MCA revises thresholds for mergers and amalgamation under Competition Act

Merger transactions with acquisition targets having assets under Rs 450 cr or turnover below Rs 1,250 cr are exempt from CCI approval

In a relief to India Inc, the Ministry of Corporate Affairs (MCA) has raised the threshold limit for mergers and amalgamations (M&As) that need approval of the Competition Commission of India (CCI).

In its latest notification, the MCA has enhanced the threshold value by 150 per cent on the basis of the wholesale price index (WPI) and exchange rate of the rupee. 

In another notification, the MCA has said that if the acquisition target has an asset value of less than Rs 450 crore or turnover of less than Rs 1,250 crore, then such a combination deal would be exempt from CCI approval as well.

This relief is valid for two years from the date of publication in the official gazette.

“The central government, acting in public interest, provides exemptions to enterprises engaged in specific activities under the Competition Act. These include acquisitions according to clause (a) of Section 5, the acquisition of control by an individual over an enterprise as per clause (b) of Section 5, and mergers or amalgamations under clause (c) of Section 5,” Sunayana Basu Mallik, partner, King Stubb & Kasiva, said.

According to Section 5 of the Competition Act, acquisition of one or more enterprises or merger or amalgamation of enterprises, which exceeds the threshold prescribed therein, shall be a 'Combination' for the purposes of the Act.

In scenarios where a portion of an enterprise, division, or business is undergoing acquisition, taking control, merging, or amalgamating with another enterprise, the determination of relevant assets and turnover for calculating thresholds under Section 5 of the Act depends on the value of the said portion or division or business. 

“This value is determined by considering the book value from audited books of accounts or the statutory auditor's report if the financial statement is pending. It encompasses brand value, goodwill, or the value of various commercial rights, and the turnover is certified by the statutory auditor based on the last available audited accounts of the company,” Mallik added.

Relief to India Inc

- MCA has said that if the acquisition target has asset value of less than Rs 450 crore or turnover of less than Rs 1,250 crore, then such a combination deal would be exempt from CCI approval

- The relief is valid for a two-year period from the date of publication in the official gazette

- According to Section 5 of the Competition Act, acquisition of one or more enterprises/merger/ amalgamation of enterprises, which exceeds the prescribed threshold shall be a ‘Combination’ for the purposes of the Act

- When a portion of an enterprise is undergoing acquisition, taking control, or merging with another, the determination of relevant assets and turnover for calculating thresholds under section 5 of the Act depends on the value of the said portion