Key draft regulations on deal value threshold, and commitments and settlements released for stakeholder consultation
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Since the publication of our last update in the Asia-Pacific Antitrust Review 2023, certain critical developments have taken place in India. After notification of the Competition (Amendment) Act 2023, as detailed in our previous article, the Competition Commission of India (CCI) has now issued drafts of corresponding regulations, which provide guidance and clarity on the following key concepts:
- the deal value threshold;
- commitments; and
Other emerging trends in the Indian competition law arena include increased scrutiny by the CCI to tackle gun-jumping, a rise in voluntary commitments being offered by parties seeking a combination approval, and appellate courts validating the CCI’s jurisdiction.
These changes are expected to significantly impact the transactional space in India, providing a boost to the government’s Ease of Doing Business in India policy.
Draft regulations introduced
The Competition (Amendment) Act materially amended the existing Competition Act 2002 in May 2023. While certain provisions were notified on 18 May 2023 and 18 July 2023, others were not due to the absence of regulatory guidance on the nuances of those provisions. The draft regulations for some of the identified provisions were released for the public and stakeholders’ consultation process in August and September 2023. It is expected that the regulations and their corresponding sections will be notified soon.
Draft commitment and settlement regulations
Broadly, the draft commitments and settlements regulations provide detailed guidance on:
- the time for filing a commitment or a settlement application;
- filing fees;
- factors to be considered by the CCI when accepting or rejecting an application;
- implementation of the commitment/settlement order;
- implications of follow-on damages cases; and
- the ability of the CCI to utilise information submitted by an applicant.
Draft combination regulations
Similarly, the draft CCI (Combination) Regulations 2023 provide much-needed clarity on various issues, including the nuances surrounding the deal value threshold.
For context, the Competition (Amendment) Act introduced the concept of a ‘deal value threshold’ as an additional notification threshold, where a transaction would require prior approval from the CCI, if it fulfils the following criteria:
- the transaction value is more than 20 billion rupees (approximately US $240.5 million and approximately €226.70 million); and
- the target has substantial business operations in India.
Value of the transaction
Through the draft Combination Regulations, the CCI has now provided guidance on ascertaining the value of the transaction and the level of business operations in India. The proposed definition is “every valuable consideration, whether direct or indirect, immediate or deferred, cash or otherwise”.
This catch-all definition, which is further augmented with the clarification of transaction value, includes:
- non-compete fees;
- consideration attributable to inter-connected transactions;
- consideration for transactional or incidental commercial arrangements entered within two years of closing the notifiable transaction;
- consideration for options and securities on a converted basis; and
- consideration payable for contingencies.
Two noteworthy aspects on calculation of the transaction value are:
- if the true and complete transaction value is not captured in the transaction documents, the value considered by the board of directors (or a similar approving authority) should be considered; and
- if the precise transaction value cannot be established with reasonable certainty, the notifying party should presume that the 20 billion rupees threshold is met and proceed accordingly.
Clarity on substantial business operations in India
Compared to transaction value, guidance on substantial business operations in India is prescriptive. A target will be considered to have substantial business operations in India if:
- the number of its users, subscribers, customers or visitors in India, in the 12 months preceding the deal execution date, is 10% or more of its total global number of users, subscribers, customers or visitors; or
- the target’s gross merchandise value (GMV) in India for the 12 months preceding the deal execution date is 10% or more of its total global GMV; or
- the target’s turnover for the preceding financial year in India is 10% or more of its total global turnover, derived from all the products and services.
CCI cracks down on gun-jumping
The CCI is back to tackling gun-jumping issues with a renewed fervour. Interestingly, in August and September 2023, gun-jumping fines were imposed in over six cases, but the seven months prior saw only a single order imposing a penalty for gun-jumping. Separately, while the amount of penalty imposed by the CCI in these orders (within the range of 500,000 rupees (approximately US$6,076) to 10 million rupees (approximately US$120,304)) may seem paltry in comparison to the maximum limit set out under the Competition Act (up to 1% of the combined asset or the turnover of the parties, whichever is higher), there is a discernible trend in the rise in penalties.
In a first-of-its-kind decision, the CCI has reprimanded parties for filing an incorrect notice under the green channel route - a facility for fast-tracking transaction approvals in situations where the parties do not exhibit any business overlaps. Under this route, due to absence of overlaps, a transaction is approved on the same day of filing the notice. This assists the transacting parties as they need not observe any standstill obligations, which they would have ordinarily observed, pending approval from the CCI.
