On March 4, 2011, the Ministry of Corporate Affairs ("MCA") had issued initial set of notifications under the Competition Act, 2002 ("Competition Act") extending certain exemptions with respect to acquisitions, merger or amalgamations ("Combinations") involving small target/enterprises and limited the scope of the definition of "Group" only to entities where the voting rights in excess of 50% (fifty percent) could be exercised. These exemptions were valid for a period of 5 (five) years from the date of the notifications. On the eve of the expiry of these exemptions, on March 4, 2016, MCA has issued fresh notifications in relation to the same, which were published in the official gazette on the same date to take immediate effect ("2016 Exemption Notifications").
The exemptions and the increased thresholds under 2016 Exemption Notifications will be effective for a period of 5 (five) years from the date of the publication. Under Section 5 of the Competition Act for the purposes of determination of a "Group" in relation to a Combination, it means 2 (two) or more enterprises that directly or indirectly exercises 26% (twenty-six percent) or more of the voting rights in other enterprises, or can appoint more than 50% (fifty percent) of the members of board of directors in other enterprises or control the management or affairs of another enterprise. Pursuant to the 2016 Exemption Notification, the threshold of voting rights has been enhanced from 26% (twenty-six percent) to 50% (fifty percent) for an enterprise to be considered as part of a "Group". Consequently, enterprises where the voting rights exercised by an enterprise are less than 50% (fifty percent), such enterprise will not be considered as a "Group" and therefore exempted from the applicability of Section 5 of the Competition Act relating to Combinations.
Further, pursuant to erstwhile notifications 2011, of Combinations involving acquisition of control, shares, voting rights or assets of small enterprise/target which had assets of value lower than `2,500,000,000 (Indian Rupees Two billion five hundred million) in India or a turnover of not more than `7,500,000,000 (Indian Rupees Seven billion five hundred million) in India were exempt from applicability of Section 5 of the Competition Act and therefore such acquisitions were not required to be notified to the Competition Commission of India. With the recent 2016 Exemption Notifications, the thresholds for small enterprise has been enhanced such that the assets of the value of the enterprise should not be more than `3,500,000,000 (Indian Rupees Three billion five hundred million) in India or its turnover should not be in excess of `10,000,000,000 (Indian Rupees Ten billion) in India. The exemption provided to such enterprises has been further extended for a period of 5 (five) years from the date of the publication of the notification in the official gazette.
With respect to the thresholds for the value of assets and turnover under Section 5 of the Competition Act, the Central Government has the powers under Section 20(3) of the Competition Act to increase or reduce the same based on the wholesale price index or fluctuations in the exchange rate of rupee or foreign currencies. Accordingly, based on the basis of the wholesale price index, the 2016 Exemption Notification increases the value of assets and turnover by 100% (one hundred percent) for the purposes of classifying Combinations under the Competition Act, in particular, under Section 5 of the Act. The said notification will come into effect upon its publication in the official gazette.
The extension of the exemption for small enterprises/targets with revised thresholds and increase in the thresholds of value of assets and turnover will ensure that every Combination need not be subject to scrutiny of the CCI and accordingly result in quick completion of transactions involving such enterprises/entities.
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