers, or visitors were from India, at any point in time during the period of 12 (twelve) months preceding the transaction date; or (ii) gross merchandise value was from India, for the 12 (twelve) months preceding the transaction date; or (iii) turnover for the preceding financial year derived from all products or services was from India.
B. Exemption from the standstill obligations for open market purchases
2.4. The merger control regime in India is suspensory in nature and prescribes a standstill obligation, whereby the parties to a transaction are not permitted to consummate any part of a transaction till receipt of the CCI’s approval. Recognising that such a blanket prohibition is onerous, the Amendment Act exempts transactions involving open market purchases and other transactions on a regulated stock exchange from the standstill obligations of the merger control regime.
2.5. The Draft Combination Regulations provide that such acquisitions must be notified to the CCI within 30 (thirty) calendar days from the completion of such transactions. Further, the acquirer can exercise certain rights including: (i) availing economic benefits such as dividends or participating in rights issue of shares / bonus issue of shares / buyback of shares / stock-split; (ii) disposing of shares or securities acquired; or (iii) exercising voting rights in matters relating to liquidation or insolvency proceedings, prior to the CCI’s approval. However, the acquirer must not directly or indirectly exercise influence the target, in any manner.
C. Codification of pre-filing consultation process
2.6. The Draft Combination Regulations seek to codify the informal practice of providing PFC to parties. In line with the current practice, the Draft Combination Regulations clarify that the guidance provided during a PFC shall not be binding on the CCI.
D. Increase in statutory filing fees
2.7. The merger notification for a combination can be filed by way of a Form I (short form) or Form II7 (long form). As such, the Draft Combination Regulations have increased the statutory filing fees: (i) for Form I from INR 20 lakhs (approximately USD 24,1478 ) to INR 30 lakhs (approximately USD 36,2219 ); and (ii) for Form II from INR 65 lakhs (approximately USD 78,48010) to INR 90 lakhs (approximately USD 1,08,66311).
E. New filing format for voluntary modifications
2.8. The CCI by way of its Draft Combination Regulations has provided a new format for the process of offering voluntary modifications by the parties. The details sought inter alia include: (i) details of the proposed combination; (ii) the likely appreciable adverse effect on competition (“AAEC”); (iii) summary of the modification offered; (iv) sufficiency of the modifications to address the likely AAEC; and (iv) details of divestment offered, etc. The Draft Combination Regulations provide clarity on the process of offering modifications by laying down timelines for the various steps involved therein.
F. Omission of Schedule I Exemptions
2.9. The Combination Regulations exempt certain transactions, even if they fall within the definition of a combination, from the requirement of prior notification to the CCI as they are ordinarily not likely to cause an AAEC in the relevant market in India. As such, Schedule I of the Combination Regulations inter alia provides exemptions for non-controlling minority acquisitions, intra-group transactions, bonus issues, etc. (“Schedule I Exemptions”). However, the Schedule I Exemptions are not included in the Draft Combination Regulations and remain conspicuous by their omission. Given that these kinds of transactions typically pose no competition law concerns, omission of Schedule I Exemptions from the Draft Combination Regulations, may increase the number of benign merger notices filed with the CCI. Hence, it is hoped that the Schedule I Exemptions shall be notified as part of the subsequent rules/regulations formed by the CCI.
G. Omission of Green Channel Route
2.10. In 2019, the Combination Regulations had introduced a provision for deemed approval of a combination which does not involve any horizontal overlap or vertical / complementary relationship between the parties, i.e., a green channel route (“GCR”) notification, on the same day as the date of filing merger notice with the CCI. Given that the provision for GCR notification expediated the CCI’s approval for simple and non-problematic combinations, it was a huge success. However, the Draft Combination Regulations have omitted the provision which enabled the parties to avail the benefit of GCR notification. Interestingly, the draft Form I (short form) provided under Schedule I of the Draft Combination Regulations still refers to a GCR notification. Therefore, it is currently unclear whether the GCR is still available to the parties or has been completely omitted from the merger control regime.
3. QUICK VIEW
3.1. The Draft Combination Regulations have evoked mixed responses from practitioners and business community alike. The framing of the Draft Combination Regulations, soon after the Amendment Act and the short timeline for public consultation demonstrates the Government’s commitment to bring the merger control regime in India at par with international best practices and make it future ready by bringing transactions in the digital market under the CCI’s scrutiny.
3.2. Given the expansive criteria for assessing ‘value of transaction’ and ‘substantial business operation in India’, it is likely that there will be a significant increase in the merger filings before the CCI. Further, by including users and visitors to the criteria for assessing ‘substantial business operations in India’, the Government has undoubtedly taken aim at data gatekeepers which often provide services for free. However, in a digital environment and given the fact that India has the world’s largest population, even companies such as, say Spacex may get a substantial number of curiosity-based visitors on their website from India, despite having no significant business operations in India.
3.3. The exemption granted to open offer and acquisitions on stock exchanges from standstill obligation promotes ‘ease of doing business’ in India as it will enable consummation of time-sensitive market-related purchases without going through the rigours of the CCI’s approval process.
3.4. However, omission of business-friendly provisions namely, Schedule I Exemptions and GCR notification, which provided, simple and non-problematic combination exemption from prior notification to the CCI and deemed approval, respectively; has caused some concern amongst the stakeholders. It is hoped that the CCI will continue these business-friendly provisions and bring clarity regarding their continuity by way of subsequent rules / regulations / notifications