Ease of Doing Business: merger control rules; vessel sharing agreements

[The following guest post is contributed by Karan Singh Chandhiok, Practice Head,
Competition Law and Dispute Resolution, Chandhiok & Associates (New Delhi).
He can be reached at
[email protected].]
Furthering the Government of India’s agenda of
relaxing rules related to doing business in India, on 3 and 4 March 2016, the
Ministry of Corporate Affairs (MCA)
issued several notifications bringing about changes to merger control rules in
India; and, separately, extending the exemption granted to vessel sharing
The first part of this short post discusses changes to
merger control, and how these may affect proposed transactions. The second part
discusses the MCA’s
notification on vessel sharing agreements.   
I: Changes to Merger Control Rules
Control Thresholds Increased
The Competition Act, 2002 (Competition Act) requires the prior notification and approval of
the Competition Commission of India (CCI)
for certain mergers and acquisitions based on the “size of parties”. India
being a suspensory jurisdiction, parties cannot consummate the transaction until
they have received the approval of the CCI.
In its notification dated 4 March 2016, the MCA has decided to increase
the merger control thresholds by 100% (to those set out in section 5 of the
Competition Act).
The new merger control thresholds are set out below:
Parties Test:  India
Combined Indian assets > INR 20 billion
(approx. USD 298 million/EUR 271
Combined Indian turnover > INR 60 billion
(approx. USD 814 million/EUR 895
Parties Test: Worldwide & India
Combined worldwide assets  > USD 1 billion
Combined Indian assets  > INR 10 billion
(approx. USD 149 million/EUR 135
Combined worldwide turnover > USD 3 billion
Combined India turnover  > INR 30 billion
(approx. USD 447 million/EUR 407
Group Test: India
Combined India assets > INR 80 billion
(approx. USD 1.19
billion/EUR 1.08 billion)
Combined India turnover > INR 240 billion
(approx.  USD 3.58 billion/EUR 3.25 billion)
Group Test: Worldwide & India
Combined worldwide assets > USD 4 billion
Combined Indian assets > INR 10 billion
(approx. USD 149 million/EUR 135
Combined worldwide turnover > USD 12 billion
Combined India turnover > INR 30 billion
(approx. USD 447 million/EUR 407
Target Exemption
The MCA has decided to not only continue the small
target exemption for a period of five years, but has also increased the
financial thresholds.
The small target exemption (also known as the ‘De Minimis Exemption’) was introduced in
2011 for a period of five years. During the operation of the de minims exemption, merger control
rules did not apply to transactions where the target enterprise (whose control,
shares, voting rights or assets were being acquired) had either assets less than INR 2.5 bn (~USD 37 million) or
turnover less than INR 7.5 bn (~USD 111 million).
As per the notification, the small target exemption will continue up to 3
March 2021. Notably, the MCA has also increased the financial thresholds. As per
the notification, transactions where the target has assets less than INR 3.5 bn
(~USD 52 million) or turnover less than INR 10 bn (~USD 149 million), will not
require the prior notification and approval of the CCI. These thresholds refer
to the financials of the target enterprise (i.e., the legal entity) and not to
the value of the assets being transferred.
It is believed that the MCA decided to continue with
the exemption on the basis of recommendations received by the CCI. 
Critically, the notification misses clarifying the
position of mergers and amalgamations; and continues to be limited to acquisition
of control, shares, voting rights or assets.
of Group
In 2011, the MCA issued a notification exempting
enterprises from the calculation of the ‘Group’ thresholds, where the ‘Group’
exercised less than 50% in such enterprises. This exemption has now been
extended for another five years.
Under the Competition Act, “group” means two
or more enterprises which, directly or indirectly, are in a position to:
(i)  exercise
twenty-six percent or more of the voting rights in the other enterprise;
(ii) appoint more
than fifty percent of the members of the board of directors of the other
enterprise; or
(iii)            controls
the management or affairs of the other enterprise  (including by way of
negative control).
The effect of the MCA notification is to increase (i)
above to fifty percent from twenty-six percent. However, the CCI has
consistently taken the view that holding twenty-five percent or more of the
total shares or voting rights amounts to ‘controlling the management or affairs
of the other enterprise’ (see (iii) above). As such, this exemption has been
rendered nugatory; and caution should be taken before relying on the exemption
in the calculation of thresholds.
Corporates and the legal community were waiting for
these notification with bated breath.
No doubt, the notifying
parties will appreciate the Government’s move. More importantly, it will also
bring some relief to the Competition Commission of India’s stretched
Combination Division, which has been inundated with merger notifications.
I: Exemption for Vessel Sharing Agreements to continue
The Government of India has extended the exemption granted to Vessel Sharing
Agreements for a period of one year. The 2016 exemption, like its predecessors,
excludes the application of section 3 of the
Act, 2002 (the Act) to Vessel Sharing Agreements. Section 3 of the Act
proscribes enterprises from entering into anti-competitive agreements. The
exemption also requires all existing agreements to be notified to the Director
General, Ministry of Shipping by 3 April 2016; and all new agreements to
be notified within ten days of signing.
Vessel Sharing Agreements allow carriers to optimise ship utilization rates by
allowing parties to share vessel capacity with their partners. The exemption
allows carriers operating out of Indian ports to enter into such agreements on
the condition that such agreements should not include practices involving
fixing prices, limitation of capacity or sales and the allocation of markets or
The exemption for the liner shipping industry was originally introduced in 2013
and has been regularly extended, with time lags, by the Ministry of Corporate
Affairs after a joint review by India’s antitrust regulator, the Competition
Commission of India and the Directorate of Shipping. A similar exemption, granted in 2015, had expired on 4
February 2016. Interestingly, the 2016 exemption does not talk about any
retrospective application implying that the exemption may not be available
during the intermittent period between 4 February 2016 and 3 March 2016. 

– Karan Singh

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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