In one of the most significant amendments to the merger control regime in India, the Government of India, by way of a notification published on March 29, 2017 (Notification), has enhanced the scope of the de minimis or the small target exemption to include transactions structured as mergers or amalgamations. Further, in transactions involving the acquisition/merger of only a business, division or portion of an enterprise, the Notification stipulates that only the asset and turnover value of such business/division will need to be considered.

We examine these sweeping changes introduced by the Notification and their ramifications in detail below:

A. Applicability of Target Exemption

An important exemption granted to acquisitions was the small-target or the de minimis exemption, which excluded a transaction from the mandatory requirement to obtain the Competition Commission of India’s (CCI) prior approval (Target Exemption), if structured as an ‘acquisition’ of shares, control, voting rights and assets of an enterprise that has assets of not more than INR 350 crores (approximately USD 54 million) in India or turnover of not more than INR 1,000 crores (approximately USD 154 million) in India.

The language of the Target Exemption notified by the Government of India, first in 2011 and then in a revised form in 2016[1], meant that it only applied to acquisitions. The Notification now increases the scope of the Target Exemption to include mergers and amalgamations.

The effects of this inclusion are far ranging. In the previous iteration, the structure of transactions gained significance, i.e., while an acquisition of majority stake or even 100% shareholding of an enterprise with assets or turnover less than the Target Exemption thresholds was exempt, a merger of such an enterprise (likely to have the same effect on the market) was unable to avail itself of this benefit. However, with this revision, the legislative intention behind the ‘small-target’ exemption may be realised to its fullest.

There is no increase in the Target Exemption thresholds which were revised last in 2016 and the applicability of the Notification is for a period of five years, i.e. until 28 March 2022.

B. Asset Acquisitions and Mergers

The Notification now clarifies that for the purposes of determining whether the jurisdictional thresholds are met or whether the Target Exemption is available, the asset and turnover value of the specific business or division being acquired/merged is to be considered. The value of the assets of such business or division being acquired/merged are required to be determined on the basis of the audited financial statements for the immediately preceding financial year in which the transaction takes place. If such financial statements are unavailable, the value of assets is to be determined on the basis of the statutory auditor’s report. The value of the turnover of such business will be the value as certified by the statutory auditor based on the last available audited accounts of the company.

Thus far, in the case of transactions involving the acquisition of only a business, division or a portion of an enterprise, the entire assets and turnover of the seller enterprise would be considered. Based on the interpretation of the definition of the term ‘enterprise’ under the Competition Act, 2002 (as amended), it was established that a division, unit or even assets are not enterprises by themselves. Accordingly, the entire vendor enterprise’s assets and turnover would need to be considered for computation of jurisdictional thresholds. The CCI has also gone so far as to impose penalties on parties for failing to notify transactions by relying on only the value of assets and turnover of the business division being acquired to avail the Target Exemption.

The Bigger Picture

The legislative intent behind the Target Exemption was that transactions involving small enterprises should not fall within the CCI’s notifiability regime because they do not have any significant effect on the market. However, with only a certain type of transaction (i.e., acquisitions) being able to avail of this benefit, this intent suffered from a serious anomaly. Further, by disregarding the actual size of the target business and considering the value of the assets and turnover of the entire seller enterprise, the CCI failed to appreciate what was actually relevant for its assessment. As a consequence, parties had to notify the CCI of several small value transactions, despite the obvious absence of any competitive impact of such transactions. Not only did this increase transactional costs and prolong timelines, it also added to the CCI’s burden of having to review inconsequential transactions. Therefore, the exemptions stipulated in the Notification come as a relief to all.


[1] The notification dated 4 March 2016 which enhanced the thresholds of Target Exemption has been rescinded by the Notification.

* The authors were assisted by Aishwarya Gopalakrishnan, Senior Associate and Arunima Chandra, Associate