Navigating India’s New Competition Regime: Insights into the Competition (Amendment) Act, 2023 and Combinations Regulations 2024

• Author(s): Dipak Rao, Nishita Arora
• Date: 15-Oct-2024
• Post in: Merger & Acquisitions

Introduction

The Competition (Amendment) Act, 2023 ("Amendment Act"), introduced in April 2023, has ushered in significant reforms to India’s anti-trust legal framework. These amendments are being implemented in a phased manner. Recently, the Ministry of Corporate Affairs, via a notification dated September 9, 2024 (“Notification”), enforced several provisions of the Amendment Act, effective from September 10, 2024.

One of the key changes introduced by the provisions enforced through the Notification is the expansion of the scope of the term "Combination" as defined under the Competition Act, 2002 ("Act"). A Combination, under the Act, refers to mergers, acquisitions, or amalgamations that have the potential to cause appreciable adverse effects on competition in the market. The newly enforced provisions broaden the definition of a Combination, thereby extending the reach of the Competition Commission of India (“CCI”) to assess a wider range of mergers and acquisitions that could have an appreciable adverse impact on competition in India.

Pursuant to the implementation of these select sections of the Amendment Act, the CCI has introduced the Competition Commission of India (Combinations) Regulations, 2024 ("Regulations") which provide detailed procedural guidelines for the classification, notification, and regulation of Combinations under the Act.

What is a Combination?

Under the Competition Act, 2002, the acquisition of one or more enterprises by one or more persons, or the merger or amalgamation of enterprises, is classified as a "Combination" if the monetary value of the assets or turnover of the enterprises involved meets the thresholds specified in the Act. Traditionally, these thresholds were based solely on the value of assets or turnover of either of the enterprises involved in the transaction.

The Amendment Act introduces a significant change by introducing a new basis for classifying transactions as Combinations, called the "deal value threshold". This means that in addition to the traditional method of classifying transactions based on the assets or turnover of the involved enterprises, a transaction may now also be classified as a Combination based on its total value. Specifically, if the total value of any transaction, such as the acquisition of control, shares, voting rights, or assets of an enterprise, or a merger or amalgamation, exceeds INR 20 billion (USD 238 million approx.), it will qualify as a Combination. Consequently, the parties involved must provide prior written notice to the CCI, in accordance with the Regulations, before proceeding with such a transaction.

Furthermore, the Amendment Act has streamlined the process for obtaining CCI's approval for Combinations. Previously, the CCI had up to 210 days to review and approve a Combination. However, the Amendment Act has reduced this period to 150 days, expediting the approval process and providing greater clarity and efficiency in business transactions subject to the Act.

The Regulations

Effective from September 10, 2024, the Regulations outline the methodology for calculating the value of a transaction to determine whether it exceeds the prescribed thresholds for classification as a combination. According to the Regulations, all forms of valuable consideration must be taken into account when assessing the transaction value. This includes any form of payment or benefit, whether direct or indirect, immediate or deferred, in cash or otherwise.

Valuable consideration, for this purpose is broadly defined, and includes, but is not limited to, the following:

1. for any covenant, undertaking, obligations, or restrictions imposed on the seller or any other person, if such consideration is agreed separately;
2. for all inter-connected steps and transactions related to filing of a notice, as provided in Regulation 9 (4) and 9 (5) of the Regulations;
3. payable during two years from the date on which the transaction would come into effect for arrangement(s) entered into as part of the transaction or incidental thereto including but not limited to technology assistance, licensing of intellectual property rights, usage rights of any product, service or facility, supply of raw materials or finished goods, branding and marketing;
4. for call option and shares to be acquired thereof assuming full exercise of such option;
5. payable, as per best estimates, based on the future outcome specified under the transaction documents.

It is important to note that the newly introduced deal value threshold applies only to transactions involving target enterprises that have “substantial business operations” in India as defined under the Regulations.

Additionally, the Regulations outline a comprehensive process for filing a notice regarding a potential combination. This includes detailed procedures for scrutiny of the notice, the consequences of failing to submit the required notice, and other related aspects of the combination approval process.

Conclusion

The enforcement of the Amendment Act and the introduction of the new Regulations mark a crucial development in India’s competition law landscape. The expansion of the definition of combinations and the procedural enhancements provided by the CCI are expected to foster a more transparent and effective competition regime in India, aimed at ensuring that market combinations do not hinder competition, consumer welfare, or innovation. Companies engaging in mergers, acquisitions, or joint ventures will now need to consider a wider range of regulatory requirements and potential competitive impacts when structuring their transactions.