On 4 March 2016, the Ministry of Corporate Affairs, Government of India (MCA) has made significant amendments to the Indian merger control thresholds, altering the jurisdictional scope of the Competition Commission of India (CCI).
This newsflash examines the changes and their impact.
Small Target Exemption
On 4 March 2011, the MCA had notified the small target exemption (also known as the de minimis exemption) exempting transactions from merger control approval requirements if,
- the value of assets of the target enterprise in India was not more than INR 2.5 billion (USD 37.6 million/EUR 34 million approx.); or
- the turnover of such enterprise in India was not more than INR 7.5 billion (USD 112.8 million/EUR 102 million).
This notification was valid for a period of 5 years and expired on 3 March 2016.
On 4 March 2016, the MCA extended the small target exemption for a further period of 5 years (i.e., until 3 March 2021); and increased the financial thresholds so that there is no requirement to seek CCI approval where the target enterprise has:
- assets not more than INR 3.5 billion (USD 52.53 million/EUR 47.74 million approx.) in India; or
- turnover of not more than INR 10 billion (USD 150.07 million/EUR 136.62 million approx.) in India.
While this is definitely a welcome step, the small target exemption continues to only apply to transactions structured as acquisitions of shares, voting rights, control or assets and, does not apply to transactions structured as mergers or amalgamations.
Increased Jurisdictional Thresholds
In another extremely significant move, the MCA has increased the financial thresholds for determining the CCI’s jurisdiction under the Competition Act, 2002 (as amended) (Competition Act) by a 100%. Previously, on 4 March 2011, the MCA had increased the thresholds mentioned in Section 5 of the Competition Act by 50%.
This step is in line with the aim of the Central Government to increase the ease of doing business in India. The revised thresholds applicable from 4 March 2016 are listed in this document.
There is a divergent opinion among practitioners as to whether the financial thresholds as provided in the Competition Act have been increased or, whether it is the financial thresholds applicable immediately prior to this notification (i.e., the post- 2011 thresholds) that have been increased. It is our definitive view that the thresholds listed in this document are indeed the correct and appropriate thresholds. The 4 March 2016 notification of the MCA clearly uses the financial thresholds listed in the Competition Act as the basis of the increased value.
Definition of “group”
The MCA has continued to exempt the “group” exercising less than 50% of voting rights in another enterprise from the provisions of Section 5 of the Act until 3 March 2021. The scope of this last exemption of course, remains as unclear as it was since it was first notified in 2011.