The Ministry of Corporate Affairs (MCA) in September 2024 notified rules and regulations in relation to introduction of a deal value threshold, updated De Minimis Thresholds, increase in filing fees and the revisions in relation to the exemptions from notification obligation in relation to Combinations under the Competition Act.


Deal Value Threshold


Pursuant to Section 5 (d) introduced by the Competition (Amendment) Act, 2023, Deal Value Thresholds are introduced and as a result of which, deals with value over Rs. 2,000 Crore and where the target has substantial business operations in India will now not qualify for target based exemption and will have to be reported.

It appears that the intent behind the introduction of the deal value threshold as linked to the substantial business operations is to grant the Competition Commission of India (CCI) oversight and review for the targets companies in the digital sectors. Such companies may not be asset heavy and hence earlier would not have been covered under the CCI oversight and review.


Regulation 4 of The Competition Commission of India (Combinations) Regulations, 2024 (“Combination Regulations”) provides that for Section 5 (d), the “value of transactions” for the deal value thresholds will include every valuable consideration and whether direct or indirect, immediate or deferred, cash or otherwise and including but not limited to


  1. consideration for any covenants, undertakings, obligation or restrictions if agreed separately;  
  2. all the inter-connected steps of a transaction and where the ultimate intended effect of a business transaction is achieved by way of a series of steps or smaller individual transactions which are inter-connected and where one or more of such transaction may amount to a combination;  
  3. consideration payable during the period of two years from the date on which the transaction would come in to effect for arrangements entered in to as a part of the transaction or incidental thereto including but not limited to technology assistance, licensing of IPR, usage rights of a product, service or facility, supply of raw materials or finished goods, branding and marketing;  
  4. consideration agreed to be paid in future for an agreement in relation to a call option (right but not the obligation to buy shares) and shares which will be acquired assuming the full exercise of such option (i.e., the right to purchase such shares is exercised); 
  5. consideration payable as per the best estimate on the future outcome or result as may be specified under the agreements signed in relation to the transaction.

  

The criteria for an enterprise to be deemed to have substantial business operations in India are threefold and are as per the below table:

 

Digital Services - 10% or more of the global user base must consist of business users or end users in India


Turnover (India)

Digital Services: 10% or more of the global turnover was generated in India

If not Digital Services: 10% or more of the global turnover was generated in India and turnover in India is more than Rs. 500 Crores.


Gross Merchandise Value (GMV)

Digital Services: 10% or more of its total GMV was generated in India

If not Digital Services: 10% or more of the GMV and more than Rs. 500 Crores was generated in India.

 

De Minimis Threshold

De minimis threshold is the value of assets and turnover of a target enterprise that exempts the enterprise from obtaining CCI’s approval for a merger or acquisition.


As for the De Minimis threshold, the Competition (Minimum Value of Assets or Turnover) Rules, 2024 now provide the thresholds for which the CCI approval will not be required. The Rules adopt the prior notification on the De Minimis Threshold. The thresholds are as follows:


Target’s Value of Assets: Rs. 450 Crores

Targets Value of Turnover: Rs. 1,250 Crores

 

Criteria for Exemption of Categories of Combinations

 

The Competition (Criteria for Exemption of Combinations) Rules, 2024 are introduced and which now set out the exemptions in relation to the Combinations pursuant to Section 6 of the Competition Act. Earlier such exemptions were part of the schedule to the combination regulations.

Certain thresholds in relation to the exemptions now are increased (thereby relaxed)

Some of the principal revised exemptions are as follows:

  • If a registered underwriter, registered stockbroker acquires shares in the ordinary course of business of up to 25% or if a registered mutual fund acquires such shares of less than 10%.
  • Acquisition of shares and voting rights solely as an investment if such acquisition is within the prescribed threshold and meets the specified conditions. The specified condition relates to the acquirer not acquiring the control of the target and the acquirer is not granted a board / observer representation and if the acquirer does not have right or ability to access commercially sensitive information.
  • An acquisition of shares pursuant to a bonus issue or stock splits or consolidation of face value of shares or buy back of shares or subscription to rights issue of shares, not leading to a change in control.
  • An acquisition of assets by one person or enterprise, of another person or enterprise within the same group, except in cases where there is change in control over assets being acquired.
  • A merger or amalgamation of enterprises within the same group provided that the transaction does not result in change in control
  • Demerger of a company and issue of shares by resulting company, in consideration of demerger, either to the demerged company or to the shareholders of the demerged company in the proportion of their shareholding in the demerged company prior to the demerger, except for discharge of consideration for fractional shares.


Our observation:

The updated rules and regulations do extend the reach of CCI and bring additional transaction within the ambit of CCI review. However, the updated rules and regulations also clarify and provide for certain exemptions and which provides clarity.


Author: Mr. Amol Chitnis (Junior Partner)