For context, the decision involves an acquisition of a 5% stake by Platinum Jasmine Trust/TPG Upswing in UPL Sustainable Agri Solutions Limited (UPL SAS) by the Upswing Trust (Combination Registration Number C-2022/12/995, 18 August 2023 under Section 43A and 44).
The transaction was notified to the CCI under the green channel route, where a post-filing scrutiny revealed that the acquirer Upswing Trust held pre-existing shares in UPL Corporation (UPLC). Since UPLC was indirectly engaged in the same business as the UPL SAS, this negated the availability of the green channel route.
While issuing its order, the CCI largely focused its findings on the availability of the green channel route and observed that the criteria was objective and specific in nature. Any overlap between the parties, their group entities or entities fulfilling the thresholds laid out under the Competition Act, would render the transaction ineligible to claim the benefit of the green channel route. The CCI also observed that, given its deemed approval nature, parties availing of this benefit were expected to observe the utmost good faith in their assessment.
Given that over the previous financial year, approximately 30% of the total filings with the CCI were made under the green channel route, this decision will have a significant impact on the self-assessment undertaken by parties to determine notification format. Going forward, transacting parties may need to realign and scrutinise the businesses of their controlled entities or portfolio companies more carefully, to ascertain the applicability of the green channel route. This decision could also have a direct bearing on the volume of transactions reported under the green channel route, given that parties may now err on the side of caution in their assessments and pursue the normal route to avoid risk.
Voluntary commitments on the rise
Under the Competition Act and the CCI (Procedure in Regard to the Transaction of Business relating to Combinations), if the CCI forms a preliminary view that a transaction may result in an appreciable adverse effect on competition in India, it can initiate a detailed Phase 2 review, a time-consuming process. However, the Combination Regulations permit such parties to propose voluntary modifications or commitments to assuage concerns of the CCI.
Interestingly, during the reporting period from July 2023 to September 2023, there have been two instances where parties to a transaction have proposed voluntary modifications to assuage the concerns of the CCI (Combination Registration Number C-2023/04/1022, 1 September 2023 and Combination Registration Number C-2023/05/1028, 26 July 2023). This indicates that parties are becoming increasingly cognisant of points of concern in transactions from a competition perspective, readily coming up with voluntary modifications or commitments to alleviate issues that the CCI may have, and to avoid a lengthy review period.
CCI’s jurisdiction and orders supported by appellate forums
The CCI is seemingly well supported by appellate forums in its assessment of competition law issues. For instance, appellate forums such as the National Company Law Appellate Tribunal (NCLAT) (Competition Appeal (AT) Number 7 of 2023, 28 July 2023) and Competition Appeal (AT) Number 61 of 2022, 10 August 2023), the Madras High Court (WP Nos 16079 and 16081 of 2023, 11 July 2023) and the Gauhati High Court (WP(C)/76/2022, 28 June 2023) have passed orders upholding the CCI’s jurisdiction to examine transactions and anti-competitive conduct.
However, there have been instances where appellate forums have preferred sectoral regulators for certain specialised matters instead of the CCI, which is a sector-agnostic regulator. In Ericsson / Monsanto (LPA 247/2016 and connected matters, 13 July 2023), the division bench of the Delhi High Court observed that the CCI’s jurisdiction to opine on anti-competitive concerns arising from a patent licensing agreement would be curtailed, considering that a specialised authority (ie, the Controller of Patents) would be conducting a near-identical inquiry under the ambit of the Patents Act 1970. After examining both the Patents Act and the Competition Act, the division bench held that, since certain specific portions of the Patents Act were enacted after the Competition Act, the legislative intent indicates that the former would override the latter.
Given the dynamic landscape of Indian competition law and recent developments in the wake of the Competition (Amendment) Act, the issuance of the draft regulations marks a significant step towards its implementation. These new regulations provide essential clarity on key competition law concepts such as deal value thresholds, commitments and settlements, with the aim of streamlining and enhancing the Indian transactional environment. Additionally, the growing trend of voluntary commitments and the support of appellate forums further strengthens the jurisdiction and effectiveness of the CCI in its role as the Indian competition regulator. Concurrently, the CCI’s renewed focus on addressing gun-jumping issues underscores the importance of strict competition law compliance by transacting parties.
These updates reflect India's commitment to fostering a competitive and business-friendly environment in alignment with the Ease of Doing Business in India policy.