CCI Proposes New Regulations for Mergers
- 09 Sep 2023
On 5th September, the Competition Commission of India (CCI) has initiated a consultation process, introducing the CCI (Combinations) Regulations, 2023, aimed at consolidating regulations concerning mergers, particularly within the digital domain.
These proposed regulations are set to replace the existing ones, which were originally formulated in 2011.
Key Points:
- Competition (Amendment) Act, 2023: Enforced in April, this act was passed by both Houses of Parliament in response to significant market growth and shifts in business operations over the past decade.
- Enhancing Regulatory Certainty: The act aimed to introduce regulatory certainty and create a trust-based environment in response to the changing business landscape.
- Deal Value Threshold: The amendment introduced a deal value threshold of Rs. 2,000 crore, making it mandatory for mergers or acquisitions exceeding this threshold to obtain CCI approval.
- Substantial Business Operations: It also required that the enterprise being acquired, merged, or amalgamated should have substantial business operations in India.
Proposed Regulations
- Definition of 'Enterprise with Substantial Business Operations': The regulations propose that an entity would be considered an 'enterprise' with 'substantial business operations' in India if a certain percentage of its users, subscribers, customers, or visitors during the preceding twelve months constitute 10% or more of its global count, including all products and sources.
- Gross Merchandise Value: The criteria also entail that gross merchandise value during the same period is 10% or more of the global share, as is the case for their turnover in India concerning their global share.
Transaction Arrangements Disclosure
- Additional Disclosure: Entities involved in transactions must disclose arrangements made as part of the transaction or incidental arrangements entered into within the preceding two years.
- Examples: These arrangements could include technology assistance, licensing of intellectual property rights, usage rights to products or services, supply of raw materials or finished goods, branding, and marketing, among others.
Benefits and Impact
- Addressing M&A in the Digital Space: The proposed regulations specifically address mergers and acquisitions in the digital realm, providing clear criteria for compliance.
- Progressive Changes: Experts view the changes as progressive, capturing high-value transactions that previously escaped scrutiny.
- Easier Compliance for Listed Targets: For transactions involving listed targets, the proposed regulations offer potential ease of compliance, reducing risks related to competition law.
- Increase in Merger Filings: The regulations are expected to lead to more merger filings, particularly in the technology sector, due to the additional threshold.
Competition Commission of India (CCI)
- Statutory Body: The Competition Commission of India (CCI), established in March 2009 as a statutory body under the Competition Act, 2002, is a governmental organization dedicated to fostering fair competition in the Indian economy.
- Composition: The CCI functions as a quasi-judicial body and comprises one chairperson and six additional members. All members are appointed by the Central Government.
- Headquarters: The headquarters of the CCI is located in New Delhi.
- Objective: Its primary objective is to create a level playing field for producers while ensuring the well-being of consumers.
- The Commission is committed to eliminating practices that negatively impact competition, promoting and sustaining competition, safeguarding consumer interests, and upholding the principles of free trade in India's markets.
- Mandate: Under its mandate, the CCI enforces the provisions of the Competition Act, 2002, which include:
- Prohibiting anti-competitive agreements and the abuse of dominant positions by enterprises.
- Regulating mergers and acquisitions (M&A) that could potentially harm competition within India. Transactions exceeding specified thresholds require clearance from the CCI.
- Monitoring the activities of large enterprises to prevent the misuse of their dominant position, such as controlling supply, imposing high purchase prices, or engaging in unethical practices that may harm emerging businesses.
