The Ministry of Corporate Affairs has introduced the Competition ( Criteria for Exemption of Combinations ) Rules, 2024, which come into effect from September 10, 2024.
These rules, formally known as the Competition (Criteria for Exemption of Combinations) Rules, 2024, establish specific criteria under which certain combinations are exempt from the requirements stipulated in sub-sections (2), (2A), and (4) of section 6 of the Competition Act. The Schedule of these rules delineates various categories of transactions that qualify for exemption.
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Under the new rules, acquisitions of shares by underwriters or stockbrokers registered with the Securities and Exchange Board of India (SEBI) or similar authorities are exempt, provided the shares acquired do not exceed 25% of the total shares or voting rights. Similarly, mutual funds registered with SEBI are permitted to acquire up to 10% of shares or voting rights without triggering the combination requirements.
The rules also outline exemptions for investment-only acquisitions, where the acquisition does not lead to control over the target enterprise, does not grant board representation, does not provide access to sensitive information, and does not involve competitive activities. In cases where related activities are engaged, the acquisition must be limited to 10% of shares or voting rights.
Further, the rules stipulate that acquisitions increasing shareholdings to 25% or less, or from 25% to 50%, are exempt provided there is no change in control or new board representation. Acquisitions where the acquirer already holds over 50% of shares are also exempt, as long as there is no change in control.
The rules cover ordinary course asset acquisitions, which include stock-in-trade, raw materials, or similar assets that do not constitute a business. Investment-only asset acquisitions are also exempt if the assets are unrelated to the acquirer’s core business activities, except in cases where they represent substantial operations.
Acquisitions resulting from bonus issues, stock splits, or rights issues that do not lead to changes in control are exempt. Similarly, asset transfers and mergers within the same group are exempt as long as control remains unchanged. Acquisitions approved by the Competition Commission of India (CCI) under section 31 of the Act are also exempt, as well as shares issued by a resulting company as part of a demerger.
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The Schedule provides clarifications on the definitions of the acquirer and its group, encompassing entities under common control, and specifies that affiliates are identified based on shareholding, board representation, or access to sensitive information.
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