The Competition (Amendment) Bill, 2022 (Bill No. 185 of 2022) (the “Bill“) was introduced in the Lok Sabha on August 5, 2022. It seeks to, “carry out certain essential structural changes in the governing structure of the Competition Commission of India and changes to substantive provisions to address the needs for new age markets,”1 and amend the Competition Act, 2002 (the “Act“), following the circulation of the draft Competition (Amendment) Bill, 2020 and the 2019 report issued by the Completion Law Review Committee. The Bill, in its current form, aims to make several amendments to the Act and we have summarized several key developments related to the regulation of combinations under the Bill below:
Introduction of Deal Value Thresholds for Combinations.
Under the Act, in order for an acquisition or a merger to be considered a “combination,” and thus mandatorily requiring notification of the transaction to the Competition Commission of India (“CCI“), the assets and turnover of the various parties to the combination would have to be assessed with respect to the threshold limits set out in the Act. The Bill has now introduced another test to determine whether a transaction will be a combination under the Act: deal value thresholds. Under the Bill, all transactions (that cannot claim any exceptions enumerated under the Act) will require notification to the CCI if: (i) the global deal value exceeds Rs. 2,000 crores; and (ii) the party or parties involved in the transaction have “substantial business operations in India.”2 However, the Bill is silent on what constitutes “substantial business operations in India,” and leaves it up to the CCI to specify the same by way of regulations. Further, the computation of the “value of transaction” as per the Bill will now include every valuable consideration (direct, indirect or deferred) provided for any merger, acquisition or amalgamation.
Amended Definitions for Control and Group.
The Bill also introduces new definitions for “control” and for “group” for the purposes of determining whether a transaction qualifies as a combination under the Act. Under the Bill, “group” is now defined as two or more enterprises, wherein one enterprise is in a position (directly or indirectly) to: (i) exercise 26% (or such prescribed higher percentage) of the voting rights in the other enterprise; (ii) appoint more than 50% of the members of the board of directors of the other enterprise; or (iii) control the affairs or management of the other enterprise.3 Further, the Bill defines “control” as the ability to exercise, in any manner, material influence over the management, affairs or strategic commercial decisions by: (i) either one or more enterprises over another enterprise or group, singly or jointly; or (ii) one or more groups over another group or enterprise, either singly or jointly.4
Reduction in the Time Limit for the Approval of Combinations.
The Act is suspensory in nature and where acquisitions are required to be notified (i.e. in case a transaction falls within one of the categories of a combination as set out in Section 5 thereof) they cannot be implemented without the approval of the CCI. The current regime under the Act provides that a combination shall only be effective upon the earlier of an order having been passed by the CCI in this regard, or upon the expiry of a period of 210 days from the date of the notice of the combination having been submitted to the CCI.5 The Bill proposes to reduce the latter amount further, and now the period for approval of combinations is stated to be reduced from 210 days to 150 days, which may be extended by 30 days in the event that a party to the combination requests the CCI for additional time to provide any relevant information or remove any defects that may be present in the notice.6
Enhanced Penalty for Furnishing False and Material Particulars.
The Act additionally provides for certain penalties to be paid in the event any party to a combination either: (i) makes a materially false statement, or a makes a knowingly false statement; and (ii) omits or fails to state any material particular, which such party knows to be material. Under the Act, the penalty payable by such party shall be determined by the Commission but shall not be less than Rs. 50 lakhs but may extend to Rs. 1 crore,7 however now the Bill has increased the upper threshold of this amount to Rs. 5 crores.8
Increased Liability for Violation of Standstill Obligations.
The merger-control regime in India additionally imposes a standstill obligation upon the parties to a notifiable transaction and, under the Act, the failure to make the requisite notifications to the CCI can result in a penalty of up to 1 percent of the assets or turnover (whichever is higher) of the combination.9 The Bill amends this provision of law, and now if any party to a combination fails to provide the requisite notice to the CCI or submit the relevant information pursuant to an inquiry into the combination having been initiate by the CCI, it may be liable to pay a penalty of up to 1 percent of the total turnover or assets or the value of transaction of such a combination. However, any party, furnishing a notice to the CCI in this regard that is void ab initio, shall be given a grace period of 30 days from the date of notification by the CCI to this effect, and no action shall be taken by the CCI until the expiry of this 30-day period.10
These amendments will undoubtedly have a significant impact on the Indian merger-control regime and bring transactions into the fore of the act that had been previously excluded for not having met the requisite turnover or asset thresholds, as has been commonly seen in technology-related transactions. While some of the amendments are certainly welcome changes for businesses, for now we must await parliamentary assent for the Bill and the CCI regulations framed thereunder to better ascertain what this would mean for the merger-control regime in India.
1 Lok Sabha, General Information Relating to Parliamentary and Other Matters, July 15, 2022. Available at: http://loksabhadocs.nic.in/bull2mk/2022/15.07.22.pdf
2 Section 6 (B) of the Bill.
3 Section 6 (C) of the Bill.
4 Section 6 (C) of Bill.
5 Section 6 (2A) of the Act.
6 Section 7 (b) of the Bill.
7 Section 44 of the Act.
8 Section 31 of the Bill.
9 Section 43A of the Act.
10 Section 30 of the Bill.