MCA amends Competition Act 2002 increasing threshold of assets and turnover form the purview of combination and also introduced criteria for exemption
Section 5 of the Competition Act, 2002 defines the combination as the acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises if the value of assets and turnover exceeds the minimum specified limit. Further, section 6 of the Competition Act, 2002 provides that no person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination shall be void.
MCA has notified the Competition (Minimum Value of Assets or Turnover) Rules, 2024 exempting the value of assets up to rupees 450 crore and value of turnover 1250 crore from the purview of the Competition Act, 2002. Also,
MCA has notified the Competition (Criteria for Exemption of Combinations) Rules, 2024 to provide for the criteria for exemption from section 6 of the following categories of Combinations:
1. An acquisition of shares of an enterprise in ordinary course of business where the said transaction:
(a) an acquisition of unsubscribed shares upon devolvement as per covenant of an underwriting agreement by any person registered with the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act, 1992 (15 of 1992) or other similar authority established under any law for the time being in force outside India, as an underwriter, in so far as the total shares or voting rights held by the acquirer, directly or indirectly, does not entitle the acquirer to hold more than twenty-five per cent. of the total shares or voting rights of the company, of which shares are being acquired; or
(b) an acquisition of shares as a stockbroker registered with t h e Securities and Exchange Board of India, or other similar authority established under any law for the time being in force outside India, in so far as the total shares or voting rights held by the acquirer, directly or indirectly, does not entitle the acquirer to hold more than twenty-five per cent. of the total shares or voting rights of the company, of which shares are being acquired; or
(c) an acquisition of shares as a mutual fund registered with the Securities and Exchange Board of India, or other similar authority established under any law for the time being in force outside India, in so far as the total shares or voting rights held by the acquirer, directly or indirectly, does not entitle the acquirer to hold more than ten per cent. of the total shares or voting rights of the company, of which shares are being acquired.
2. An acquisition of shares or voting rights solely as an investment in so far as the total shares or voting rights held by the acquirer, directly or indirectly, does not entitle the acquirer to hold more than twenty-five per cent. of the total shares or voting rights of the company, of which shares or voting rights are being acquired, not leading to acquisition of control of the enterprise whose shares or voting rights are being acquired.
3. An acquisition of additional shares or voting rights of an enterprise by the acquirer or its group entities, where the acquirer or its group entities, prior to acquisition, holds shares or voting rights of the enterprise, but does not hold more than twenty-five per cent. of the shares or voting rights of the enterprise, either prior to or after such acquisition:
Provided that –
(i) such acquisition does not result in acquisition of control of such enterprise by the acquirer or its group;
(ii) pursuant to the acquisition, the acquirer or its group entities do not gain a right or ability to have a representation on the board of directors of any enterprise either as a director or as an observer for the first time;
(iii) pursuant to the acquisition, the acquirer or its group entities do not gain a right or ability to access commercially sensitive information of any enterprise for the first time except where the acquirer or its group entities already have right or ability to have a representation on the board of directors of any enterprise as a director;
(iv) in case the activities of the acquirer or its group entities a nd their affiliates exhibit horizontal or vertical or complementary linkages with the activities of target or its downstream group entities and their affiliates, the incremental shareholding or voting rights acquired by a single acquisition or a series of smaller inter-connected acquisitions does not exceed five per cent. and such acquisition does not result in the shareholding or voting rights of the acquirer or its group entities increasing from less than ten per cent. to ten per cent. or more.
4. An acquisition of additional shares or voting rights of an enterprise by the acquirer or its group entities, where the acquirer or its group entities, prior to acquisition, holds more than twenty-five per cent. shares or voting rights of the enterprise, but does not hold more than fifty per cent. of the shares or voting rights of the enterprise, either prior to or after such acquisition:
Provided that such acquisition does not result in change in control of such enterprise.
5. An acquisition of shares or voting rights, where the acquirer or its group entities, prior to acquisition, has more than fifty per cent. shares or voting rights in the enterp rise whose shares or voting rights are being acquired, except in the cases where the transaction results in change in control of such enterprise.
6. An acquisition of assets of an enterprise in ordinary course of business.–– The acquisition of assets of an enterprise shall be treated as in ordinary course of business provided that said acquisition involves acquisition of stock-in-trade, raw materials, stores and spares, trade receivables or other similar current assets that do not constitute business.
7. An acquisition of assets, not directly related to the business activity of the party acquiring the asset or made solely as an investment, not leading to control of the enterprise whose a ssets are being acquired except where the assets being acquired represent substantial business operations in a particular location or for a particular product or service of the enterprise, of which assets are being acquired, irrespective of whether such assets are organised as a separate legal entity or not.
8. An acquisition of shares pursuant to a bonus issue or stock splits or consolidation of face value of shares or buy back of shares or subscription to rights issue of shares, not leading to a change in control.
9. An acquisition of assets by one person or enterprise, of another person or enterprise within the same group, except in cases where there is change in control over a ssets being acquired.
10. A merger or amalgamation of enterprises within the same group provided that the transaction does not result in change in control.
11. Acquisition of shares, control, voting rights or assets by a purchaser approved by the Competition Commission of India pursuant to and in accordance with its order un der section 31 of the Act.
12. Demerger of a company and issue of shares by resulting company, in consideration of demerger, either to the demerged company or to the shareholders of the demerged company in the proportion of their shareholding in the demerged company prior to the demerger, except for discharge of consideration for fractional shares
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