India recently announced that it is considering tightening scrutiny of mergers and acquisitions by amending its competition law, including requiring global technology companies to seek the country’s antitrust approval for many overseas M&A deals.

Although some of the changes that the draft law aims to introduce have been hailed as pro-business, some concerns have arisen about the burdens it will impose on smaller firms while dampening appetite for high-value deals.

Nisha Kaur Uberoi, head of the national competition law practice at Trilegal, says that the Competition (Amendment) Bill 2022 brings some “welcome changes,” including the introduction of settlements and commitments for vertical agreements and abuse of dominance. “Leniency plus is also being introduced in line with international best practices which will give a further fillip to the leniency regime. The long-awaited penalty guidelines will also provide certainty to industry,” she notes.

However, one area of concern is the “transaction value” threshold. The government is set to introduce a minimum threshold “transaction value” of 20 billion rupees ($250 million) for any deal as a criterion for notification to the anti-trust regulator if the entity being acquired has substantial operations in India.

However, many high-value deals between technology firms that have a big presence in India have escaped scrutiny because the companies involved have had few assets and low turnover there, reported Reuters. Facebook’s acquisition of WhatsApp in 2014 for $19 billion, for example, required no CCI clearance, even as WhatsApp counted India as a major market, it added.

“This could potentially impact the digital economy sector in particular regarding acquisitions of small companies which are typically target-exempt on account of low revenues if the CCI were to adopt metrics similar to Austria and Germany in terms of number of monthly active users,” Uberoi says. She points out that the CCI will lay out the process to determine whether an entity has “substantial business operations” in India.

Moreover, the government intends to reduce litigations by establishing a settlement. But a proposed 25 percent penalty deposit for appeals, compared to the current 10 percent, draws unease. Uberoi fears that the penalty “will have unintended consequences of impacting access to justice for small and medium size companies, who will now have to pay a higher deposit.”

Overall, Uberoi stresses that the government should maintain a balanced approach when regulating M&A transactions, and the role of CCI in framing regulations is crucial. “Otherwise, the CCI will unnecessarily receive merger filings which do not have local nexus to India,” Uberoi says. “Given that the devil lies in the details, for the law to be effective without posing an unnecessary burden on industry, the regulations should be put out for public consultation and feedback, and the regulations and proposed amendments in the law should come into effect in tandem.”