India on Thursday tweaked company laws to facilitate mergers and acquisitions of smaller firms, in a bid to improve its ranking in the ease of doing business and attract higher foreign investment.
In a notification, the government exempted companies with a turnover up to Rs 1,000 crore from seeking Competition Commission of India for mergers and acquisition.
The Ministry of Corporate Affairs (MCA) issued a notification clearing the haze on the M&A rules that allowed the relaxation only for acquisition but excluded mergers, amalgamation and acquiring of control cases.
Thursday’s notification covers all cases--mergers, acquisitions and control.
The Companies Act passed by Parliament in 2002 had initially provided for notice of combinations to be given by enterprises, as per Section 5 of the Act, on a voluntary basis.
However, this Section was amended in 2007 making the notice mandatory.
In 2011, the Government had issued a notification exempting an enterprise, whose control, shares, voting rights or assets are being acquired has either assets of the value of not more than Rs 250 crore in India or turnover of not more than Rs 750 crore in India from the applicability of Section 5 of the Competition Act, 2002, for a period of 5 years.
These limits were enhanced to Rs 350 crore and Rs 1,000 crore, respectively, in March, 2016.
“It was, however, noted by the Government that the said notification was being applied to Combinations which resulted only from acquisition but was not extended to merger, amalgamation and acquiring of control cases,” the government said in a statement.
It was also noted that where only a segment of an enterprise was being combined with another enterprise, the relevant assets and turnovers attributable to the target segment were not being considered and instead the transferor’s total assets and turnover were being considered for determining the applicability of the exemption.
The government notification now provides clarity on the applicability of the threshold exemption limits to all forms of combinations as referred under Section 5 of the Act, and the methodology to be adopted for calculating the relevant assets and turnover of the target when only a portion or segment or business of one enterprise is being combined with another.
With the issue of these notifications, combinations falling within the threshold limits would not require to be filed before the Competition Commission of India.
“The reform is in pursuance of the Government’s objective of promoting Ease of Doing Business in the country and is expected to make India a more attractive destination for Foreign Direct Investment,” the finance ministry said.
“The notification is expected to enable greater freedom to industry in taking legitimate business decisions towards further accelerating India’s economic growth.”