The Competition Act, 2002 (the “Act”) which came into force in 2003, seeks to regulate (a) Anti-competitive agreements; (b) Abuse of dominance; and (c) Combinations. While the provisions relating to anti-competitive agreements and abuse of dominance were notified in May 2009, the provisions relating to Combinations have been pending notification. Under the Act, a Combination occurs through (i) acquisition; (ii) acquisition of control; and (iii) merger or amalgamation.
On 4 March, 2011, the Ministry of Corporate Affairs issued four draft notifications relating to Combinations whereby:
1. 1 June, 2011 has been appointed as the date on which the provisions relating to Combinations would come into force;
2. The threshold limit prescribed in section 5 for an acquisition or merger to constitute a Combination requiring mandatory notification to the Competition Commission of India (CCI) has been raised by 50%, on the basis of the wholesale price index. The Act currently prescribes the following thresholds:
| Parties to the Combination jointly have | Acquiring group and target jointly have | ||
| In India (INR) | Worldwide (USD) | In India (INR) | Worldwide (USD) |
| Assets worth INR 10 billion | Assets worth USD 500 million, (of which atleast INR 5 billion in India) | Assets worth INR 40 billion | Assets worth USD 2000 million (of which atleast INR 5 billion in India) |
| Or | Or | Or | Or |
| Turnover of INR 3o billion | Turnover of USD 1500 million, (of which atleast INR 15 billion in India). | Turnover of INR 120 billiob | Turnover of USD 6000 million (of which atleast INR 15 billion in India) |
Upon publication of the notification, the above thresholds would stand enhanced by 50%:
| Parties to the Combination jointly have | Acquiring group and target jointly have | ||
| In India (INR) | Worldwide (USD) | In India (INR) | Worldwide (USD) |
| Assets worth INR 15 billion | Assets worth USD 750 million, (of which atleast INR 7.50 billion in India) | Assets worth INR 60 billion | Assets worth USD 3000 million (of which atleast INR 7.5 billion in India) |
| Or | Or | Or | Or |
| Turnover of INR 45 billion | Turnover of USD 1500 million, (of which atleast INR 15 billion in India). | Turnover of INR 120 billiob | Turnover of USD 9000 million (of which atleast INR 22.50 billion in India) |
3. If an enterprise whose control, shares, voting rights or assets are being acquired, has assets of not more than INR 2.5 billion or turnover of not more than INR 7.5 billion, it shall be exempt from the provisions of section 5 for a period of five years. Under the Act, the threshold is prescribed on the basis of combined assets or turnover of the acquirer and the target. However, upon publication of the notification, a transaction involving a target company with assets or turnover below the newly prescribed thresholds will not need to be notified.
4. A “Group” exercising less than 5o% of voting rights in the other enterprise shall be exempt from the provisions of section 5 for a period of 5 years. Under the Act, a “Group” is defined to mean two or more enterprises which, directly or indirectly, are in a position to either exercise 26% or more of the voting right in the other enterprise or appoint more than half of the board of directors in the other enterprise or control the management or affairs of the other enterprise. Upon publication of the notification, the above threshold of 26% will stand enhanced to 5o%, meaning that a group will not include companies in which the group has less than 5o% voting rights.
