| MCA Extends Validity of Exemption Notification Concerning Certain Combinations |
Recently, the Ministry of Corporate Affairs (MCA) has issued a notification dated 16 March 2022 extending the validity period of exemption granted to certain combinations (like mergers and acquisitions) from compliance rigor of the Competition Act, 2002 (such as giving notice of combination and seeking pre-approval of Commission on proposed combination).
The Competition Act, 2002 required that all merger and acquisition transactions wherein the cumulative value of assets/turnover of the parties jointly exceed the notified thresholds to seek pre-approval of the Competition Commission of India, unless expressly exempted.
Resultantly, even if a transaction that entails the acquisition or transfer of a comparatively small enterprise/business may attract the Competition Commission of India (CCI) scrutiny if the acquirer's financials alone meet the notification thresholds.
Subsequently, it was considered that competitive concerns are unlikely to arise from transactions involving such small target enterprises. Accordingly, the MCA vide notification dated 27.03.2017 had granted an exemption to certain threshold transactions from the rigor of the Competition Act, 2002. This is popularly referred as 'de minimis' exemption. As per said de minimis exemption, a transaction is exempt from the notification requirement under Competition Act, 2002 if the target (i.e., aquiree or transferor company) has:
- assets in India of not more than INR 3.5 billion; or
- turnover in India of not more than INR 10 billion.
This notification was originally valid for five years, i.e., until 28 March 2022. Now through its notification dated 16 March 2022, the MCA has substituted the period of "five years" in the de minimis exemption with "10 years," thereby extending the exemption benefit for a further period of five years,i.e., till 28 March 2027.
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Our Comments
This extension of the de minimis exemption was eagerly awaited, and it was expected that the MCA would continue the relaxation as it is. This helps certain combinations that are not likely to have any impact on competition. This gives relief to such small-size combinations as they would not be subject to rigor of compliance which is costly and time-consuming. It is also in the interest of the Competition Commission as their administrative time in dealing with notifications will be saved.
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