M&As: MCA plans to issue rules on ‘deal value threshold’ next month

The Corporate Affairs Ministry (MCA) is likely to next month come up with the much-anticipated rules that would set the stage to require certain offshore digital transactions with a value of more than ₹2,000 crores (about $242 million) to get prior approval from the Competition Commission of India (CCI) before heading towards the combination.

Once MCA issues the relevant Rules, then CCI can go ahead to issue the necessary regulations that would specify the procedure around ‘deal value threshold’ provision implementation, sources said. 

The MCA is likely to approach the Election Commission of India (ECI) to seek the latter’s permission to issue such rules when the model code of conduct for the general elections are in place, sources said.

The ECI had announced a seven phased general elections starting from April 19 and ending on June 1. The results of the general elections are to be announced on June 4.

This deal value threshold provision —introduced in the Competition (amendment) Act 2023—is expected to have the most impact on high profile transactions in the evolving digital industry, as well as new age enterprises involved in M&A transactions. The Competition (amendment) Act 2023 had received Presidential assent on April 11 last year.

Last September, the CCI came up with draft regulations that sought stakeholders’ views on how the ‘India nexus’ (significant business operations) be determined for trigger of the ‘deal value threshold’ provisions.

To determine SBO in India, the CCI’s draft regulations had outline three key criteria: the number of users, subscribers, customers, or visitors; gross merchandise value; and turnover. If any of these criteria exceed 10 per cent of the global figures during the twelve months preceding the relevant date, the transaction is considered to have SBO in India, necessitating merger control reporting.

Bridging the gap

This move aligns with global trends in addressing enforcement gaps in the digital industry, where transactions may involve substantial valuations but lack traditional markers of size like assets or turnover.

The industry is keenly awaiting the final norms on how the parameters and perimeters on which the “India nexus” will be determined. Many digital business transactions, especially the big tech’s offshore ones, do not involve large assets or turnover but are consummated with high valuations. These deals did not, until now, fall under the CCI lens as part of merger control, although the companies involved in the transaction had substantial business interests in India. They had not come under CCI scrutiny as the merger control criteria in the existing competition law were based on “assets” and “turnover” thresholds. It did not cover deal values as a criterion for M&A notification to CCI.

The existing merger control regime in India employs traditional asset and turnover thresholds under the Competition Act to determine whether a transaction requires notification and approval from the CCI. 

As a result, certain transactions in digital markets avert scrutiny by the CCI despite having an effect on competition in the market. Hence, a deal value-based threshold assessment regime was introduced through the Competition (Amendment) Act 2023.