CHANGE IN SCOPE OF DE MINIMIS EXCEPTION AND FILING NORMS FOR MERGERS AND AMALGAMATION

-Shivam Garg*

Introduction

The honorable CCI has been conferred power to regulate combinations. The power is also extra territorial in nature.[1]

The Ministry of Corporate Affair released a notification[2] dated 4th March, 2016[3], which was recently rescinded by another Notification[4] dated 27th March, 2017. The notification has changed the method of calculation of assets and turnover, which are required for submitting the Notice under Section 5 of Competition Act, 2002[5], in case of merger, amalgamation, acquiring control or acquisition in case of any portion of an enterprise or division. Although, the threshold limits remain same as prescribed under previous notification.[6] Further, the new notification provides for mergers and amalgamations to be covered by De Minimis Exemption apart from acquisitions. The new notification will help not only domestic merger but also foreign companies who want to invest in India. The prior interpretation of CCI created an anomalous situations, where the transfer of small Indian Assets also required filing as the foreign party crossed the threshold limit. As per Mr. M M Sharma-

The changes are in line with international practice and will reduce the burden of filings for industry as well as the regulator.”[7]

Calculation of threshold

The Act, under Section 5 requires calculation of threshold. According to the revised method, the assets and turnover of the enterprise shall be calculated on the basis of the relevant assets or turnover of the said portion of the enterprise, division or business being acquired, where a portion of an enterprise or division or business is being acquired, taken control of, merged or amalgamated with another enterprise.

Value of assets

It is determined by taking the

  • book value of the assets shown in the audited books of accounts of the enterprise
  • as per statutory auditor’s report where the financial statement have 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.

Value of turnover

The certified value by the statutory auditor on the basis of the last available audited accounts of the company is the value of Turnover.

Calculation of thresholds for application of De-Minimis Exemption

 The De-Minimis exemption also popularly known as “Target Exemption”.  According, to the previous notification – the value  of  assets  and  turnover  of  the  target  enterprise  (i.e. the  enterprise whose  control, shares, voting rights  or  assets  are  being  acquired)[8] was to be considered.

In another Combination Case[9], it was held-

de-minimis notification is applied on the basis of the assets or turnover of the enterprise whose assets were being acquired and not the assets and turnover of the relevant business which was acquired.”

In another matter[10], it was held by honorable CCI that turnover of the enterprise whose control, shares, voting rights or assets are being acquired, be considered for the purposes of thresholds.

 According to new notification, it has modified the process. The new threshold provides that in case-

  • the value of assets being acquired, taken control of, merged or amalgamated are not more than rupees three hundred and fifty Crores or,
  • the turnover of the enterprises being parties to such acquisition is not more than rupees one thousand Crores.

There won’t be requirement to seek approval of CCI for transactions. Thus, the new notification make it over business and not enterprise. This is a huge relaxation for future combination of business.

Conclusion

The notification has revolutionized the setup by including mergers and amalgamations to be covered by De Minimis Exemption. It has changed the method of calculating the value of asset and turnover. Further, the threshold limit of De Minimis Exemption has been modified.

* Shivam Garg, 5th Year Student at National Law University, Jodhpur

[1] Section 32 of Competition Act, 2002

[2] Notification 674 ( E) dated March 4, 2016

[3] The same could be understand by reading the post, ELP Competition Law Team, Indian Merger Control Thresholds Revised under the Competition Act, 2002, available at http://www.legallyindia.com/views/entry/competition-law-alert-merger-control-thresholds-revised-under-the-competition-act-2002, last visited 22/4/2017

[4] Notification S.O. 988(E), dated 27th March, 2017

[5] Section 5 of Competition Act, 2002

[6] Notification 674 ( E) dated March 4, 2016

[7] M M Sharma, Head Competition Law & Policy, Vaish Associates, Advocates, Central Government Relaxes Filing Norms For Mergers And Extends Scope of De Minimis Exemption, available at http://competitionlawyer.in/cci-merger-control-de-minimis/ last visited 22/4/2017

[8] Schulke &  Mayr  GmbH, Combination Registration No. C-2015/12/349, CCI Order dated 13 January 2017, Para 8.12

[9] Eli Lilly & Co, Combination Registration No. C-2015/12/289 , CCI Order dated 14 July 2016 , Para 13.5.

[10] SRF Ltd, Combination Registration No. C-2015/12/347, CCI Order dated 16 August 2016  Para 8.12.

Disclaimer: This article has been written by a member of Centre for Competition Law and Policy. The article is just an opinion of the Author and no legal consequences follow from the same

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