The Competition Act, 2002 ("Act")
does not define de-merger. In the absence of a definition, it is
unclear whether (i) a filing in relation to a de-merger is
required, and (ii) if a filing is required, whether a de-merger
would fall under sections 5(a) (acquisitions) or 5(c)
(mergers and amalgamations) of the Act.
In the past, there have been conflicting views, express or
implied, in the orders of the Competition Commission of India
("Commission") on whether demergers
require a filing under the Act. Given the lack of clarity, our
earlier advice to clients was that by way of abundant caution, a
filing should be made or the clients should seek a consultation
with the Commission to understand how it would be likely to view
In a very recent order dated 18 September 2012, the Commission
has approved the restructuring of a group involving two demergers,
stating that the proposed combination falls within the ambit of
Section 5 (c) of the Competition Act, 2002.
The combination examined under the said order involved the
(a) Transfer by way of a demerger of the power transmission
equipment business ("PTE") of Prayas
Engineering Limited ("PEL") and EMTICI
Engineering Limited ("EMTICI") into
Elecon Engineering Company Limited
(b) Transfer by way of a demerger of the material handling
equipment business ("MHE") of PEL and
EMTICI into EECL;
(c) Transfer by way of a slump sale of the MHE business from
EECL to EPL.
EECL is a public listed company. EPL has been set up as a
wholly-owned subsidiary of EECL. PEL and EMITCI, EECL and EPL are
companies within the same group, falling under the direct or
indirect control of the same person, Mr. Prayasvin B. Patel.
In its order, the Commission has stated that the combination,
which is a result of restructuring within the same group, falls
under Section 5(c) of the Act. The transfer of the MHE business
from EECL to its wholly-owned subsidiary, EPL, is an intra-group
transaction and thereby can take advantage of the relaxation
granted under the combination regulations. It is, therefore, clear
that demergers are not excluded from the ambit of the Act and the
Commission has examined demergers under Section 5 (c) of the Act.
Thus, the Commission's view is that demergers are to be
approached in the same manner as mergers.
Please note that the de minimus threshold set out in
the Government notification dated 4 March 2011 is not applicable to
mergers since the said notification mentions acquisitions but omits
to mention mergers or amalgamations. Consequently, de-mergers,
which are being treated as section 5(c) transactions, also do not
get covered by the said notification.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The Legal Metrology Act, 2009 was passed by the Indian Parliament in order to repeal and replace The Standards of Weights and Measures Act, 1976 and the Standards of Weights and Measures (Enforcement) Act, 1985.
In the wake of liberalization and privatization that was triggered in India in early nineties, a realization gathered momentum that the existing Monopolistic and Restrictive Trade Practices Act, 1969 was not equipped adequately enough to tackle the competition aspect of the Indian economy.
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