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The Government of India, through the Ministry of Corporate Affairs (“MCA”), by way of a notification, has revised the merger control thresholds under the Competition Act, 2002 (“Act”) on March 04, 2016, valid for a period of 5 (five) years, ending on March 04, 2021(“Notification”). Please find set out below the revised thresholds for your ease of reference:

(a)   Target Based or De Minimus Exemption Enhanced and Extended

As you may be aware, MCA had introduced a target-based exemption, whereby any enterprise whose shares, control, voting rights or assets were being acquired, was exempt from filing a notification with the Competition Commission of India (“CCI”) for seeking its approval, if it had assets less than INR 250 crores (INR 2.5 billion) or turnover less than INR 750 crores (INR 7.5 billion), in India, for a period of five (5 ) years, valid until March 04, 2016 (“Target or De Minimus Exemption).

The MCA, by way of the Notification, has revised these thresholds and has extended the applicability of the target-based exemption, for another five years. Accordingly, an enterprise, whose control, shares, voting rights or assets are being acquired, is exempt from filing a notification with the CCI, if it either has assets of the value of not more than INR 350 crores (INR 3.5 billion) in India or turnover of not more than rupees INR 1000 crores (INR 10 billion) in India, for a period of five (5) years (“Revised Target Exemption”). 

WHAT IT MEANS?

  • The target enterprise (i.e. the enterprise whose control, shares, voting rights or assets are being acquired) is exempt from filing a notification with the CCI, if it has assets less than INR 350 crores (INR 3.5 billion) or turnover less than INR 1000 crores (INR 10 billion), in India, until March 04, 2021, irrespective of the parties or the group test (as provided below).
  • The Revised Target Exemption continues to be applicable on transactions effected by an acquisition only and is inapplicable in case of transactions effected by mergers and amalgamations.
  • In case of asset acquisitions, the “target” continues to be the enterprise housing the assets and not the assets themselves.
  • The Revised Target Exemption is applicable on acquisitions where the binding agreement is signed, or where a public announcement is made in terms of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, on or after March 04, 2016.

(b)   Jurisdictional Thresholds Revised by 100%

The Act prescribes certain asset and turnover thresholds, which, if met by the parties to the transaction, would require filing of a mandatory notification with the CCI. The MCA, by way of the Notification, has enhanced the combined thresholds required to be met by the parties for filing a notification with the CCI, by 100% (hundred per cent.). Accordingly, a transaction would require filing a notification with the CCI, if the parties to the transaction (by way of the Parties Test) or the group to which the entity would belong post-transaction (by way of the Group Test), meets the thresholds, provided below.

Importantly, there seems to be ambiguity in the interpretation of the Notification. Although, some practitioners are taking the view that the revision relates to the thresholds as revised by the MCA pursuant to the notification dated March 04, 2011, given that the said notification stands expired, the revision in our view relates to the thresholds as provided under the Act. However, subject to any further clarification, please find set out below the revised thresholds pursuant to the Notification:

Parties Test OR Group Test
  • the parties have combined assets in India of INR 2,000 crores (INR 20 billion) or a combined turnover in India of INR 6,000 crores (INR 60 billion); or
  • the parties have combined worldwide assets of USD 1 billion, including combined assets in India of INR 1000 crores (INR 10 billion) or a combined worldwide turnover in excess of USD 3 billion, including a combined turnover in India of INR 3,000 crores (INR 30 billion).
 
  • the group has assets in India of more than INR 8,000 crores (INR 80 billion) or a turn­over in India of INR 24,000 (INR 240 billion); or
  • the group has worldwide assets of USD 4 billion, including assets in India of INR 1,000 crores (INR 10 billion), or a worldwide turnover of USD 12 billion, including turnover in India of INR 3,000 crores (INR 30 billion).

WHAT IT MEANS?

  • The revised jurisdictional thresholds are applicable to acquisitions (which cannot avail of the Revised Target Exemption), mergers and amalgamations.
  • In case of an acquisition, the relevant entities for the Parties Test are the acquirer and the target enterprise (including its subsidiaries, units and divisions). For the Group Test, it refers to the group to which the target enterprise would belong after the acquisition.
  • In case of a merger or amalgamation, the relevant entities for the Parties Test is the enterprise remaining after the merger or the enterprise created as a result of the amalgamation. In case of group, it would be the group to which the enterprise remaining after the merger or created as a result of the amalgamation, would belong, post-transaction.
  • These thresholds are applicable on transactions where the binding agreement (in case of an acquisition) is signed or a public announcement is made or a final board approval (in case of a merger or amalgamation) is passed, by the parties on or after March 04, 2016.

(c)   Definition of “Group” revised up to 50%

For the Group Test, provided above, all enterprises which form part of a “group” are to be considered for calculating the monetary thresholds. A “group” as defined under the Act, means two or more enterprises which, directly or indirectly, (i) are in a position to exercise 26% or more of the voting rights in another enterprise; or (ii) appoint more than 50% of the members of the board of directors in another enterprise; or (iii) control the management or affairs of another enterprise.

The MCA, by way of a notification dated March 04, 2011, had revised the definition of group, to exempt enterprises exercising less than 50% (fifty per cent.) of voting rights in another enterprise, from filing a notification with the CCI, for a period of five (5) years (i.e. valid until March 04, 2016). The MCA, by way of the Notification, has further extended this exemption for another five (5) years.

WHAT IT MEANS?

  • For the purposes of calculating jurisdictional thresholds, enterprises that exercise more than 50% control over another enterprise will constitute “group”.
  • The validity of this exemption continues to remain questionable. The Act only empowers the MCA to exempt categories of enterprises or transactions from the purview of the Act. However, the above “group” exemption has the effect of amending the Act, which is beyond the powers of the MCA. From a practical standpoint, the revised “group” exemption seems to be applied across the provisions of the Act.

- ELP Comptetition Law Team

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