Introduction: The Ministry of Corporate Affairs (MCA) has issued a notification on March 7, 2024, bringing significant changes to the Competition Act, 2002. Through this amendment, the MCA revises the value of assets and turnover thresholds for enterprises involved in acquisitions, control acquisitions, mergers, or amalgamations, as outlined in Section 5 of the Competition Act.
Detailed Analysis:
- Scope of Exemption (Section 1):
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- The notification exempts enterprises engaged in acquisitions, control acquisitions, mergers, or amalgamations from Section 5 provisions.
- The exemption applies when the value of assets acquired or controlled or merged does not exceed INR 450 crore or turnover is less than INR 1,250 crore in India.
- This exemption is valid for a period of two years from the date of publication in the Official Gazette.
- Calculation of Thresholds (Section 2):
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- For acquisitions of a portion or division or business, relevant assets and turnover are considered.
- The value is determined by the book value of assets shown in the audited books of accounts preceding the proposed combination’s financial year, reduced by any depreciation.
- Assets include brand value, goodwill, and other commercial rights specified in Section 3(5). Turnover is certified by the statutory auditor based on the last available audited accounts.
- Implications for Enterprises:
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- Enterprises falling within the revised thresholds are now exempt from the rigorous scrutiny of Section 5.
- This move is expected to boost business transactions, encouraging acquisitions and mergers in the specified limit, fostering economic growth.
- The exemption duration of two years provides a window for enterprises to strategically plan and execute their combinations without immediate regulatory constraints.
- Compliance and Reporting:
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- Enterprises availing the exemption must comply with the stipulated criteria and ensure accurate reporting of asset values and turnover.
- Statutory auditors play a pivotal role in certifying turnover, and adherence to reporting guidelines is essential.
Conclusion: The MCA’s revision of asset and turnover thresholds under Section 5 of the Competition Act is a pivotal development aimed at facilitating smoother business transactions within specified limits. Enterprises benefitting from the exemption must navigate the compliance landscape meticulously. This regulatory adjustment aligns with the government’s efforts to balance competition oversight while promoting ease of doing business in India.
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MINISTRY OF CORPORATE AFFAIRS
NOTIFICATION
New Delhi, the 7th March, 2024.
S.O. 1131(E).— In exercise of the powers conferred by clause (a) of section 54 of the Competition Act, 2002 (12 of 2003), the Central Government, in public interest, hereby exempts the enterprises being parties to ––
(a) any acquisition referred to in clause (a) of section 5 of the Competition Act;
(b) acquiring of control by a person over an enterprise when such person has already direct or indirect control over another enterprise engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, referred to in clause (b) of section 5 of the Competition Act; and
(c) any merger or amalgamation, referred to in clause (c) of section 5 of the Competition Act,
where the value of assets being acquired, taken control of, merged or amalgamated is not more than rupees Four hundred and fifty crore in India or turnover of not more than rupees One thousand two hundred and fifty crore in India, from the provisions of section 5 of the said Act for a period of two years from the date of publication of this notification in the Official Gazette.
2. Where a portion of an enterprise or division or business is being acquired, taken control of, merged or amalgamated with another enterprise, the value of assets of the said portion or division or business and or attributable to it, shall be the relevant assets and turnover to be taken into account for the purpose of calculating the thresholds under section 5 of the Act. The value of the said portion or division or business shall be determined by taking the book value of the assets as shown, in the audited books of accounts of the enterprise or as per statutory auditor’s report where the financial statement have not yet become due to be filed, in the financial year immediately preceding the financial year in which the date of the proposed combination falls, as reduced by any depreciation, and the value of assets shall include the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indications, geographical indications, design or layout- design or similar other commercial rights, if any, referred to in sub-section (5) of section 3. The turnover of the said portion or division or business shall be as certified by the statutory auditor on the basis of the last available audited accounts of the company.
[F. No. 05/7/2013-CS]
MANOJ PANDEY, Addl. Secy.