The Centre proposes to amend competition law so as introduce a lower threshold of “control” —a key metric for notifiability of M&A transactions to CCI — for the purposes of deciding on merger scrutiny by the Competition Commission of India (CCI).

This proposal once enacted could pave the way for clarity in competition law and enable the CCI to scrutinise more and more deals under its merger control regime, say competition law experts.

The changed definition of ‘control’ will herald a shift from hitherto followed concept of ‘decisive influence’ to new concept of ‘material influence’, which provides a narrower approach for assessing a company’s capability to influence management and affairs of another company through shareholding, board representation, financial arrangements and exclusive rights. ‘Material influence’ test is being seen as the lowest level of “control” threshold.

Material influence

Introduction of ‘material influence’ standard for determination of ‘control’ would serve the twin benefit of bringing certainty to the meaning of “control” under Competition Act while enabling CCI to assess a wide range of combinations that may have appreciable adverse effect on competition (AAEC), according to government-appointed Competition Law Review Committee (CLRC) that went into the changes required for the competition law. 

Competition Commission of India Chairman Ashok Kumar Gupta told BusinessLine: ”The proposed definition of ‘control’ in the Amendment Bill  is aimed to bring more clarity and certainty by clearly specifying the control threshold in the Competition Act itself. It is expected that the change will make stakeholders more aware of their statutory obligations and prevent any unintended non-compliance.”

He highlighted that the definition change of ‘control’ was on the same lines as the CCI’s decisional practice and thus does not change the practical parameters being followed.

Gupta further said the assessment of material influence requires a case-by-case analysis of the overall relationship between the acquirer and the target. 

In making its assessment, CCI will have regard to all the circumstances of the case. Material influence may arise through factors such as representation on the board of the target, contractually agreed consultation rights/veto rights, voting percentage held by acquirer  etc.

The recent Competition (amendment) Bill 2022 introduced in the just-concluded Monsoon Session of Parliament seeks to incorporate the recommendation of the CLRC on the “control”  front, realising the need to link “control” with the ability to influence the strategic commercial decisions, which actually causes the change in market dynamics. This approach complements the conventional concept of “control” rooted in shareholding or affirmative/veto rights.

Expert’s take

Ruby Singh Ahuja, Senior partner - Karanjawala & Co, said by adopting the ‘material influence’ test- “the lowest level of control” being the threshold- the law brings in a wide range of mergers/combinations under scrutiny. It will raise concerns about the potential disruption it could cause to India’s ‘business-friendly’ goals.

“The change also brings with it some uncertainty with regard to how it will ultimately impact investors, venture capitalists and private equity funds on one hand and minority shareholders on the other — an area of concern for India considering the recent burst of the start-up culture. Let’s hope this amendment does not keep investors away from India,” Ahuja said.

social-fb COMMENT NOW