India’s Merger Control Regime Gets A Major Overhaul

Effective today, the Indian merger control regime has undergone a significant overhaul with the notification of provisions of the Competition (Amendment) Act 2023, along with revised regulations and rules. 

Among the most significant changes, a new deal value based threshold has been brought into force, requiring notification of transactions with a value over INR 2000 crore and where the target has substantial business operations in India (based on min 10% GMV, turnover or business/end user numbers(only in case of digital services, which is over-inclusively defined)  being in India). Crucially, in determining the value of the transaction, the CCI will look at all forms of consideration (including share swaps, non-compete fees, call options, earn-outs, etc.) as well as include any ancillary agreements (such as technology/IP licenses, supply arrangements etc.) within a 2 year period of entering the transaction. If there is no reasonably certain way of determining the deal value, the Regulations require mandatory notification, if the target has substantial business operations in India. This new test will capture many more transactions within the net, as the de minimis target based exemption will not be available where the deal value threshold is met. 

Revised exemptions from the filing requirement have also been brought into force, which significantly narrows down the circumstances in which a transaction can avoid notification to the CCI. In particular, in considering the applicability of the exemption especially for minority share acquisitions, the right or ability access to commercially sensitive information and absence of change in/acquisition of control, as well as overlapping activities between the parties (and their affiliates) will need to be examined closely. Further, most exemptions turn on an absence in change of control, which has been codified in the Amendment Act as the ability to exercise material influence, much lower than the decisive influence standard applicable in other laws and jurisdictions. Therefore, exemptions may become inapplicable if there is a change in the nature of control.

Finally, the overall deal review timelines have been shortened to 150 calendar days, with a deemed automatic approval for transactions if the CCI is unable to form a prima facie view that the transaction may cause an appreciable adverse effect on competition in the first 30 calendar days (Phase 1). In practice however, there are significant time exclusions specified in the regulations, which may render this reduced timeframe a dead letter. Also, the regulations introduce the ability to pull-and-refile a notification during Phase I, which may be utilised where the CCI needs additional review time and the parties do not wish the transaction to go into a detailed investigation.

Most importantly however, the transitional provisions are draconian, in that the new thresholds and exemptions apply immediately, requiring an urgent re-assessment of transactions signed/approved prior to 10 September 2024 but not yet fully consummated, as per the new rules and regulations and possible pre-approval from the CCI. This would also mean that parties would have to observe the standstill obligations (i.e. not giving effect to any part of the transaction from today), given the suspensory and mandatory nature of the Indian merger control regime. This has therefore brought considerable uncertainty to deal timelines, and require urgent attention by all deal-making parties to ensure they do not fall foul of the law and attract penalties for gun jumping.

Shweta Shroff Chopra

Guest Author Partner, Shardul Amarchand Mangaldas