Deal Value Threshold: New CCI Merger Control Rules Now Catch Loss-Making Startups With Large User Bases
Deal value thresholds now catch acquisitions of loss-making startups with large user bases.
Key points
- Any deal worth more than ₹2,000 crore must be notified if the target has substantial business operations in India, whatever its assets or turnover.
- For digital businesses the test is reach: 10 per cent or more of global users in India in the previous twelve months.
- The small-target exemption does not apply; completing before approval attracts a penalty of up to 1 per cent of turnover or assets.
NEW DELHI — Two years after the deal value threshold came into force, acquisitions of loss-making startups with large Indian user bases — once beyond the reach of merger control because the targets had little revenue and fewer assets — are routinely before the Competition Commission of India. For deal lawyers, the question has shifted from whether a transaction crosses the asset and turnover thresholds to whether the target's users, gross merchandise value or revenue make India one of its principal markets.
"The regulator is no longer looking only at revenue. It is looking at reach," a Delhi-based competition lawyer who has filed several notifications under the new threshold told The Counsel.
What the deal value threshold is
The Competition (Amendment) Act, 2023 added a fourth limb to Section 5 of the Competition Act, 2002. In addition to the asset and turnover tests, any acquisition, merger or amalgamation with a value of more than ₹2,000 crore is a combination that must be notified, provided the target has "substantial business operations in India". The provision, and the CCI (Combinations) Regulations, 2024 that give it content, came into force on 10 September 2024.
Deal value is counted broadly: every form of consideration, direct or indirect, immediate or deferred, including contingent payments, non-compete fees and amounts payable under connected arrangements. Where the consideration cannot be determined with certainty, the parties must notify if there is a reasonable likelihood that it exceeds the threshold.
Substantial business operations in India: the tests
| Type of target | Test (preceding twelve months) |
|---|---|
| Digital services | 10 per cent or more of the target's global users, subscribers, customers or visitors are in India |
| Other businesses | India accounts for 10 per cent or more of global gross merchandise value and that Indian figure exceeds ₹500 crore |
| Other businesses (alternative) | India accounts for 10 per cent or more of global turnover and that Indian figure exceeds ₹500 crore |
The user test is the one that matters for startups. A consumer app with thirty million registered users in India and a hundred million worldwide meets it with no revenue at all. Acquirers must count the target's users in India from the target's own data, and the Commission has said it expects a reasoned computation, not an estimate.
Why the old thresholds missed startups
The asset and turnover thresholds in Section 5 were designed for industrial economies: a target had to have significant assets or sales before its acquisition was reviewable. The de minimis exemption, which currently spares targets with assets of up to ₹450 crore or turnover of up to ₹1,250 crore in India, took most startup acquisitions out of the Commission's view entirely. A company that was losing money while building a user base of tens of millions could be bought by its largest competitor without review — the pattern competition authorities abroad have called the killer acquisition. The deal value threshold overrides the exemption: a deal above ₹2,000 crore is notifiable even if the target's balance sheet would otherwise exempt it.
The procedure now
- Standstill. A notifiable combination cannot be completed, in whole or in part, until the Commission approves it or 150 days pass without a decision — the outer limit the 2023 amendment reduced from 210 days.
- Phase I. The Commission must form a prima facie opinion within 30 calendar days of a complete notification; most startup acquisitions are cleared within that period.
- Green channel. Deals with no horizontal, vertical or complementary overlaps may be notified under the green channel and are deemed approved on filing, but the overlap analysis must be done carefully, because a wrong green-channel filing is void.
- Exemptions. Schedule I of the 2024 regulations exempts categories such as acquisitions of less than 25 per cent solely as an investment with no control, intra-group reorganisations and acquisitions under public bids notified in advance.
- Penalties. Completing without notification or before approval attracts a penalty under Section 43A of up to 1 per cent of the total turnover or assets of the combination, whichever is higher; false or incomplete statements attract separate penalties under Section 44.
The regulator is no longer looking only at revenue. It is looking at reach.
A competition lawyer, to The Counsel
What deal lawyers need to check
- Value the whole deal. Add earn-outs, deferred and contingent consideration, non-compete payments and the value of any connected transaction. A headline price below ₹2,000 crore is not the end of the analysis.
- Count users, not just revenue. For a digital target, obtain the user, subscriber, customer and visitor numbers for India and globally for the preceding twelve months, with the methodology documented.
- Check both sides of the gross merchandise value test. The India share must be 10 per cent or more and the Indian figure must exceed ₹500 crore.
- Do not rely on de minimis. The small-target exemption does not apply once the deal value threshold is met.
- Build the timeline into the deal. Thirty days for Phase I, up to 150 for a full review, and no closing — including no partial closing or exercise of control — in between.
What comes next
The Commission's early decisions under the threshold have cleared most startup acquisitions in Phase I, but they have established that the Commission will look at data access, network effects and the removal of a nascent competitor as theories of harm, not only at market shares. The draft Digital Competition Bill published in 2024, which proposed ex-ante obligations for large digital enterprises, has not been enacted; for now, the deal value threshold is the main tool for reviewing consolidation in digital markets.
What is the deal value threshold?
A fourth limb of Section 5 of the Competition Act, in force since 10 September 2024, under which any acquisition, merger or amalgamation worth more than ₹2,000 crore must be notified to the CCI if the target has substantial business operations in India, regardless of the asset and turnover thresholds.
What counts as substantial business operations in India?
For digital services, 10 per cent or more of global users, subscribers, customers or visitors in India in the preceding twelve months. For other businesses, India accounting for 10 per cent or more of global gross merchandise value or turnover, with the Indian figure above ₹500 crore.
Does the small-target exemption apply above the deal value threshold?
No. The de minimis exemption for targets with assets of up to ₹450 crore or turnover of up to ₹1,250 crore does not apply once the deal value threshold is met.
What is the penalty for closing without approval?
Up to 1 per cent of the total turnover or assets of the combination, whichever is higher, under Section 43A, with the possibility of unwinding, and separate penalties under Section 44 for false statements.
The Counsel will report the Commission's decisions under the threshold as they are published. Parties to a transaction involving a target with a significant Indian user base should take advice from a qualified competition lawyer before signing.
Varun Khanna
Varun writes on commercial arbitration, competition law and cross-border disputes.
This report is for general information only and does not constitute legal advice. Readers should consult a qualified lawyer about their own circumstances. Case citations are to The Counsel Reports (TCR) unless otherwise stated.