Pre-Merger Pitfalls: DVTs And The Gun-Jumping Trigger In India

Introduction

On 20th May 2025, the Competition Commission of India (CCI), marking its 16th annual day, released revised FAQs on merger control, which represent the most significant procedural recalibration of India's Deal Value Threshold (DVT) regime since its implementation in September 2024. The FAQs clarify critical ambiguities surrounding the computation and applicability of the ₹2,000 crore DVT, which specifically addresses interpretive challenges related to interconnected transactions, the determination of commercially sensitive information (CSI), and the expanded affiliate test under the Competition Amendment Act, 2023. The first quarter of India’s 2025 Mergers and Acquisitions (M&A) activity recorded 669 transactions, which amounted to a total of $29 billion, with multiple transactions that exceeded the DVT threshold that would have otherwise faced enhanced scrutiny under the revised interpretative framework. The current complexity can be understood by Brookfield's $2.5 billion acquisition of ATC India Tower Corporation; that is, such transactions now require comprehensive DVT analysis, which should cover not merely headline consideration but also earn-outs, IP rights transfers, and data monetization components that the FAQs now explicitly address.

The procedural complexity extends beyond competition law compliance. Miscalculation of DVT triggers can create a regulatory domino effect across multiple statutory regimes. Under Section 6(2A) of the Competition Act, read with Rule 5 of the CCI Combination Regulations, gun-jumping violations carry penalties up to 1% of total turnover or assets. Concurrently, valuation discrepancies can trigger FEMA (Non-Debt Instruments) Rules, Rule 13 scrutiny for pricing guideline violations, while SEBI SAST Regulations 10 & 14 may be inadvertently triggered through CSI-based affiliate determinations. Following the revised FAQs by the CCI on combinations and merger control, and analysing the regulatory changes and complexities, this piece aims to address the question of how parties should determine and substantiate “value of transaction” for DVT filings in India when the consideration structure includes multiple tranches, earn-outs, non-cash elements (IP, data rights), and currency exposure, particularly in multi-jurisdictional deals where valuations are finalized under foreign laws followed by the question of what procedural safeguards, drafting strategies, and sequencing mechanisms can practitioners adopt to prevent gun-jumping liability and regulatory delays while simultaneously meeting parallel compliance obligations (FDI approvals, SEBI takeover regulations, FEMA filings) triggered by the same cross-border M&A transaction.

Technical Dissection of 'Value of Transaction' under the Current Deal Value Threshold Regime

The ₹2,000 crore deal value threshold (DVT) was introduced by section 5 under clause (a)(ii) of the Competition Act, 2002, which was later amended by the Competition Amendment Act, 2023. However, the term "value of transaction" is not defined by the act itself, which leaves this critical determination to Regulation 5(9) of the CCI Combination Regulations. This statutory silence has created significant interpretative challenges for practitioners navigating complex M&A structures. The regulatory definition under Regulation 5(9) stipulates that the value of a transaction shall include every valuable consideration, whether it is direct or indirect, immediate or deferred, cash or otherwise.

Some critical interpretative gaps that have emerged during this regime’s implementation phase are addressed by the revised CCI FAQs. It is specifically clarified by Q5 that aggregation across all phases is required by multi-tranche transactions, which eliminates any argument that sequential investments should be evaluated separately for DVT purposes. Furthermore, Q6 establishes that non-cash consideration must be valued at fair market value using recognized valuation methodologies, which will place the burden on notifying parties to demonstrate reasonable valuation approaches. The FAQs introduce a critical presumption, that is, if the precise value of a transaction cannot be established with reasonable certainty, the transaction may be considered to exceed the prescribed deal value of INR 2,000 crore. This presumption creates substantial compliance pressure, which requires ex-ante valuation precision rather than post-hoc justification, that will fundamentally alter the risk calculus for transaction planning.

Under the amended combination regime, valuation requires a methodical breakdown of transaction components. Accordingly, firm and contingent consideration (like cash, shares, and earn-outs) must be clearly demarcated in deal documents. Deals that involve share swaps must incorporate current market valuations or independent assessments, especially for unlisted securities. When IP, data access rights, or software licenses are involved, the valuation must rest on well-recognized methodologies like Discounted Cash Flow (DCF), customer acquisition cost analysis, or relief-from-royalty models. Regulation 5(9) is often overlooked by practitioners, which mandates the inclusion of assumed liabilities, including existing debt, pension liabilities, environmental obligations, or deferred employee benefits, into the transaction value. This potentially pushes a deal above the mandatory filing thresholds.

The next steps must include diligence on currency conversion protocols, as cross-border transactions require precise currency conversion protocols aligned with FEMA (Non-Debt Instruments) Rules. For this, spot rates are preferred for upfront consideration though forward rates suit staggered payments, but what matters more is consistency in applying the chosen method, and clarity in documentation. Even though the CCI hasn't prescribed a definitive “conversion date,” parties must either pick the signing date or the closing date and apply it uniformly to avoid any miscalculations. The most critical aspect, however, is the valuation evidence. CCI looks beyond headline numbers as it demands contemporaneous records, which also include merchant banker valuation reports, internal board notes, term sheets, and financial models with auditable assumptions. Furthermore, the reliance on EBITDA multiples or peer comparisons must be benchmarked against precedent transactions, which should be accompanied with sectoral and jurisdictional filters. Ultimately, it’s not just about what the deal is worth, but it should be demonstrated as how defensibly and transparently that worth is demonstrated on paper.

