The Ministry of Corporate Affairs, vide Notification dated March 27, 2017 (2017 Notification), has expanded the scope of combinations under Section 5 and Section 6 of Competition Act 2002 (Act) which are eligible for an exemption from seeking approval of Competition Commission of India (CCI) based on certain de-minimis thresholds, for a period of five years.
Previously, as per the MCA Notification S.O. 674(E), dated the 4th March, 2016 (2016 Notification), any enterprise whose shares, control, voting rights or assets were being acquired, was exempted for a period of five (5) years, from filing a notification with the CCI for seeking its approval, if it either had assets not more than INR 350 crores in India or turnover of not more than rupees INR 1000 crores in India.
Although these financial thresholds remain unchanged, the benefit of exemption from requiring approval of CCI, which was earlier available to only certain types of combinations resulting from acquisitions, has now been extended under the 2017 Notification to combinations resulting from mergers, amalgamations and acquisition of control transactions. It may be noted that the 2017 Notification rescinds the 2016 notification prospectively and will not affect transactions entered into before such rescission.
Prior to the 2017 Notification, unless specifically exempted, CCI was required to be notified for all combinations and prior approval was required before effectuating the combination. The CCI would either approve or reject the combination based on whether such a combination would have an appreciable adverse effect on competition as per the provisions of Section 6 read with Section 19 of the Act. A negative effect of this narrow interpretation was that even relatively small-value mergers and amalgamations were required to notify the CCI, adding to costs and complexities of such transactions.
The 2017 Notification further clarifies that the asset value and turnover of only that segment/portion of enterprise, division or business which is being transferred shall be considered for calculating the thresholds under Section 5 of the Act, instead of taking the transferor’s total assets and turnover into consideration.
Furthermore, the 2017 Notification provides the method of computation of asset value and turnover for the purposes of availing this exemption. The value of assets or turnover for availing this exemption shall be determined as below:
- by taking the book value of the assets as shown in the audited books of accounts of the enterprise or as per statutory auditor’s report where the financial statement has not yet become due to be filed, in the financial year immediately preceding the financial year in which the date of the proposed combination falls;
- the value of assets shall be reduced by any depreciation charged on those assets; and
- the value of assets shall include the brand value, value of goodwill, value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout design or similar other commercial rights.