Thresholds for notifiable M&A deals not revised by MCA despite statutory mandate

Ministry of Corporate Affairs (MCA) has not revised the M&A thresholds in respect of notifiable transactions to CCI in the last six years, despite mandatory statutory requirement of biennial revision written in the law. The thresholds were last revised in 2016.

M&A deals beyond defined thresholds in terms of assets and turnover require compulsory notification to and approval of CCI before consummation. The law mandates compulsory revision of these thresholds every two year. 

As per Section 20(3) of the Competition  Act, 2002 the Central Government shall, on the expiry of a period  of two years from the date  of commencement of the Act and  thereafter every two  years,   in  consultation with CCI, by notification,enhance or reduce,on the basis of the wholesale price index or fluctuations in exchange rate of rupee or foreign currencies, the value of assets or the value  of turnover, which determine notification of deals to CCI. Put simply, the turnover or assets threshold value have to be indexed to the WPI or foreign currency movements.

This has resulted in undue compliance burden upon stakeholders as periodic revision of thresholds would have rendered many M&A deals that were notified to CCI, as non-notifiable, sources added.

“On the one hand, Government  of India is taking several initiatives for ease of doing business and lessening compliance burden upon stakeholders,  it is distressing that MCA is not initiating any action since 2016 and has not revised thresholds since then. If a parliamentary  mandate cannot make them move, nothing else can”, rued an industry representative. 

“CCI fines parties at the drop of a hat for gun jumping even for technical defaults in notifying deals, yet they are sitting pretty  despite legislative mandate. Had they acted on time, there would have been three revisions since 2016”, added the source.

Gun jumping refers to transactions which are consummated without CCI approval and are heavily punishable under competition law.

The recently introduced Competition  Amendment  Bill adds deal value as an additional criterion for notifying  M&A deals to CCI and pegs the initial threshold at ₹2,000 crore, which also requires periodic revision. The House  Panel, which vetted the proposal, tweaked it to require such revision every year (instead of two years as originally mooted) in line with wholesale price index or fluctuations in exchange rate of rupee or foreign currencies.

Competition law experts, however, are not very sanguine as they feel even this may not be complied with by the Government and the initial threshold of ₹2,000 crore may remain unchanged for years bringing  many transactions in digital markets within the notifiability criteria.

“There has to be some accountability in the system if statutory  mandates are flouted by the Ministry. Such lack of action adds costs to transactions and undue compliance burden upon stakeholders”, added the expert.