The Traditional Thresholds and the Deal Value Threshold Compared

Indian merger control now has two gateways. The traditional thresholds in Section 5(a) to (c) measure the parties by what they own and what they earn, taken from audited accounts. The deal value threshold in Section 5(d), notified with effect from 10 September 2024, measures the transaction by what the acquirer is paying, coupled with a test of the target's presence in India. They rest on different assumptions about where competitive significance lies, and a transaction is notifiable if it crosses either.

1. The Comparison

Basis	Asset and turnover thresholds	Deal value threshold
What is measured	Assets and turnover of the parties and their groups, in India and worldwide	The value of the transaction, with every form of consideration included
Source of the figures	Audited financial statements	The transaction documents and the valuation
Assumption	Competitive significance is reflected in the size of the businesses	Competitive significance is reflected in the price the acquirer is willing to pay
Indian nexus	Built into the figures through the Indian leg of each threshold	Supplied separately by the substantial business operations test
Small target exemption	Applies, so a target below four hundred and fifty crore rupees of assets or one thousand two hundred and fifty crore rupees of turnover is exempt	Does not apply
Blind spot	A target with users, data or technology but little revenue or assets	A modest-value transaction that nevertheless removes an important competitor
Ease of application	Objective and mechanical	Requires judgment about deferred, contingent and indirect consideration

2. Why the Second Gateway Was Added

The asset and turnover tests worked well for conventional industries, where a firm of competitive significance has factories, inventory and revenue. They failed for a particular and increasingly common class of transaction: the acquisition of a young digital enterprise whose value lies in users, data and technology, and which has neither assets nor revenue to speak of. Such a target could be the acquirer's most plausible future competitor and yet be exempt from notification twice over, once because the thresholds were not met and again because the small target exemption positively applied. The deal value threshold closes both gaps, and its disapplication of the small target exemption is the essential part of the design.

3. The Two Limbs of the New Threshold

Value exceeding two thousand crore rupees, computed to include direct, indirect, immediate and deferred consideration, contingent amounts, payments for non-compete covenants, and consideration under interconnected arrangements such as licensing, technology assistance or usage rights. Where the value cannot be determined with reasonable certainty, the transaction is treated as crossing the threshold.
Substantial business operations in India, established by any of three alternative tests: for a digital services enterprise, business or end users in India amounting to ten per cent or more of the global total; gross merchandise value in India for the preceding twelve months amounting to ten per cent or more of the global figure and exceeding five hundred crore rupees; or turnover in India amounting to ten per cent or more of global turnover and exceeding five hundred crore rupees.

⚠ The order in which to test a transaction

First, apply the asset and turnover thresholds at both the enterprise and the group level. Second, apply the deal value threshold, remembering that both its limbs must be satisfied. Third, if only the traditional thresholds are crossed, consider the small target exemption and the categories in the exemption rules. Fourth, if the deal value threshold is crossed, stop: the small target exemption is unavailable and the transaction must be notified whatever the target's financial figures. Reversing the third and fourth steps is the commonest error.

4. Assessment

The new threshold brings India into line with jurisdictions that adopted value-based tests for the same reason, and it closes a real gap rather than a theoretical one. Two criticisms deserve mention. It introduces uncertainty, because the computation requires judgments about contingent and indirect consideration that the audited-figures test never did, and a party near the line must choose between an unnecessary filing and a gun-jumping penalty. And it is over-inclusive, since a high valuation often reflects growth prospects rather than any overlap with the acquirer, so filings will be made in respect of transactions raising no competition question. The answers offered are pre-filing consultation, the green channel for transactions with no overlap, and the proportionate design of the substantial business operations test.

5. Related Topics and Provisions

Topic or provision	Connection
The Deal Value Threshold	Section 5(d) in full, including computation of value
Regulation of Combinations: Sections 5 and 6	The thresholds and the notification regime
The Minimum Value of Assets or Turnover Rules, 2024	The small target exemption and its disapplication
Sections 5 and 43A, Competition Act, 2002	Thresholds and the consequence of not notifying