The proposed additional criterion of transaction value threshold (Rs 2,000 crore) for notifying mergers and acquisition (M&As) to the Competition Commission of India has met with stiff resistance from many quarters. The difference of opinion is also reflected in Parliament’s standing committee on finance which has reviewed the Competition (Amendment) Bill, 2022.The panel is set to meet again on Thursday to adopt the draft report.
According to sources, there is a view in the panel that the threshold is quite low and so could be hassle for businesses in the digital space. Instead of a blanket cap, sectoral ceilings could be prescribed, some members of the committee feel.
“The Rs 2,000 crore threshold amounts to just $ 250 million and may not be advisable given the large size of mergers and acquisitions that take place. A better option may be to provide sectoral caps or thresholds beyond which such transactions would be notified,” said a person privy to the panel’s discussions.
The Bill seeks to amend the Competition Act 2002 to ensure that M&As involving global tech giants and potentially having an “appreciable” effect on Indian markets don’t escape the country’s antitrust scrutiny. The proposal was in line with a global realisation among antitrust watchdogs that the current twin criteria — asset and turnover – are insufficient to address the market impact of M&A deals between high-tech and digital firms. . This is because these firms don’t necessary own much physical assets in the markets concerned and may not even have turnovers above the defined threshold at the time of the transactions, but the value exchanged in such deals could be very high and also have substantial effects on the relevant markets.
The Bill proposes that all deals worth over Rs 2,000 crore be subject to the CCI’s prior approval if the firms have “substantial business operations” in India. It also lays out process to ascertain whether an entity has “substantial business operations” in India or not, but many analysts have cited lack of clarity in the provisions.
Currently, M&A regulation by the CCI is based on twin criteria of assets and turnover, with certain exemptions provided.
The issue could also see discussion in Parliament, when the Bill is taken up for consideration with at least some political parties of the view that the provision needs more discussion. “There is requirement of more clarity on this deal value and how it will impact merger and acquisitions transactions,” said another source.
Indian companies have also been worried about the provision and believe that the deal value threshold proposed – defined in terms of acquisition of control, shares, voting rights etc. is too vague. Further, there have also been concerns on how “significant presence” would be defined. It is also expected that the workload of the CCI could increase significantly, if a number of high value mergers and acquisitions get notified due to the provision.
However, the Ministry of Corporate Affairs in its presentation to the Parliamentary panel has tried to assuage these concerns and said the provision will not attract most mergers and acquisitions. Combination regulations or guidance notes would also provide clarity on what would constitute material influence, it had further said.
The standing committee, chaired by Jayant Sinha, is expected to table the report on the Competition (Amendment) Bill, 2022 in the Winter Session of Parliament. The Bill is however, likely to be taken up for consideration in the Budget Session.