By Sidharrth Shankar & Vaibhav Choukse
The Competition Amendment Bill 2022 (the Bill), introduced recently in Parliament, has opened the floodgates of regulatory developments for India Inc. From merger control to anti-trust, one can expect far-reaching changes in the competition law space and the regulators whip in times to come. While on the one hand, specific catalyst-driven changes will significantly enhance the powers of the CCI, on the other hand, the stakeholders will need to keep a close watch on the forthcoming requisites and compliance.
Here’s a primer on some of the salient features of the Bill.
Deal value thresholds (DVT)
Among several proposed changes, one of the most significant is the introduction of an additional “deal value” criterion for assessing whether a transaction (M&A) requires mandatory approval from the CCI. Under the existing rules, the M&A will require a CCI approval if it crosses specified asset or turnover thresholds. The Bill seeks to capture transactions that would otherwise not be notifiable on account of the target having no, or only insignificant, revenues at the time of the transaction (such as those in digital and infrastructure markets). The case that has regularly been cited to demonstrate the need for DVT is Facebook/Whatsapp. Despite a purchase price of c.$19 billion, the acquisition of WhatsApp by Facebook availed benefit of de minimis exemption in India.
Under the DVT, a transaction will require approval of the CCI if: (a) the deal value exceeds `2,000 crore; and (b) where either party has substantial business operations in India (SBOI), the scope and meaning of which will be clarified by the CCI through regulations. Experience from matured jurisdictions like Austria and Germany suggests that interpreting the notion of SBOI is typically the most difficult part of the assessment in practice. Austria primarily focuses on whether the target has a local presence (i.e., a site or subsidiary), whereas Germany rather looks at the industry in question, in particular, whether a parties’ turnover reliably reflects its market position in this industry.
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Trimming approval timelines
Expediting the merger review timelines is a major focus of the Bill. The prima facie review of 30 working days has been curtailed to 20 working days. The overall review timeline granted to the CCI is also to be reduced from 210 calendar days to 150 calendar days.
The shortened time-line will will put a significant burden/ pressure on the CCI as well as filing parties to complete the review. This may lead to the invalidation of forms by the CCI to restart the clock.
The “control” conundrum
The interpretation of the term “control” remains the most critical and hotly debated topic in the Indian merger control regime as notification of most minority investments depends upon its interpretation. While it started as an ability to exercise “decisive influence”, this has changed to “material influence” over affairs and management of another enterprise. The Bill proposes to codify the aforementioned ‘material influence’ as a standard for control.
Easing standstill obligation
For a notifiable transaction, the parties are not permitted to acquire any shares prior to receiving CCI approval i.e., standstill obligation. This has created hurdles for open-market purchases or stock-market acquisitions where time is the essence, and without any prior disclosures to the public. In the past the parties were penalised for violating standstill obligation in cases involving stock market acquisitions i.e., gun-jumping. In such scenarios, successful consummation is rare, as the real need for instant deal-making goes haywire. Given such roadblocks, the Bill proposes a dilution of the standstill obligations in these cases provided the acquirer does not exercise any rights/interest/receive dividends in such shares/securities.
Settling a dispute
A sweetener in the Bill’s long list of propositions is the plan to set up a Settlements and Commitments mechanism, which will allow parties under investigation in non-cartel cases (i.e., vertical agreement and abuse of dominance) to approach CCI for early termination of proceedings on the basis of offering remedies and cooperation. This will ensure that the adjudication of cases by CCI is put on a fast track and consumes fewer of CCI’s resources, without affecting the quality of adjudication and investigation.
Nailing a ‘facilitator’
Under the existing framework, the cartel agreement between competitors (i.e., engaged in similar trade) is presumed to have an appreciable adverse effect on competition in India. This presumption will now extend to a cartel facilitator like consultant or distributor, whether such facilitator is engaged in similar trade, but have actively participated in or assisted in the cartel i.e., hub and spoke. In such a case, a facilitator will also be exposed to damages/ compensation claims like a cartel member, remains unanswered.
With the early adjournment of the Monsoon Session, the Bill is expected to be debated and passed in the Winter Session. The changes introduced are revolutionary, visionary, and innovative; however, much depends on its successful implementation. The regulator and the industry can finally position the Bill as another ‘Ease of Doing Business in India’ goalpost.
Respectively, partner, M&A, and partner & head of competition law practice, JSA Advocates and SolicitorsViews are personal
