Editorial. CCI’s draft M&A regulations seem onerous

The Competition Commission of India (CCI) last week issued draft regulations that redefine the criteria for reporting merger and acquisition (M&A) transactions under its merger control regime. The draft regulations have taken forward the recently enacted concept of deal value threshold, setting ₹2,000 crore as the value threshold beyond which deals would require CCI approval. The primary objective of the regulator is to bring within the merger control net those high profile offshore M&A deals in digital industry that did not involve substantial assets or turnover, but high valuations.

Hitherto, many such deals in digital markets escaped the reporting net based as they were on asset or turnover based thresholds. However, now the law and the latest combination regulations are set to widen the reporting net to cover all industries, including cement and steel, and bring them within the merger reporting fold. These deals should satisfy the deal value threshold. The new draft rules have two broad aspects: first, they spell out the conditions that should be satisfied for a merger to be reported, which basically revolves around significant business operations (SBO) in India or ‘India nexus’; and second, they seek to define what should be included to calculate M&A value, so that the threshold can be applied with some clarity and precision. To determine SBO in India, three key criteria have been outlined. The number of users, subscribers, customers or visitors; gross merchandise value; and turnover. If any of these criteria exceed 10 per cent of the global figures in 12 months preceding the relevant date, the transaction is considered to have SBO in India, necessitating merger control reporting. As for the second, it could include, say, even future revenue streams in M&A value. That said, clear cut rules on this count are welcome.

While the CCI approach on deal value threshold is not out of line with international jurisdictions and practices, it does run the risk of bringing even small global transactions or large global M&A transactions with low India presence under the purview of CCI’s merger control regime with the associated compliances. From Houston to Hyderabad, almost every M&A deal will now fall into CCI reporting net given the broad definitions being considered for computing both deal value and determining the India nexus (SBO). This will increase compliance burden for both the regulator and the regulated. For corporates, a number of transactions would be notifiable.

CCI and domestic policy makers need to now introspect as to whether India should be going in for such a broad definition of computing deal value without having the regulatory capacity to handle a flood of deals that would get reported. Stakeholder feedback may influence changes to deal value computation and SBO determination. CCI needs the human resources to move to an effective merger control regime. The Centre has been dragging its feet on the matter.

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