Beyond Thresholds: Reassessing India’s Merger Control Framework to Address MSME Acquisitions

Introduction

In 2023, the Indian Parliament introduced significant amendments to the Competition Act, 2002. Among these, a key development impacting Mergers and Acquisitions (M&A) was the introduction of the Deal Value Threshold (DVT), while retaining the traditional asset and turnover test. The old asset/turnover thresholds failed to capture high-value acquisitions of asset-light digital firms, allowing significant transactions to escape antitrust scrutiny. The DVT closes this loophole by covering deals with substantial deal value, even if the target's local assets or turnover are low. The stated objective of this amendment was to ensure that potentially anti-competitive M&A transactions do not escape regulatory scrutiny.

Despite these safeguards, enforcement-level gaps remain. The Parliament’s Standing Committee on Finance cautioned that a fixed DVT of ₹2000 crore could inadvertently facilitate the acquisition of MSMEs by larger corporations without regulatory scrutiny, thereby enabling the concentration of market power and the possible creation of monopolistic or duopolistic structures. Such concerns are particularly pressing because acquisitions involving Micro, Small and Medium Enterprises (MSMEs) often fall below the prescribed thresholds, allowing transactions to escape notification requirements. This has facilitated a pattern of creeping acquisitions that cumulatively generate anti-competitive effects, even though no single transaction independently triggers the threshold. This phenomenon has been conceptualised as the “inverted pyramid” effect. It enables large corporates to easily acquire MSMEs without regulatory scrutiny, potentially harming the MSME sector. 

This blog seeks to critically examine this issue by, first, analysing the problem of false negatives within Indian competition jurisprudence. It then considers the approaches adopted in Germany and Austria, where deal value thresholds are designed to enhance transparency and enforcement, thereby reducing the risk of undetected mergers. Lastly, the authors advocate the need for adopting “substantial business operations” test and the introduction of an ex-post scrutiny mechanism in reaction to acquisitions in the MSME sector. 

Problem regarding MSMEs and Mergers 

Even after their significant contribution to India’s economy, MSMEs are particularly susceptible to "killer acquisitions" due to the blind spots in our country's Merger Control policies. The Competition Commission of India's (hereafter CCI) scrutiny on mergers is triggered by asset and turnover based thresholds, which MSMEs typically fall below as they are small sized companies. This allows large dominant firms to serially acquire them without review as they do not need to be notified to CCI, which ultimately suppresses nascent competition or innovative business models. Consider a large e-commerce platform that serially acquires promising Indian MSMEs, like an innovative AI-powered logistics startup. Each target's small size avoids CCI's asset/turnover thresholds, allowing the platform to eliminate future competitors and integrate their innovative models without any regulatory review.

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Unlike many startups which try to affect the service sector, develop target users and develop new spending habits of consumers while the MSMEs normally affect the production related side decisions and enjoy well established market niches, supply chains, and consumer trust. The acquisition and the subsequent absorption of MSMEs into the local economy can lead to market consolidation, reduced sectoral diversity, and harm consumer welfare, all while escaping regulatory scrutiny from the antitrust regulator. This unadaptable threshold-centric framework thus creates a critical gap which enables anti-competitive marginalization of MSMEs.

False Negatives and Regulatory Gaps in Indian Competition Law

This critical flaw in Indian jurisprudence causes false negatives, where anti-competitive acquisitions, particularly related to MSMEs escape the scrutiny from the CCI . This happens as the statutory threshold under Section 5 of the Competition Act exempts most MSME deals from mandatory review. These false negatives a lot of times create a dangerous "blind spot," which allow killer acquisitions and market foreclosure to go unchecked and unnotified, thereby harming innovation, market dynamics in a local economy and consumer choice.

While Section 20(1) of the Competition Act, 2003 provides for an ex-post review (retrospective competition assessment of mergers after completion for anti-competitive effects) of combinations within one year with a limited scope of review, and the designated one year review window is often too short for the effects of such acquisitions to be noticeable. Such a one-year review window is essential as if a large food delivery app acquires a small, innovative restaurant-review platform. Initially, it runs separately. A year later, it shuts the platform down, integrating its features. Only then does the market see reduced choice and potential price hikes, demonstrating harm that wasn't visible at the deal's outset.

 Report of the Competition Law Review Committee, 2019 proposed widening this provision to allow CCI to investigate non-notifiable deals based on 'reasonable suspicion'. However, without a more robust procedural framework, clearer guidelines for detection, and a potentially extended review period, the regulatory gaps will still continue to persist. This under-enforcement continues to undermine the intent of the merger control laws in India, leaving the market and local economies particularly vulnerable to anti-competitive harms that disproportionately impact MSMEs through mergers and killer acquisitions.

International Perspective: Germany & Austria’s “Significant Activity” Regime and Lessons for India- 

In recent years, jurisdictions such as Germany and Austria have reformed their merger control regimes to address killer acquisitions in digital and innovation-driven markets, where competitive harm may arise even in the absence of significant domestic turnover. These reforms were introduced because the conventional revenue-based thresholds often fail to detect acquistions involving low-turnover but competitively significant enterprises, whose value lies in innovation, data, or user engagement. 

