M&A

MCA Sets New Merger Threshold Under Competition Act

The Ministry of Corporate Affairs’ setting up of the new merger threshold limit under the Competition Act of 2002 is considered a positive step reflecting the dynamic nature of economic development. The revision in the threshold value embodies the government’s approach towards ease of doing business in India.

Brief About Competition Act, 2002

The Competition Act of 2002 is the primary legislation enforced to regulate anti-competitive practices, abuse of dominance, and mergers and amalgamations. The Competition Commission of India scrutinizes and approves M&A transactions as defined under the Competition Act of 2002.  

The Competition Act of 2002 has set out 8 distinct threshold limits based on the assets or turnover of companies intending to merge or acquire. Further, a recent update in the Competition Act of 2002 has raised the original threshold limit by 150%.

What is a Merger Under the Competition Act of 2002?

Section 5 of the Competition Act of 2002 defines the threshold limit for the merger or amalgamation of enterprises only with the prior approval of the Competition Commission of India (CCI). Section 5 outlines that acquiring one or more enterprises through merger and amalgamation surpasses the threshold of being qualified as a combination under the Act.

However, to ensure compliance with Section 5 of the Competition Act of 2002, merger and acquisition services help to guide enterprises through the CCI’s approval process for combinations exceeding the specified thresholds and secure necessary approval to advise the best possible outcomes.

Insights into New Merger Threshold Introduced by MCA

The Ministry of Corporate Affairs (i.e., MCA) introduced a new merger threshold under the Competition Act. It was notified in the official gazette on 7 March 2024, revising the existing threshold value of assets and turnover mentioned under section 5 of the Competition Act of 2002. A static rise in the merger threshold limit has been observed based on the wholesale price index and fluctuations in the rupee or foreign currency exchange rate.

Key Changes in Merger Threshold Under the Competition Act

The MCA revised the merger threshold, which requires mandatory notification to the Competition Commission of India. The following are the key changes in the merger threshold provided under the Competition Act of 2002.

1. Increased Merger Threshold Limits

The Ministry of Corporate Affairs revised the merger threshold limits for the value of assets and turnover of enterprises. Now, companies combining through merger or amalgamation are allowed to proceed without the mandatory approval of CCI unless they exceed these new limits.

The new merger threshold under the Competition Act is now worth not more than Rs. 450 crores for assets or Rs. 1250 crores for turnover, 150% over the original value as prescribed under section 5.

2. Green Channel Approval

Enterprises engaged in specific activities under the Competition Act must seek prior approval from the Competition Commission of India. Further, green channel approval reduces the regulatory burden on businesses undergoing mergers and amalgamations.

3. De-Minimis Exemption

The MCA also introduced a de-minimis exemption for certain enterprises whose merged or amalgamated assets value is under Rs. 450 crores or their turnover is below Rs. 1250 crores. The exemption is valid for two years.

Also, it essentially considers the revised de-minimis threshold while revising the merger threshold value to reduce the number of notifications and focus only on cases impacting competition.

Implications of New Merger Threshold Under the Competition Act

The new merger threshold introduced by the MCA is designed to process regulatory and significant mergers effectively. Consider the following implications of the new merger threshold as defined under the Competition Act of 2002:

1. Clarified Guidelines

The new merger threshold, as defined under the Competition Act, provides a clarified guideline for notifying the merger to the CCI.

2. Business Growth

The new merger threshold under the Competition Act ensures business growth and consolidation in India’s ever-evolving economy. The threshold value is defined to balance the need for regulatory oversight with process efficiency in business operations.

3. Enhanced Focus on Mergers

The new merger threshold value raised by MCA mainly focuses on enhancing the focus on mergers and amalgamations that have the potential to significantly impact market competition.

4. Global Alignment

The revised merger threshold value under the Competition Act ensures global alignment with best international practices. Compliance with global alignment simplifies the regulatory landscape for any cross-border M&A activities.

5. Impact on SMEs

The new merger threshold under the Competition Act has also significantly impacted small and medium enterprises (SMEs). They are now accountable for the regulatory burden and increased scrutiny to avoid any potential penalties or additional administrative charges.

6. Influence Market Competition

The new merger threshold under the Competition Act has significantly influenced the competitive market dynamics. It ensures the maintenance of fair competition and protects consumer interests.

7. Enhanced Due Diligence

The new merger threshold, as defined under the Competition Act, was diligently accessed to match it with the transactions made on behalf of the companies. Simply, the enhanced due diligence conducted by the companies provides a detailed analysis of market shares, financials, and competitive effects.

Comparison b/w Existing & New Merger Threshold Under the Competitions Act

The revised value of assets and turnover for the merger of enterprises are comparatively different from the value of existing merger threshold values defined under notification S.O. No. 675 (E) of 2016. The comparison between the existing and new merger threshold under the Competition law is provided below:

Aspects	Jurisdiction	Existing Merger Threshold (2016)	New Merger Threshold (2024)
At Expertise Level	In India	Asser valued more than Rs. 2000 crores or Turnover of more than Rs. 6000 crores.	Assets valued at more than Rs. 2500 crores or Turnover of more than Rs. 7500 crores.
	In India or Outside India	Assets valued at USD 1 billion or Turnover of more than USD 3 billion	Assets valued at USD 1.25 billion or Turnover of more than Rs. 3.75 billion
At Group Level	In India	Assets valued at more than Rs. 8000 crores or Turnover of around Rs. 24000 crores	Assets valued more than Rs. 10000 crores or Turnover of around Rs. 30000 crores
	In India or Outside India	Assets valued at USD 4 billion or Turnover of USD 12 billion	Assets valued at USD 5 billion or Turnover of USD 15 billion

Conclusion

The revised threshold value for mergers and amalgamation ensures exemption from approval by the CCI when the acquisition target possesses an asset valued at Rs. 450 crores or turnover valued less than Rs. 1250 crores.

The revised threshold value accounts for the increase in the wholesale price index and exchange rate of the Indian Rupee. However, the new limits defined by the MCA are considered an approach committed to yielding a business-friendly environment in the fair, competitive marketplace.

Are you wondering how the new merger thresholds under the Competition Act will impact your business? Visit our website www.enterslice.com to stay ahead of regulatory changes.

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