Understanding the Competition (Criteria for Exemption of Combinations) Rules, 2024

The Competition (Criteria for Exemption of Combinations) Rules, 2024, is a recent regulation that outlines criteria for certain acquisitions, mergers, or combinations that may qualify for exemptions under the Indian Competition Act, 2002. Let’s break down the details in this regulation.

Short Title and Commencement

The rules are officially titled the Competition (Criteria for Exemption of Combinations) Rules, 2024 and have been in effect since September 10, 2024.

Key Definitions

1. “Act” refers to the Competition Act, 2002.
2. “Schedule” refers to the specific schedule attached to these rules, detailing the criteria for exemption.

Exemption Criteria for Categories of Combinations

Certain combinations are exempt from needing approval if they meet specific criteria. These categories include acquisitions or combinations that follow routine business procedures without leading to control over the target enterprise. The exemptions generally apply if the total shares or voting rights held do not exceed set thresholds. 

Key Exemption Scenarios

1. Ordinary Course of Business Acquisitions

•    Underwriting Agreements: Shares acquired due to underwriting obligations by entities registered with SEBI or a similar authority outside India are exempt if they do not exceed 25% of the total shares or voting rights.
•    Stockbrokers and Mutual Funds: Acquisitions made as part of mutual fund operations or stockbroking are exempt if the acquirer does not end up holding more than 25% (or 10% for mutual funds) of the shares or voting rights.

2. Investment-Based Acquisitions

   Investments are exempt if they do not give the acquirer control over the target company and stay within 25% ownership.

3. Additional Shares or Voting Rights

•    Minority Ownership: If an acquirer already has less than 25% in an enterprise, any additional acquisition will be exempt as long as it doesn’t grant control or access to sensitive company information.
•    No Change in Control: Additional acquisitions that do not lead to control or change in board representation are also exempt.

4. Intra-Group Acquisitions

   Acquisitions of assets or mergers within the same group are exempt if there is no control change.

5. Specific Financial Events

   Transactions like bonus issues, stock splits, and buy-backs that don’t lead to changes in control are exempt.

6. Acquisition of Assets

   Asset acquisitions are exempt if they relate only to inventory or raw materials that do not represent a business on their own.

7. Demergers and Subsequent Share Issuance

   When a company is demerged, shares issued to the demerged company or its shareholders in the same ratio do not require additional approval.

Additional Definitions and Clarifications

1. Group Entities: Refers to entities under the same controlling entity.
2. Affiliate: An entity is an affiliate if it holds at least 10% shareholding in another, has board representation, or has access to commercially sensitive information.

This rule is a significant step towards streamlining routine business transactions, allowing companies to focus on growth without being slowed down by compliance procedures for non-controlling acquisitions.

You can view the official document here for a detailed look at the complete Competition (Criteria for Exemption of Combinations) Rules, 2024.

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