The Ministry of Corporate Affairs (“MCA”) has extended the suspension of the 30-day deadline for merger filings
India’s competition regime is mandatory and suspensory. A transaction cannot be completed (in whole or in part) unless the Indian competition regulator grants its approval.
The Competition Act, 2002 (the “Act”) requires that a transaction be notified to the Competition Commission of India (“CCI”) within 30 days of the trigger event (such as the execution of binding agreements). But this requirement was suspended for five years through a circular dated June 29, 2017. The suspension period now stands extended for another five years until June 28, 2027 through MCA notification No. S.O. 1193(E) dated March 16, 2022. 
The statutory requirement was onerous and impractical. Pending statutory amendments, that can only be made by the Indian Parliament, the Government of India continues to facilitate streamlined processes for transacting parties.
Transacting parties can notify the CCI– India’s antitrust regulator — for an approval at any time after the trigger event but prior to the completion / closing of a transaction.
Small target exemption renewed for another five years
The small target exemption provides an important relaxation for deal activities in India and its extended application was eagerly awaited.
Transactions where either the value of the assets of the target (including its divisions, units and subsidiaries) is not more than INR 350 crore (approximately USD 45.92 million) in India; or the turnover of the target (including its divisions, units and subsidiaries) does not exceed INR 1,000 crore (approximately USD 131.21 million) in India (“Small Target Exemption”) are exempt from the requirement of seeking the CCI’s approval. The Government of India (MCA), through notification No. S.O. 1192(E) dated March 16, 2022 has extended the Small Target Exemption for another five years, i.e. until March 27, 2027.
The scope of the Small Target Exemption includes transactions structured as mergers or amalgamations. In transactions involving the acquisition/merger of a business, division or certain assets, the MCA has clarified that only the assets and turnover values attributable to the actual target business / division / assets will be considered while calculating the Small Target Exemption and / or the jurisdictional merger filing thresholds under Section 5 of the Act.
The Small Target Exemption – beware of these pitfalls
The Small Target Exemption thresholds have an express India nexus, that only if the target’s assets and / or turnover values are below the thresholds ‘in India’, the parties are excused from making a merger filing. In cases where an Indian target has foreign subsidiaries, the Small Target Exemption was unavailable because the assets and turnover values were to be calculated basis the ‘book value’ of the target. This book value includes the assets and turnover of the target’s domestic and foreign subsidiaries (which may or may not have any India-nexus).
It appears now that the CCI may be willing to allow the exclusion (for the calculation of the Small Target Exemption thresholds) of the turnover generated by foreign subsidiaries – of an Indian target – having no nexus with India (e.g., turnover generated from customers located abroad).
This assessment would be fact and sector specific. There is no settled precedent on the subject yet.
- A recent order of the CCI (Investcorp India/IDFC) clarifies that the Accounting Standards may not be relevant for the purpose of testing the Small Target Exemption and / or jurisdictional thresholds in case of a private equity investor. In cases where the acquirer or the target is a fund / investment manager: (a) the assets and turnover value of the fund over which the fund / investment manager enjoys control; and (b) the ‘complete’ assets and turnover values of the controlled investee / portfolio companies of the fund (not just the value proportionate to the shareholding), would be attributable to the financials of the investment manager for the purposes of calculating the Small Target Exemption and jurisdictional thresholds under Section 5 of the Act.
However, it is unclear if the CCI expects parties to follow this principle more generally or only in case of acquisitions involving investment managers / funds.
- The CCI’s order in Phoenix/EQU/GS has clarified the CCI’s position on intra-group export sales – a contentious point for deals in the service sector (specifically, IT/ITeS and other sectors focussing on offshoring of execution, development, etc.). The order sheds light on the circumstances in which one may exclude ‘intra-group export sales’ for the purposes of assessing the applicability of the Small Target Exemption and the jurisdictional thresholds under Section 5 of the Act. The tests may be broken down into the Parties Test and the Location Test:
(a) Generally, intra-group sales between various entities of the group can be excluded provided the entire target group is acquired (including the ultimate parent of the target); and
(b) The exception to the general rule is that elimination of intra-group sales should bear linkage to the entities being acquired. The elimination of intra-group sales disallows double counting but with that object, parties should not disregard the single counting of sales.
(c) The Parties test needs to be read with the next piece i.e., the Location Test. This test has two limbs:
(i) Location of Sale: Whether the sale originates and terminates in India between the intra-group parties? and
(ii) Location of Supply: (A) Whether the supply originates and terminates in India? OR (B) Whether the supply is from India to an overseas intra-group entity and a further sale is to an Indian intra-group entity terminating in India (essentially, a circular deal originating and ultimately terminating in India)?
 Notification dated March 16, 2022 – S.O. 1193(E); Available at: https://www.egazette.nic.in/WriteReadData/2022/234278.pdf.
 Notification dated March 16, 2022 – S.O. 1192(E); Available at: https://egazette.nic.in/WriteReadData/2022/234300.pdf
 Section 43-A Order dated December 17, 2021 of the CCI in relation to proceedings against Investcorp India Asset Managers Private Limited.
 Order dated October 25, 2022 in Combination Registration No. 2021/08/863.