The Deal Value Threshold

Section 5(d), inserted by the Competition (Amendment) Act, 2023 and notified with effect from 10 September 2024, requires a transaction to be notified where its value exceeds two thousand crore rupees and the target has substantial business operations in India. It exists because the asset and turnover thresholds asked the wrong question about a certain class of transaction. A digital enterprise may have thousands of crores of value, tens of millions of Indian users and almost no assets or revenue, and its acquisition by an incumbent escaped notification entirely. The deal value threshold asks instead what the acquirer was willing to pay, on the footing that the price reveals what is being bought.

1. The Purpose

Three gaps in the old regime explain the provision. The first is the killer acquisition: an incumbent buys a nascent rival whose product would have competed with its own, and discontinues it. The target has no turnover because it has not yet monetised, and few assets because its value is in code, data and users. The second is the acquisition of a large user base with no revenue, where the competitive significance lies in the data and the network rather than in the financial statements. The third is the small target exemption itself, which positively excluded from notification precisely the transactions in which value and reported figures diverge most.

The threshold answers all three by using the transaction value as the measure of competitive significance, and by disapplying the small target exemption to any transaction that it catches. That last point is the one most often missed: a target with assets below four hundred and fifty crore rupees and turnover below one thousand two hundred and fifty crore rupees is ordinarily exempt, but not where the deal value threshold applies.

2. The Two Limbs

1. Value exceeding two thousand crore rupees. The value of the transaction, computed as the regulations require and including every form of consideration.
2. Substantial business operations in India. A separate and cumulative requirement, without which a transaction of any size between foreign parties would be notifiable in India merely because of its price.

3. Computing the Value of the Transaction

The Competition Commission of India (Combinations) Regulations, 2024 define what is to be included, and the approach is deliberately comprehensive: every valuable consideration, whether direct or indirect, immediate or deferred, in cash or otherwise.

• Direct consideration. The price paid for the shares, voting rights, assets or control acquired, including consideration paid in securities valued at the time of the transaction.
• Indirect consideration. Amounts paid under arrangements entered into in connection with the transaction, such as technology assistance, licensing of intellectual property, usage rights, supply or branding arrangements, and any other arrangement without which the transaction would not have been agreed on those terms.
• Deferred consideration. Amounts payable at a future date, taken at their value.
• Contingent consideration. Amounts payable on the occurrence of a future event, such as earn-outs based on performance milestones, included at the value ascribed to them.
• Non-compete payments. Consideration for a covenant by the seller or the founders not to compete, which is treated as part of the price and not as a separate transaction.
• Call and put options and convertible instruments. Included on the basis provided in the regulations, since the value of what is being acquired includes the ability to acquire more.
• Interconnected steps. Where the transaction is carried out in stages, the value of all interconnected steps is aggregated rather than taken step by step.

4. Substantial Business Operations in India

The second limb is defined in the Regulations of 2024, and it distinguishes between enterprises providing digital services and others. The tests are alternatives, and satisfying any one is sufficient.

• Users, for a digital services enterprise. The number of business users or end users in India is ten per cent or more of the target's total global number of such users.
• Gross merchandise value. The gross merchandise value in India for the twelve months preceding the relevant date is ten per cent or more of the target's global gross merchandise value, and exceeds five hundred crore rupees.
• Turnover. The turnover in India for the preceding financial year is ten per cent or more of the target's global turnover, and exceeds five hundred crore rupees.

Two features of the design should be noted. The tests are proportionate rather than absolute, so a target with a small Indian presence relative to its global scale is not caught however large that presence is in rupee terms, which keeps the threshold aimed at enterprises for which India is a material market. And the user-based test is the innovation: it measures presence by reference to people rather than to money, which is the only way to capture an enterprise that has users and no revenue.

5. The Threshold in Operation

1. It applies from 10 September 2024. It governs transactions whose documents were executed and which had not closed before that date.
2. It is an additional gateway, not a replacement. A transaction is notifiable if it crosses the asset or turnover thresholds in Section 5(a) to (c) or the deal value threshold in Section 5(d).
3. It overrides the small target exemption. This is its principal practical effect.
4. It applies to all sectors. Although designed for digital acquisitions, the provision is not confined to them, and a high-value acquisition in any sector with a material Indian presence is caught.
5. Multi-step transactions. Where earlier steps have closed, the later steps may still attract notification if the threshold is crossed, and the closing of intermediate steps does not by itself amount to gun jumping in the manner the transitional guidance indicates.

6. Comparison with the Traditional Thresholds

7. Assessment

The provision brings India into line with the jurisdictions that have adopted value-based thresholds for the same reason, and it closes a gap that was real rather than theoretical. Two criticisms are made and should be stated. The first is uncertainty: the computation of value requires judgments about deferred and contingent consideration and about which collateral arrangements form part of the transaction, and parties near the line face a choice between filing unnecessarily and risking a gun-jumping penalty. The second is over-inclusion: a threshold expressed in price catches transactions in which a high valuation reflects growth prospects rather than any competitive overlap, so a number of filings will be made in respect of transactions raising no competition issue at all. The answers offered are the pre-filing consultation mechanism, the green channel for transactions with no overlap, and the proportionate design of the substantial business operations test.

8. Related Topics and Provisions