High profile offshore M&A deals entered by big tech and the modalities involved around reporting them to competition watchdog CCI under the proposed deal value threshold of ₹2,000 crore came in for intense discussion at the final sitting of the Standing Committee on Finance on the Competition Bill here on Tuesday.

The Parliamentary panel — which is looking into the Competition (Amendment) Bill 2022 — met on Tuesday to conclude oral evidence of the Ministry of Corporate Affairs (MCA) on the bill. 

The final report on the bill is likely to be adopted by the Parliamentary panel on December 7, sources said. The winter session of Parliament is scheduled to commence on December 7.

Deal value threshold

The Competition (Amendment) Bill effectively widens the ambit of the Competition Commission of India (CCI) in scrutinising mega deals — with a deal value threshold of ₹2,000 crore — as part of several amendments in the proposed law.

The ₹2,000 crore transaction (deal) value threshold spelt out in the proposed amendments to Section 5 — beyond which CCI prior approval is proposed to be mandated — is expected to have the most impact on high-profile transactions in the evolving digital industry as well as new age enterprises involved in M&A transactions.

Members of this Parliamentary panel are learnt to have quizzed MCA about the basis of fixing the deal value threshold , especially given that industry has expressed reservation about the provisions in the bill on this front. 

MCA is understood to have told the panel that the ₹2000 crore deal value threshold specified in the bill was reasonable and also that Competition Act already had provision that indexes the threshold value for merger deal notification to wholesale price index every two years. The indexation in the current law applies to “assets” and “turnover” criteria.

Inflation indexation

However, indications are that the Standing Committee on Finance may in its final report on the Competition Bill recommend a separate inflation indexation mechanism for the ₹ 2000 crore deal value threshold that applies for digital business transactions that do not involve large assets or turnover but consummated with high valuations.

Industry associations — FICCI, CII, Assocham and PHDCCI — had conveyed to this Parliamentary panel and government that the proposed deal value threshold of ₹2000 crore is “too low” and could lead to flooding of reportable deals to be notified to CCI. 

Also, industry has highlighted that there is no clarity or indication in the bill on the parameters and perimeter on which “India nexus’ will be determined. There has to be some guidance by Parliament on this front and rule making cannot be entirely outsourced to CCI. 

Leaving it to CCI to later specify the parameters for “India nexus” via regulations is fraught with risk of regulatory overzealousness in capturing deals for notification to the competition watchdog, industry associations contended.

Merger notification

Competition Law Amendment Bill — introduced in Lok Sabha on August 5 – targets offshore digital transactions of high valuation but not involving large assets or turnover. A new criteria of deal value threshold of ₹2,000 crore was proposed for CCI merger notification.

Many digital business transactions, especially the big tech’s offshore ones, do not involve large assets or turnover but were consummated with high valuations. These deals did not, until now, fall under the CCI lens as part of merger control, although the companies involved in the transaction had substantial business interests in India.

They have not come under CCI scrutiny as the merger control criteria in the existing competition law were based on “assets” and “turnover” thresholds. It did not cover deal values as a criteria.

Under the “value of transaction” threshold criteria, companies looking to acquire control, shares, voting rights, etc. must seek the Competition Commission’s approval if the value of the transaction exceeds ₹2,000 crore.

Most jurisdictions have recognised an “enforcement gap” when it comes to high-profile transactions in the evolving digital industry, which may not have large sized assets or turnover but substantial valuation.