The Ministry of Corporate Affairs (MCA) has announced four important notifications effective from September 10, 2024. These updates pertain to notifying CCI for mergers and acquisitions under the Competition Act.

Here’s a brief overview of these notifications entail:

1. Provisions Notified Under the Competition (Amendment) Act, 2023: The notifications put into effect specific provisions from the Competition (Amendment) Act, 2023.
2. Minimum Value of Assets or Turnover: They establish minimum thresholds for asset value or turnover that determine when a merger or acquisition must be reported to CCI.
3. Exemptions for Combinations: The rules also provide exemptions for certain combinations that fall below these thresholds, which will not require notification to the CCI.
4. Criteria for Combinations: The notifications outline clear criteria that define what constitutes a combination, helping businesses understand their obligations.

The Competition Amendment Act was passed by Parliament in April 2023, and the subsequent amendments have been notified in a staggered manner. Below is a brief overview of the recent amendments that have been announced.

Provisions Notified Under the Competition (Amendment) Act, 2023

1. Deal Value Threshold – The Deal Value Threshold provision is a significant enhancement aimed at ensuring effective regulation of large-scale mergers and acquisitions. This provision stipulates that any combination—defined as mergers, acquisitions, or amalgamations—exceeding a transaction value of INR 20 billion will come under the scrutiny of the Competition Commission of India (CCI) and that companies shall require to take the approval of CCI. However, this threshold applies only if the entity being acquired has substantial business operations in India.

Deemed Approval: Under Sections 6(4) and 6(5) of the Competition Act, 2002, “deemed approval” pertains to the automatic approval of a merger or acquisition if the CCI does not complete its review within a specified timeframe.

• Section 6(4): If the CCI fails to issue an order within 30 days from the date of receiving the notice, the proposed combination is deemed approved.
• Section 6(5): This section allows the CCI to extend the review period by an additional 30 days if it requires further information or clarification from the parties involved. Should the CCI not issue a decision within this extended period, the combination is also deemed approved.

2. Reduction of Approval Timeline – The timeline for the CCI to approve combinations has been reduced from 210 days to 150 days.

Minimum Value of Assets or Turnover

The Competition (Minimum Value of Assets or Turnover) Rules, 2024 clarify the concept of de minimis exemption under the Competition Act. This means that certain small transactions do not need to be reported to the Competition Commission of India (CCI) as they are not considered significant enough to affect competition.

According to Section 5(e) of the Competition Act, an acquisition, merger, or takeover will not be classified as a “combination” if the value of the assets or the turnover of the company being acquired is below the following limits:

• Minimum Value of Assets: INR 4.5 billion
• Minimum Value of Turnover: INR 12.5 billion

Hence, if a company’s assets are worth less than INR 4.5 billion or its turnover is below INR 12.5 billion, the transaction does not require the approval of CCI.

Exemption for Combinations:

The exemptions for combinations under the Competition Act, as clarified by the Competition Commission of India (CCI), include various scenarios where certain mergers, acquisitions, or joint ventures may not require regulatory approvals. Here are some key exemptions as:

1. Ordinary Course of Business Acquisitions:
   • Underwriting Agreements: Acquisitions of unsubscribed shares by registered underwriters, as long as they don’t exceed 25% of total shares or voting rights.
   • Stockbroker Acquisitions: Acquisitions of shares by registered stockbrokers, again not exceeding 25%.
   • Mutual Funds: Acquisitions by registered mutual funds, limited to 10% of shares or voting rights.
2. Investment-Only Acquisitions:
   • Acquisitions that do not lead to control of the enterprise and do not exceed 25% of shares or voting rights are considered solely as investments, provided:
     • No right to board representation or access to sensitive information is gained.
     • The acquirer/group entities/affiliates are not involved in competing or complementary activities or activities at different level of production chain to the activity of target/downstream group entities/affiliates unless they hold less than 10% post-acquisition.
3. Additional Shares:
   • Acquisitions of additional shares where the acquirer holds up to 25%, either prior to or post – acquisition and does not gain control or board representation or access to commercially sensitive information.
   • If the activities of the acquirer, along with its group entities and affiliates, are horizontally, vertically, or complementarily linked with the target company or its downstream entities and affiliates, incremental acquisitions of up to 5% shareholding or voting power may occur through a single or smaller interconnected transactions. However, such acquisitions must not result in the acquirer or its group entities increasing their shareholding or voting power from less than 10% to more than 10%.
4. Acquisitions Over 25%:
   • Acquisitions by entities already holding more than 25% but upto 50% that do not change control.
   • Acquisitions by entities holding more than 50%, provided they do not change control.
5. Asset Acquisitions:
   • Ordinary course acquisitions of assets like stock, raw materials, or trade receivables.
   • Asset purchases not related to the buyer’s business or solely as investments, unless they represent substantial operations.
6. Bonus/Rights Issues, Buy back and Stock Splits/Consolidation:
   • Acquisitions resulting from bonus shares, buy-back, consolidation, stock splits, or rights issues, provided they don’t change control.
7. Group Acquisitions:
   • Transfers of assets or shares within the same group, unless control changes occur.
8. Mergers within the Same Group:
   • Mergers that do not result in a change of control.
9. Commission Approved Transactions:
   • Acquisitions approved by the CCI under Section 31 of the Act.
10. Demerger Transactions:
    • Demerger processes where shares are issued based on pre-demerger holdings, excluding fractional shares.

Criteria for Combinations: Parties who intend to notify a combination, along with their respective group entities and affiliates, must ensure that they meet specific criteria.

• The parties involved should not produce or provide products or services that are similar, identical, or substitutable.
• The parties should not be engaged in activities related to:

1. Different Stages of Production: This refers to companies operating at various levels of the supply chain. For example, a manufacturer and a retailer would typically be at different stages, and their combination would need scrutiny.
2. Complementary Services: Companies providing products or services that enhance or complement each other should be cautious. For instance, a software company and a hardware manufacturer may be seen as complementary, which could affect competition.

Definition of Parties to a Combination – The term “parties to the combination” includes:

1. Acquirer and Group Entities:
   • The main person or entity controlling the acquirer.
   • The main person or entity controlling the other companies that are part of the same group as the acquirer.

2. Target Enterprise:
   • The company being acquired, and its downstream entities.

3. Merging Enterprises:
   • Companies that are merging or combining, including their controlling persons and group entities.

Affiliates – An enterprise is considered an affiliate of another if it meets any of these conditions:

• It holds 10% or more of the shares or voting rights in the other enterprise.
• It has the right to appoint a representative on the board of directors.
• It can access sensitive information about the other enterprise.

Conclusion: The notifications under the Competition (Amendment) Act, 2023, effective September 10, 2024, bring key updates for mergers and acquisitions in India. The introduction of an INR 20 billion deal value threshold and streamlined approval timelines enhances regulatory efficiency. Additionally, minimum asset and turnover thresholds enable smaller transactions to bypass extensive scrutiny, fostering a more dynamic business environment. By clarifying exemptions and criteria for combinations, these provisions empower companies to navigate compliance effectively and support a competitive market landscape.

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