[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 karan.chandhiok@chandhiok.com.]
Competition Law and Dispute Resolution, Chandhiok & Associates (New Delhi).
He can be reached at karan.chandhiok@chandhiok.com.]
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
agreements.
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
agreements.
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.
merger control, and how these may affect proposed transactions. The second part
discusses the MCA’s notification on vessel sharing agreements.
PART –
I: Changes to Merger Control Rules
I: Changes to Merger Control Rules
Merger
Control Thresholds Increased
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.
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 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:
|
Direct
Parties Test: India |
||
|
Assets
Combined Indian assets > INR 20 billion
(approx. USD 298 million/EUR 271
million) |
OR
|
Turnover
Combined Indian turnover > INR 60 billion
(approx. USD 814 million/EUR 895
million) |
|
Direct
Parties Test: Worldwide & India |
||
|
Assets
Combined worldwide assets > USD 1 billion
and
Combined Indian assets > INR 10 billion
(approx. USD 149 million/EUR 135
million) |
OR
|
Turnover
Combined worldwide turnover > USD 3 billion
and
Combined India turnover > INR 30 billion
(approx. USD 447 million/EUR 407
million) |
|
Acquiring
Group Test: India |
||
|
Assets
Combined India assets > INR 80 billion
(approx. USD 1.19
billion/EUR 1.08 billion) |
OR
|
Turnover
Combined India turnover > INR 240 billion
(approx. USD 3.58 billion/EUR 3.25 billion)
|
|
Acquiring
Group Test: Worldwide & India |
||
|
Assets
Combined worldwide assets > USD 4 billion
and
Combined Indian assets > INR 10 billion
(approx. USD 149 million/EUR 135
million) |
OR
|
Turnover
Combined worldwide turnover > USD 12 billion
and
Combined India turnover > INR 30 billion
(approx. USD 447 million/EUR 407
million) |
Small
Target Exemption
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.
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).
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.
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.
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.
position of mergers and amalgamations; and continues to be limited to acquisition
of control, shares, voting rights or assets.
Definition
of Group
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.
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:
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;
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
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 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.
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.
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.
PART –
I: Exemption for Vessel Sharing Agreements to continue
I: Exemption for Vessel Sharing Agreements to continue
The Government of India has extended the