Eyes wide shut

The decision to exempt mergers below certain thresholds from the CCI’s gaze has starkly divided opinions among competition lawyers, writes Freny Patel

A lot is riding on the government extending the de minimis exemption benefit by another five years. It was expected, and proves necessary for ease of doing business in India, especially in a post-covid world.

On 16 March 2022, the Ministry of Corporate Affairs extended the de minimis exemption benefit for a further five years, until 28 March 2027. The exemption under competition law absolves certain M&A transactions from having to notify the Competition Commission of India (CCI) if the target’s turnover or assets falls below prescribed merger thresholds.

“De minimis cures a visible gap in the legislation,” says Anisha Chand, a Mumbai-based partner at Khaitan & Co. “It is fundamental to establish a local nexus for deals, and the extension weaves in well with India’s ‘business friendly destination’ story.”

The idea, introduced in 2011, was intended to reduce the regulatory burden on the competition authority, exempting M&A deals involving small targets that are unlikely to raise concerns under the Competition Act, 2002, especially when the institution was at a nascent stage.

The exemption was proposed when Vinod Dhall was the founding member and acting chairman of the antitrust authority. “It was never the intention of the law that every transaction be notified to the CCI,” says Dhall, who is now a senior adviser at Touchstone Partners in New Delhi. He says this would have unnecessarily increased the burden on the competition watchdog, if it had to scrutinise every M&A deal.

The original de minimis exemption of 2011 exempted transactions if the target assets did not exceed INR3.5 billion (USD45.2 million), or if their turnover was not more than INR10 billion.

On 29 March 2017, to improve India’s “ease of doing business”, the Ministry of Corporate Affairs made significant changes by expanding the scope of the exemption to cover all types of transactions including mergers, acquisitions or amalgamations of a portion, or a business division, of an enterprise.

Previously, the value of assets, or turnover of the entity selling the assets, was considered under the de minimis exemption. The CCI was flooded with merger notifications because large corporations selling assets of insignificant value were subjected to seek merger clearance from the antitrust authority, as they could not make use of the de minimis exemption benefit.

THE NUMBERS GAME

Today, merging parties must notify the CCI if the combined domestic assets exceed INR20 billion, or if the combined domestic turnover exceeds INR60 billion, or if the combined worldwide assets exceed USD1 billion, including domestic assets of at least INR10 billion.