Mergers and Acquisitions (M&A) are considered as legitimate means of corporate restructuring, business proliferation and deriving benefits of economies of scale. However, since certain mergers can potentially result in undesirable outcomes in the markets by creating unilateral or coordinated effects1, governments across the world prefer to regulate M&A activities on ex-ante basis. Combinations that are likely to significantly harm competition in the market which could result in increased prices, lowering of output or quality of products, and reduced innovation are prohibited while those which do not adversely affect the competition in the market are allowed. Accordingly, threshold limits / safe harbour lines are prescribed as it is presumed that combinations below it are unlikely to cause any appreciable adverse effect on competition and hence are exempted from scrutiny of the competition agencies.

Under Section 5 of the Competition Act, 2002 (“Act”), a transaction is considered as a combination if the parties to such transaction meet certain thresholds in terms of value of assets or turnover prescribed therein. However, since the Act does not provide for ade minimis threshold, concerns were raised prior to the enforcement of the combination provisions of the Act w.e.f. 1st June 2011 that it would result in unnecessary burden of notification compliance for the enterprises.

The thresholds prescribed under Section 5 were, therefore, enhanced in terms of Section 20(3) of the Act by fifty per cent vide notification dated 4th March 2011 issued by the central government. The government vide another notification issued on the same date provided for ‘target exemption’, as per which an enterprise which was acquired was exempt from the provisions of Section 5 of the Act for a period of five years if it had either assets of the value of not more than INR 250 crore in India or turnover of not more than INR 750 crore in India. To provide further succour to the industry, the government vide yet another notification issued on 4th March, 2011 itself also exempted ‘group’ exercising less than fifty per cent of the voting rights in other enterprise from the provisions of Section 5 of the Act for a period of five years. Thus, group companies where shareholding of the group was below 50 per cent were not be counted in the group’s assets or turnover for the purpose of the combination.

On 4th March 2016, the central government has issued a fresh notification raising the combination thresholds by 100 per cent in accordance with Section 20(3) of the Act. The government vide another notification issued on the same date has also increased the thresholds for the target exemption (i.e. de minimis exemption) from INR 250 crore to INR 350 crore for assets in India and from INR 750 crore to INR 1000 crore for turnover in India for a period of five years, i.e. till 3rd March 2021.The group exemption, as provided in the 4th March 2011 notification, has also been extended for a further period of five years, i.e. till 3rd March 2021.

It is relevant to note that during the period of five years of implementation of the combination provisions of the Act, i.e. from March 2011 to February, 2016 around 378 filings were made with the Competition Commission of India (CCI). However, notice for detailed investigation (Phase II inquiry), pursuant to forming of prima facie opinion of likely appreciable adverse effect on competition (AAEC), were issued only in respect of four cases, with the remaining cases being cleared during Phase 1 inquiry itself. The experience of the last five years has made it abundantly clear that since most combinations do not cause any competition concern, the CCI’s regulatory oversight regime could be further relaxed. The notifications issued on 4th March 2016, which have significantly raised the thresholds for mandatory ex ante reporting of any merger or acquisition (M&A) transaction to the CCI for its approval, is therefore a welcome move. It will encourage and facilitate the business environment in the country.

Incidentally, this makes the current merger & acquisition thresholds for India among the highest in the world. While it is unclear as of now whether this will bring down the number of combination filings and resultant workload of CCI, it can be expected that it will certainly help in conveying to the world that India is committed to improve the investment climate and the ease of doing business in India