What the recent merger control amendments mean for India Inc

The Indian merger control landscape has undergone significant changes with the recent amendments to the Competition Act, 2002. These amendments, while expansive, include several industry-friendly changes, aimed at improving the ease of doing business in India. 

Introduction of Deal Value Threshold

The introduction of the Deal Value Threshold (DVT) was a long-awaited development considering that certain significant M&As escaped scrutiny from the Competition Commission of India (CCI) in the past. Previously, whether a transaction needed CCI approval depended on the size of the parties. Now, with DVT in place, transactions will require mandatory CCI approval if the deal is worth over ₹2,000 crore (about US$238 million) and meets specific ‘India nexus’ criteria. This criterion is particularly important for global deals where India is only one of the legs of the transaction. 

With DVT being formally enforced, India is the latest entrant in the list of jurisdictions such as Germany, USA, South Korea and Austria which prescribe competition approval based on the value of the transaction. 

While well-intentioned, DVT could add to the regulatory burden on deals, especially given increasing valuations of companies. Given its nascent stage, the impact DVT has on the Indian merger control regime is yet to be fully assessed. 

Derogation of standstill obligations for open offers 

In the past, investment in listed entities that triggered open offers was rarely pursued, as waiting for CCI approval often made them financially unviable. Additionally, market purchases and block trades on stock exchanges also invariably led to violation of standstill obligations, especially if they were perceived to be strategic. 

Also Read: India now requires all M&As above ₹2,000 crore to get CCI approval

After significant industry clamor, the Competition Act now allows transactions involving an open-offer element to be consummated prior to receipt of CCI approval, subject to certain conditions being fulfilled by the acquirer. Of the conditions involved, a key criterion is that voting rights must remain suspended until CCI approval is received. 

This is a welcome move for the Indian merger control regime, which addresses unintended violations of standstill obligations. Previously, the CCI has imposed monetary penalties on transacting parties for violating standstill obligations in a transaction involving open-market purchases.

Codification of ‘Control’ as material influence 

The concept of ‘control’ has always been interpreted more broadly under antitrust laws than under traditional corporate laws. Under the amended Competition Act, the net is cast even wider, as control will now be assessed on the lower standard of ‘material influence’. Accordingly, among others, any special rights to an entity that are not available to ordinary shareholders of a company or access to commercially sensitive information would meet the control threshold. Noteworthily, the CCI has been assessing ‘control’ from this lens in its review of transactions and the amendment only codifies the existing decisional practice.

Expanded definition of affiliates and green channel route 

With the amendments to the Competition Act, the Ministry of Corporate Affairs has also formally implemented enabling rules. A key change among these rules is the codification of the Green Channel Route (GCR), which ensures deemed approval for non-contentious transactions without any overlaps. 

The new GCR rules, while largely similar to the previous version, introduce two key changes: (i) the definition of the term ‘affiliate’ has been broadened to include entities that allow the acquirer can access commercially sensitive information, and (ii) the analysis of business linkages or ‘overlaps’ must now extend to the ‘ultimate controlling person’ of the acquirer. This effectively narrows the scope of the GCR, making it more challenging for the transacting parties to avail of this facility. 

These amendments are expected to significantly impact financial sponsors who typically have minority stakes in entities and possess extensive information rights. India Inc., particularly financial sponsors, must exercise caution when evaluating eligibility of transactions for the GCR route, especially given the CCI’s recent trend of imposing penalties on parties that incorrectly avail of this benefit.

Shorter timelines

The CCI has a good track record of maintaining reasonable timelines even while tackling complex merger control cases. Through the changes to the Indian merger control regime, these timelines have been reduced. Previously, the CCI had 30 working days to provide its prima facie views on a transaction, which has now been reduced to 30 calendar days, while the maximum approval timeline has been reduced from 210 calendar days to 150 calendar days. 

This shift is a positive development for India Inc., given the ever-increasing pace of M&A transactions. Concurrently, this places a burden on an already understaffed CCI. We can expect an increased responsibility on transacting parties to ensure complete, accurate disclosures to the CCI, or risk multiple questions and potential invalidation of filings.

Conclusion

These amendments position India’s merger control regime on par with more mature global regimes, such as those in the USA and Germany. As India Inc. adjusts to the revised merger control landscape, there is an equal responsibility on the CCI to ensure that these changes do not lead to overregulation. Now better equipped than ever, the CCI will continue to strive for a delicate balance between facilitating investments and corporate transactions while maintaining a competitive playing field. The successful implementation of these changes will strengthen the CCI’s position as an industry-first regulator, and India Inc. must uphold its responsibilities to the highest standards. 

—The authors; Pranjal Prateek and Siddharth Bagul are Partner, and Senior Associate, respectively at Khaitan & Co. The views expressed are personal.

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