Under these reforms, a transaction in Germany becomes notifiable not only based on traditional revenue thresholds but also when the “transaction consideration” exceeds € 400 million, provided that the target has “significant activities” in Germany. Austria has a corresponding regime with a € 200 million threshold and a “significant activities” criterion is not bound to positive revenue - i.e. even a target with zero revenue in Germany may still qualify for review if it can be shown to have real presence or competitive engagement locally. In both jurisdictions, this criterion is not contingent upon the target generating positive local revenue, that even entities with minimal or zero turnover may fall within the scope of merger review if they show economic or competitive presence. 

How “significant activities” are assessed under the German regime illustrates the structural and effects-oriented approach that India could emulate. A target is considered to have substantial operations if it maintains a place of business in Germany or conducts research and development (R&D) activities within the country, both of which indicate localized substance. In the absence of such factors, the guidelines rely on industry-specific metrics such as the number of users, web traffic, or unique visits - to determine whether the target has sufficient market engagement to be deemed “significant.” This approach seeks to prevent acquisitions of low-turnover yet high-potential targets from evading scrutiny merely because their market value is not yet reflected in financial turnover, a limitation that has been observed in transaction value thresholds when applied in isolation.  

Article 22 Referral 

Building on these national ex-post systems, the EU’s legal framework provides its own corrective mechanism through Article 21 of the TFEU. The European Union’s Article 22 referral mechanism under the European Merger Regulation (hereafter EUMR) offers a critical contrasting viewpoint for assessing the difficulties presently faced by India in dealing with anti-competitive mergers, especially killer acquisitions where transactions fall below the statutory Deal Value Threshold (including both asset and turnover thresholds). The Article 22 mechanism allows the National Competition Authority (hereafter NCA) of an EU Member State to refer a transaction to the European Commission even if the NCA lacks jurisdiction under national law due to insufficient turnover, thereby filling a critical gap in the merger control enforcement and ensuring competition review for mergers involving significant competitive potential, such as those involving startups or MSMEs.

The European Union’s policy shift in March 2021 after the Illumina/GRAIL case was intended to scrutinize transactions that aren’t normally notifiable because the merging entities’s turnover fails to reflect its actual or future market impact. This approach acknowledges that digital and pharmaceutical sectors, among others, are increasingly defined by nascent competitors whose economic significance is obscured under traditional Deal Value Threshold notifications. Thus, Article 22 helps ensure deals like killer acquisitions do not evade antitrust and merger control scrutiny simply due to their size or early stage of development. Such a provision creates an all around approach to bring all merger (notified and unnotified) under the watch of the regulator to prevent anti - competitive conduct under check. 

Problems in India’s Threshold-Based System

India faces a parallel problem, as its Competition Act relies on a static quantitative Deal Value Threshold (asset/turnover thresholds) for compulsory merger notification. Many killer acquisitions, especially the ones involving MSMEs, fall below these threshold requirements  and escape the review entirely, despite their broader competitive significance especially in local economies. The absence of a referral or “catch-all” provision similar to the Article 22 leaves the Competition Commission of India (CCI) without adequate tools to investigate non-notifiable deals unless post-merger effects trigger an action under abuse of dominance or substantial adverse effect on competition (AAEC) initiating a different legal battle. 

Conclusion

India’s merger control framework continues to be constrained by its heavy reliance on ex ante, threshold-based notification criteria, which are ill-suited to capture transactions involving enterprises whose competitive significance is not reflected in turnover or asset values. These constraints are built into India’s threshold-based merger control system, and therefore a more case-by-case evaluation and qualitative assessment approach is required. The implementation of the “Substantial Business Activities” test provides a theoretically and practically viable remedy to address the existing enforcement gaps encountered by the CCI. 

Thus, the tangible and intangible evidence of the working of target enterprises, such as details regarding localized R&D units, operations and manufacturing-related presence, user engagement, or market interaction of the company, would help the CCI to better capture such transactions that are quantitatively small while possessing significant competitive or innovation potential. The approach, in tune with the best practices emanating from companies globally, as explained by examples from developed economies such as Germany and Austria, would ensure that the transactions with latent competitive significance receive adequate regulatory scrutiny under the existing Indian competition law. 

In addition, if combined with an extended ex-post review mechanism based on reasonable suspicion of an effect on competition, such a test can further reduce creeping acquisitions and market concentration. In this respect, the substantial activities test would support the purposive interpretation of merger control laws-a purpose that privileges substantive economic impact over formalistic thresholds-thereby strengthening India's ability to preserve competitive equilibrium in developing markets.

About the Author

Kunaal Hemnani is a third-year student at Rajiv Gandhi National University of Law with research interests in Competition Law and Constitutional Law.

Khushi Vasu is a fourth-year student at Rajiv Gandhi National University of Law with a focus on Corporate Law.