The government may relax the additional yardstick to gauge anti-competitive potential of mergers and acquisitions in the digital space by restricting the applicability of the term “substantial business operations” in India to that of the “target entity,” official sources said. The operations in India of the acquiring entity would not be taken into consideration.
The Competition Amendment Bill, 2022 seeks to introduce a third criteria – deal value – for notifying the combinations (M&As) to the anti-trust regulator in addition to the two extant criteria of assets and turnovers of the parties to the deals, specified under the Section 5 of the Competition Act. The deal value threshold (DVT) for this purpose has been set at Rs 2,000 in the Bill, with a provision for bi-yearly reviews. Also, according to the Bill, the DVT criteria for notifying transactions to the regulator shall apply, “provided that enterprise which is party to the transaction has such substantial business operations in India as may be specified by regulations.”
The government feels that given the current operations of the large global tech firms in India and the way they conduct business in assorted areas in the country, the target entity’s operations in India will suffice to estimate the potential market power of the combined entity, post the transaction. However, it is not clear what view will be taken by the government on whether only the critical IT and other assets of the target entity in India or its user base would also constitute the business operations.
The rise of Big Tech and acquisitions in the digital and new-age markets, such as that of WhatsApp by Facebook, was a trigger for the review of the M&A thresholds for competition regulation. It is being felt that in these emerging industries, the transactions could fall way below the two extant de minimis thresholds of assets and turnovers at the time when the deals are struck but may still wield enough market power to throttle competition.
The Standing Committee on Finance had said the DVT should be reviewed every year, instead of every two years as proposed in the Bill to ensure it doesn’t become restrictive.
The government is likely to press for passage of the Bill in the forthcoming Parliament session, after providing more clarity on the proposed DVT criterion.
Some other changes recommended by the Standing Committee are also understood to have been included in the Bill.
In terms of the timelines to ensure approvals of mergers are time bound and quicker, the government is likely to extend the time period for the CCI to form its prima facie opinion to a period of 30 calendar days from the proposed 20 days in the Bill. At present, CCI has a time period of 30 working days to do so.
However, the government is expected to stick to the 150-day timeline proposed in the Bill for approval as against the current 210-day timeline. The Standing Committee had suggested that the timeline of 210 days should be maintained.
The fresh changes to the Bill are also expected to propose hefty penalties for anti-competitive behaviour by companies based on their global turnover from all products and services. With the new provision, it is proposed that the CCI would be able to impose a penalty of 10% of the global turnover of companies found to have indulged in anti-competitive practices. At present, the CCI can impose a penalty based on 10% of the average of past three years’ turnovers.
Experts welcomed the changes to the DVT but expressed concern over the proposal for higher penalties based on the global turnover of the company. “The proposed change on DVT is a welcome step. Under the Competition Amendment Bill, it was not clear whether either or both the acquirer and the target were required to have substantial business operations in India,” said Anisha Chand, partner, Khaitan &Co. She, however, added that the introduction of the proposal for penalty to be calculated on the global turnover is almost a wild card entry as this was neither a part of the Bill nor was it recommended by the Standing Committee. The proposed amendment stands in conflict with the Supreme Court’s judgment in Excel Crop Care which held that only the turnover derived from the business in which the contravention has been found would be the relevant turnover for calculation of penalty, she said.