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The authors are Ali Ahmed Chaudhary, a fourth year student at National Law University Delhi and Mihika Mukherjee, a fifth year student at BML Munjal University.
The New Combination Regulations and Digital Markets
The new Combination Regulations revised various aspects of the merger control regime. The main changes are with respect to monetary thresholds that serve as a numerical benchmark to determine whether a deal is significant enough to warrant scrutiny by competition authorities. This is termed as Deal Value Threshold (‘DVT’). DVT is a regulatory concept introduced in competition law to assess the potential competitive impact of a transaction based on its monetary value. A deal value comprises the total value of the transaction that includes all forms of considerations, be it direct or indirect, deferred, etc. The impetus for the introduction of DVT was the inability of CCI to examine multiple transactions in the digital and other sectors that were exempt from being notified. This was because the asset or turnover values fell below the jurisdictional criteria.
The Combination Regulations have specified that transactions with a Global Deal Value (‘GDV’) of INR 2,000 crore (USD 238 million); and Significant Business Operations (‘SBO’) will be required to be notified to the CCI, irrespective of the applicability of the de minimis exemption. For digital services, the Combination Regulations have specified thresholds such as if 10% or more end users are in India, or, if the target’s Gross Merchandise Value (‘GMV’) in India in the twelve months preceding the trigger event is 10% or more of its global GMV, then the target would be presumed to have SBO in India.
As digital service providers and technological innovations gain more traction, it becomes increasingly necessary to regulate the digital space. Merger control is crucial in this context to prevent the emergence of data monopolies, market tipping, accounting for the global scale of digital businesses and enhancing the ease of doing business in India’s digital sector since these markets transcend traditional geographic boundaries.
However, the Combination Regulations fall short of addressing the unique challenges posed by digital markets. Given the fact that there is a shift towards regulating digital markets and a Draft Digital Competition Law Bill has already been formulated, the Combination Regulations should have encompassed the unique challenges that come with regulating digital markets. This also has a direct nexus with India’s economic policy, since while addressing anti-competitive risks in digital markets, it is equally important to maintain a regulatory framework that promotes the ease of doing business. With a narrower scope of exemptions being granted to minority acquisitions, more transactions would have to be notified to the CCI, thereby increasing the burden on the regulator as well as complexifying the ease of doing business. Furthermore, these markets exhibit higher chances of market concentration and traditional methods of providing value thresholds do not capture competitive risks such as market tipping and combinations of data-rich companies.
While the new Combination Regulations have eased merger approval timelines, and the CCI has a track record of approving all mergers and modifying only some, it is feared that with an increase in the number of transactions now being notifiable, the CCI may not have the bandwidth for assessing the same. There is an efficiency argument at play here since the CCI as a regulatory body has limited capacity, and in the coming days, a plethora of changes are expected to take place, especially in the sphere of digital competition law.
Analyzing the Impact of DVT on Digital Market Transactions in India
India’s regulatory framework has continuously evolved to enhance the ease of doing business while safeguarding competitive markets. The evolving digital economy has brought forth new regulatory challenges concerning extreme returns to scale, network externalities, and the role of data, particularly in assessing the competitive impacts of mergers and acquisitions. The traditional asset or turnover-based thresholds often fail to capture the value of transactions in the digital sector, where firms may have low tangible assets but significant value in data and technology. This section examines the DVT framework under Section 5(d) of the Competition Act and analyzes its implications for digital market transactions in India.
India's decision to adopt deal value thresholds (DVT) aligns with global trends in competition law. Previously, the CCI based its jurisdictional thresholds on asset or turnover values. Following the recommendation of the Competition Law Review Committee (‘CLRC’), DVT was introduced to enhance the CCI’s ability to scrutinize digital transactions that previously evaded oversight due to de minimis exemptions or low turnover values. The concept of DVT is not unique to India. Several countries, including the USA, Germany, and Austria, have incorporated deal value-based thresholds into their competition frameworks to address the unique challenges posed by digital markets. For instance, Germany introduced a EUR 400 million threshold under its competition laws, while Austria set a threshold at EUR 200 million. These thresholds apply to transactions with significant market activity within their borders, even when turnover or assets fall below traditional criteria. A notable example is the Zomato-Uber Eats acquisition in India. Valued at approximately INR 2,500 crores, the transaction escaped CCI scrutiny in 2020 due to the absence of DVT in the merger control regime at the time.
India, inspired by these international developments, must strike a careful balance between fostering innovation and safeguarding competition. The European Union (EU), for example, introduced DVT in its EU Merger Regulation (Council Regulation (EC) No 139/2004) to target digital sector transactions. However, challenges have arisen in applying DVT to rapidly evolving markets, highlighting the complexity of capturing the true value of new business models. India must remain mindful of these peculiarities as it navigates the application of DVT, learning from the EU’s experience with the 2004 Merger Regulation. This becomes more important as India is also trying to bolster its startup ecosystem, especially in the digital sector, which heavily thrives on foreign investment and may bear the brunt of additional compliance burdens. Startups seeking capital infusions may find themselves subject to rigorous due diligence and regulatory scrutiny under the DVT regime, potentially delaying funding or causing investors to reconsider. It is expected that the number of transactions that come under the purview of CCI may increase substantially in light of the new changes. Additionally, the CCI may face administrative overload with an increase in the number of transactions requiring review. This is particularly significant because the CCI already holds ex-post powers to review transactions and assess whether they result in an Appreciable Adverse Effect on Competition (‘AAEC’). This was evident in the PVR/Inox case, where the CCI confirmed its authority to examine abusive conduct under the provisions of the Act, even after the transaction was completed.
Lastly, India’s implementation of DVT and other revisions to its merger control regime must avoid the pitfalls experienced by the European Union under the Digital Markets Act (‘DMA’). Delays in the launch of technological innovations, such as Apple Intelligence, Microsoft’s AI assistant in the EU, serve as cautionary tales. Excessive regulation could stifle innovation in India’s fast-growing digital sector if not carefully managed. India must tailor its regulatory framework to avoid similar pitfalls, particularly as it seeks to balance regulatory oversight with fostering growth in its digital economy.
Conclusion
The CCI’s new Combination Regulations represent a pivotal shift towards addressing the complexities of the digital economy. By incorporating deal value thresholds, the CCI aims to capture transactions that traditionally slipped under the radar due to low asset or turnover values. However, while this provides a robust mechanism to prevent anti-competitive mergers in the digital sector, it also raises concerns over increased regulatory burdens and potential delays in business operations. To maintain its digital growth trajectory, India must ensure that this enhanced scrutiny doesn't stifle innovation or impede market entry. While India is taking steps towards regulating digital markets, a balanced approach is required in terms of fostering innovation and competition and also maintaining consumer welfare as well as data protection.
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