Unpacking the CCI's new FAQs on Combinations: Insights for Businesses
The Competition Commission of India (CCI) has released a set of FAQs offering clarity on various aspects of India’s competition law, impacting transactions that require notification. This summary highlights the most important takeaways.
A detailed commentary on the additional nuances in the FAQs is available here. Axiom5’s detailed primer on India’s revised merger control rules is available here.
I. What exactly is control? More clarity, more nuance
The FAQs clarify that control isn’t just about majority rights.
Even a single board seat can imply material influence depending on the expert status of the director - while an observer seat alone does not.
Importantly, a shift in the degree or quality of influence, even without any change in shareholding, can still amount to a change in control.
Takeaway: The CCI is clearly looking beyond simple definitions, focusing on actual influence to determine control. Identifying affirmative rights that may or may not confer control is a positive clarification for investors. For a deeper dive into how the CCI now assesses control and influence, see the full analysis here.
II. Navigating Deal Value and Thresholds - the FAQs signal broader consolidation, stricter aggregation, and more uncertainty
The FAQs stretch the boundaries on what must be included while determining deal value and turnover-based thresholds.
For asset/turnover thresholds, you now must consolidate financials of entities where you have “material influence.” This is a significant burden for large conglomerates and private equity funds, as it requires going beyond standard consolidated financial statements.
Parties to aggregate the deal value of past acquisitions by their affiliates (including where an affiliate holds as little as 10%, has an observer seat or access to commercially sensitive information).
Takeaway: The FAQs also provide guidance on evaluating notification requirements for call/put options, determining deal value in multi-step transactions, etc. For a comprehensive breakdown of these changes and how they may affect your transaction planning, see the full analysis here.
III. Understanding the India-Nexus for High Value Deals - New clarity on digital services, GMV and a tougher aggregation standard
The FAQs clarify how the India-nexus component of the Deal Value Threshold is assessed.
The FAQs draw a clear line between digital service providers (those facilitating transactions) and businesses merely selling goods online.
Gross Merchandise Value (GMV) includes all facilitated sales, own goods included, whether online or offline. Importantly, the FAQs introduce a broad aggregation rule for India-nexus parameters (users, GMV, turnover) across multiple targets.
Takeaway: The CCI's definitions for digital services and GMV are comprehensive, but the aggregation requirement for multiple targets needs refinement to avoid unintended notifications. For a breakdown of how the India nexus is now interpreted, see the detailed analysis here.
IV. Fund Structures and Ultimate Controlling Persons (UCPs) - The FAQs tighten expectations on how funds and complex groups assess control and business overlaps
The FAQs clarify that fund managers are typically treated as controllers of their funds and portfolio companies.
Turnover and overlaps of portfolio companies are attributed to the fund manager.
Overlap mapping must cover the acquirer’s full UCP chain - including its controlled entities, affiliates, affiliates of its controlled entities, and controlled entities of its affiliates, and for the target, its downstream controlled entities and their affiliates, affiliates, and controlled entities of its affiliates.
Takeaway: The CCI expects a close look at control structures, particularly for funds and complex corporate groups. Two key consequences follow: (i) the lowered standard for 'control' and the inclusive definition of 'affiliates' may complicate the process of identifying overlaps, as it will cover a much wider set of entities and (ii) consolidation at the level of material influence may significantly inflate asset and turnover figures, potentially triggering filings that would otherwise fall below thresholds. For a deeper dive into how the FAQs deal with fund management structures, see the analysis here.
V. Decoding Exemptions - more emphasis on outcomes, not intent
The FAQs provide sharper guidance on when exemptions under the Combination Regulations apply.
Exemptions for intra-group share acquisitions (Item 5 exemption) apply only if there’s no shift in control (including quality or degree of control), and a single shareholder or two or more shareholders belonging to the same group crossing 75% shareholding now presumes change in control, disqualifying the exemption.
Exemptions for corporate actions (Item 8 exemption) (e.g., rights issues, buybacks) won’t apply if they result in a change in control, even if unintentionally - what matters is the objective effect, not the shareholder’s intent.
Takeaway: The CCI is scrutinising exemptions more closely, focusing on the effect of a transaction on control, rather than just its form or stated intent. Businesses must carefully assess all corporate actions for potential notification triggers. For further guidance on how the CCI is tightening its approach to exemptions, see the detailed note here.
VI. Interconnected Transactions, clarifying when deals are linked
The FAQs provide important clarifications on inter-connected transactions.
Separate investments by separate entities are only inter-connected if there’s a clear ‘meeting of minds’ (i.e., mutual understanding), mere participation in the same round or common transaction documents isn’t enough to determine inter-connection.
In notifiable inter-connected transactions, an acquirer whose individual investment is independently exempt under the exemption rules need not assess overlaps with the target - though the CCI may still request it.
Takeaway: The CCI clarifies when multiple investments are linked, but the "meeting of minds" concept will require careful interpretation. For a breakdown of the FAQs on interconnection, see the analysis here.
These FAQs mark a significant evolution in India's competition law enforcement, promoting greater predictability but also demanding a more granular approach to compliance with competition law. Businesses must adapt to these new interpretations to ensure smooth transactions and avoid regulatory hurdles.