Good News For India’s M&A Regime, Fewer Deals Need CCI Approval
Now, fewer deals will need to go to competition regulator CCI for approval.
In an important development that will impact corporate dealmaking in India, the Ministry of Corporate Affairs has eased the criteria for notifying a transaction to the Competition Commission of India (CCI). These criteria determine if details of a transaction have to be filed with CCI to assess the impact on competition.
The ministry has, via a notification, extended the scope of target exemption to transactions structured as mergers and amalgamations. Under the Competition Act, 2002, transactions where the target enterprise (whose shares, assets, voting rights or control are being acquired) either has Indian assets of less than Rs 350 crore or a turnover in India of less than Rs 1,000 crore do not need CCI approval.
Earlier, only acquisitions qualified for this exemption, Avaantika Kakkar, a competition law partner at law firm Khaitan & Co. explained.
The CCI interpreted the ministry’s notification on target exemption to be applicable only to acquisitions and not to mergers/amalgamations. But a merger and amalgamation is also an acquisition; it’s after all an acquisition of control. So this was an artificial distinction that was created. You structure a transaction as a merger or amalgamation more for tax purpose and less for avoiding CCI filing.Avaantika Kakkar, Partner, Khaitan & Co.
The ministry’s notification has also stated that to determine whether a transaction, structured as an asset sale or sale of a division, must be filed with CCI, the value of the assets or turnover of the entity being sold will be considered. Earlier, the value of the assets or turnover of the seller was taken into account to determine notifiability.
Kakkar explained that the earlier interpretation led to anomalous situations – for instance a transaction between two foreign entities that involves the transfer of an Indian asset. The size of the foreign companies could trigger the notification threshold even if the Indian asset was insignificant in size, prompting a filing with CCI.
This change could be a result of significant international pressure around the question of lack of any real local nexus in foreign-to-foreign asset/business transfers and need for seeking CCI approval given the clear implication that most of these transactions would have limited or no impact on markets in India.Avaantika Kakkar, Partner, Khaitan & Co.
The earlier interpretation also impacted Indian deals. Kakkar pointed to the sale of brands by pharmaceutical companies as an instance where even if the brands themselves were insignificant in value, if the selling company triggered the turnover threshold the sale would need to be notified to CCI.
Industry has been making representations to the CCI to address both these issues; so this is definitely a welcome move, Nisha Uberoi, a competition law partner at law firm AZB, said. The changes are in line with international practice and will reduce the burden of filings for industry as well as the regulator, she added.