India: Target Exemption Under The Competition Act Amended

Last Updated: 5 April 2017
Article by   Trilegal

The MCA has recently notified significant changes to the merger control regime in India by amending existing exemptions applicable to target enterprises under the provisions applicable to combinations.


Under the Competition Act, 2002, acquisitions/mergers/amalgamations above a specified threshold are required to be notified to the Competition Commission of India (CCI) for its prior approval. In 2011, the Ministry of Corporate Affairs (MCA) introduced a limited de minimis exemption to this requirement. Under this exemption, the acquisition of a target enterprise (whose shares, assets, voting rights or control are being acquired) having assets of Rs. 2.5 billion or less, in India, or a turnover of Rs. 7.5 billion or less, in India, was exempt from being notified to the CCI, for a period of 5 years. In March 2016, the MCA, through a notification, extended the validity of the above target exemption and increased the financial thresholds such that, acquisition of an enterprise, having assets of Rs. 3.5 billion or less, in India, or turnover of Rs. 10 billion or less, in India, was exempt from notifying the CCI for a further 5-year period (Target Exemption).

Given the express language of the Target Exemption under the MCA notifications, the CCI interpreted the Target Exemption to apply to acquisitions alone and not to mergers/amalgamations. Also, where only a portion of assets or a division of an enterprise was being acquired, the CCI did not consider the relevant assets or turnover of that particular portion/division of the seller enterprise for assessing whether the Target Exemption thresholds were breached, but instead, applied the Target Exemption thresholds to the total assets or turnover of the seller enterprise. Consequently, acquisitions of small divisions/businesses of large seller enterprises were required to be notified to the CCI, even though the size of the target assets/division being acquired did not exceed the Target Exemption thresholds.

2017 Amendment to the Target Exemption

The MCA, through its notifications dated 27 March 2017 (which were published in the Official Gazette on 29 March 2017) (2017 notifications), has rescinded the Target Exemption under the MCA notification of March 2016 and notified a revised target exemption. While the financial thresholds under the new target exemption remain the same, the following changes have been introduced under the revised target exemption (collectively, Revised Target Exemption):

  1. in addition to acquisitions, the Revised Target Exemption now extends to mergers/amalgamations as well;
  2. where a portion of an enterprise/division/business is being acquired, taken control of, merged or amalgamated with another enterprise, the value of assets or turnover of such portion/division/business and/or attributable to such portion/division/business, will now be considered to calculate whether the thresholds of the Revised Target Exemption are being breached. The value of such assets or turnover is to be determined from the annual report of the target enterprise for the preceding financial year in which the transaction takes place or from the auditor's report in case financial statements are not available;
  3. the manner in which the value of assets or turnover is to be computed has been clarified under the Revised Target Exemption, with the value of intellectual property rights (i.e., brand value, value of goodwill, value of copyright, etc.), if any, being included in the calculation; and
  4. the Revised Target Exemption does not apply to transactions entered into prior to 29 March 2017. Such transactions will continue to be governed by the earlier Target Exemption provisions and its interpretations.


Bringing mergers and amalgamations within the Revised Target Exemption is a significant move, as it has removed the artificial distinction previously made between acquisitions and mergers/amalgamations.

Further, the calculation of assets or turnover by reference to the size of the target assets/division/business being acquired or merged or amalgamated, addresses stakeholder concerns. As a result, acquisitions involving large sellers of small assets/divisions/businesses would no longer require notification to and prior approval of the CCI.

While the change in the Revised Target Exemption brings the Indian merger control regime closer to that of mature jurisdictions and aligns it with the International Competition Network's 'Recommended Practices on Merger Notification & Review Procedures', the Indian merger control regime lacks a dual 'size of person' and 'size of transaction' test (like in the USA), in which smaller transactions between large persons may have an impact on competition and therefore require notification and review by a competition authority. Further, acquisitions/mergers/amalgamations of businesses having low book value of assets and high turnover, or vice-versa, would also be outside CCI's review. Also, unlike in the USA, the CCI has no power to review non-notifiable transactions. Therefore, under the Revised Target Exemption, transactions that may be competitively significant and should ideally be reviewed by the CCI, would now fall outside the scope of the Indian merger control regime.

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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