Procedural Overlaps, Sequencing Risks & Gun-Jumping Exposure in M&A Filing Post DVT Regulations

India is entering a phase where Deal Value Threshold miscalculations and filing sequence errors will create cascading regulatory exposure across multiple statutory regimes. The DVT's introduction has fundamentally altered the compliance landscape, which has transformed what were once discrete regulatory touchpoints into an interconnected web of procedural dependencies. The EU imposed a €124 million fine on Altice for violating standstill obligations under Article 7 of the EU Merger Control Regulation, demonstrating how procedural missteps, not just substantive competition concerns, now drive major enforcement actions globally.

The compliance journey begins with a precise DVT calculation under Regulation 5(9) of the CCI Combination Regulations. Transactions that exceed ₹2,000 crore trigger mandatory Form II or Form III notifications, accompanied by a 30-day initial review period. The May 2025 CCI FAQs clarify that valuation uncertainty creates a regulatory presumption that favours notification, effectively reversing the burden of proof for borderline transactions. As for the FEMA compliance and pricing guidelines, FEMA (Non-Debt Instruments) Rules compliance under RBI's Master Directions is triggered simultaneously by Cross-border transactions. Valuation discrepancies between CCI filings and FEMA reporting create enforcement risk, particularly where different methodologies for IP or data asset valuations by DVT calculations.  Furthermore, the RBI's pricing guidelines under Rule 13 require consistency with fair market value determinations presented to CCI. Also, acquisition structures may inadvertently trigger SEBI SAST Regulations 10 & 14 through shareholding thresholds or control acquisitions. The “affiliate” definition is expanded by the DVT regime, capturing entities with access to commercially sensitive information that can unexpectedly aggregate shareholdings across related parties, triggering mandatory open offer obligations.

Effective transaction documentation employs comprehensive conditional closing clauses pending all regulatory approvals. These provisions must specifically reference CCI DVT clearance, FEMA compliance confirmation, and sectoral approval receipt. Generic "regulatory approval" language creates ambiguity regarding which approvals trigger closing obligations. Post-signing operational separation requirements prevent premature integration allegations. Detailed information barriers, independent decision-making protocols, and competitive conduct preservation measures provide defensive documentation against gun-jumping charges. The CCI's guidance on hold-separate arrangements supports properly structured undertakings. Furthermore, Multi-tranche payment architectures with regulatory milestone-based releases help manage DVT calculation timing and reduce gun-jumping exposure. Escrow arrangements pending final approvals demonstrate a genuine conditional structure rather than a disguised immediate implementation.

Conclusion

An enforcement matrix is created by Sections 6 and 43A of the Competition Act, read with Regulations 5(8) and 5(9) of the Combination Regulations, where valuation methodology errors cascade into substantive legal violations. The CCI's analysis of 27 penalty cases under Section 43A between 2011-2024 reveals that approximately 65% involved valuation discrepancies or timing misrepresentations in Form I and Form II filings, with penalties ranging from ₹5 lakh in Hindustan Colas to ₹20 lakh in recent cases like Investcorp India. Furthermore complex transaction structures involving earn-outs, IP transfers, and multi-jurisdictional elements require precise DVT threshold calculations, as the May 2025 CCI FAQs establish regulatory presumptions that favor notification filing when valuation uncertainty exists. Because of all this, the evidentiary burden is shifted to notifying parties, which transforms conservative compliance from a strategic choice to a legal necessity.

Procedural sequencing failures create compounding gun-jumping exposure across domestic and international regulatory regimes, as demonstrated by contrasting enforcement approaches in the EU's €124.5 million Altice penalty and India's emerging precedents like the CA Plume decision. The CCI's expanding interpretation of "implementation" beyond formal closing, which encompasses board representation, information access, and operational integration, mirrors EU Article 7 standstill obligations, while it lacks comprehensive guidance on permissible pre-closing activities. Cross-border transactions face particular complexity where Indian DVT calculations must align with foreign merger control valuations, FEMA pricing guidelines, and SEBI disclosure requirements, creating potential conflicts across multiple enforcement jurisdictions. India's regulatory evolution demands the development of safe harbor provisions for early-stage technology investments and binding CCI guidance on implementation thresholds, particularly regarding what specific actions constitute prohibited "control" during standstill periods. The current enforcement landscape suggests that inter-agency coordination mechanisms between CCI, RBI, SEBI, and sectoral regulators will become essential to prevent the procedural fragmentation that currently amplifies compliance costs and regulatory uncertainty across India's maturing M&A ecosystem.

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Authored by Adeeb Bakhtavar, a third-year student at Dr. B.R. Ambedkar National Law University, Sonepat.