Definition
The de minimis exemption is a form of target exemption under the competition law regime wherein certain transactions falling below a given threshold are exempted from notification to the competition authority. The intent behind such an exemption was to mandate notification for only those transactions that cause a significant reduction in market competition and, therefore, require closer scrutiny.1
Such an exemption was evident through the notification2 issued by the Ministry of Corporate Affairs (“MCA”), revising de minimis thresholds under Section 54 of the Competition Act, 2002 (“Act”), dealing with the Commission’s power to exempt3 in categories highlighted below:
(a) any class of enterprises, if such exemption is necessary in the interest of the security of the State or public interest;4
(b) any practice or agreement arising out of and in accordance with any obligation assumed by India;5 and
(c) any enterprise which performs a sovereign function on behalf of the Central Government or a State Government.6
The aforesaid notification requires that combination transactions exceeding INR 20 billion (USD 237 million) will require prior approval from the Commission, adding a level of scrutiny where previously transactions were judged on the size of the company’s assets and turnover.7
Commentary
1. Killer Acquisitions
A pivotal issue posed by the current format of the de minimis exemption is the gateway it provides for killer acquisitions, which refers to an acquisition wherein a firm acquires a nascent competitor only to discontinue the target’s innovation projects, thereby pre-empting the emergence of future competition. In such cases, the asset and turnover value of such acquired entity is generally low, owing to it being a new entrant in the market, thereby exempting it from the CCI’s scrutiny.8
2. Show Cause Notice Power
Secondly, the power of the CCI to issue a show cause notice is provided under Section 29(1); it requires the CCI to be of the prima facie opinion that the combination is likely to cause an appreciable adverse effect on competition (AAEC), which raises concerns as to whether such a test could also be extended to non-notifiable combinations.9
3. Control Consideration
Thirdly, the key consideration, in our view, should not simply be the percentage of shares acquired but whether the transaction results in Control, as the term ‘acquisition’ includes both direct and indirect acquisition of shares, voting rights, or assets of any enterprise, or control over management or assets of any enterprise.10
4. Shell Corporations
Fourthly, the concern can be raised that a shell corporation, which is defined as a firm or organisation that has no substantial assets or activities and is often formed for the purpose of securing funding before operations are initiated, may escape regulatory scrutiny. Due to the gaps in international corporate transparency regulations, shell corporations remain characterised by their primary function of legally concealing the identities of their beneficial owners.11 Even though the usage of shell corporations is primarily for legal purposes, they can also be applied to money laundering, tax evasion or tax avoidance, or for some specific goals like obscurity.
5. Comparative Perspective
The practice in several jurisdictions broadly seems to tilt towards vesting residuary powers in the assessing authorities. The following is a list of different jurisdictions that deal similarly with transactions between smaller parties, which can cause a shockwave in the market economy for a long period:
(a) Australia – The procedure is informal and non-mandatory; the authorities may use their formal information-gathering powers and/or injunctive relief to investigate mergers under Section 155 and Section 80, respectively, of the Competition and Consumer Act 2010 that do not meet the notification threshold if they raise competition concerns.12
(b) France – Merger notification is mandatory only where the jurisdictional thresholds prescribed under Article L.430-1 of the French Commercial Code are satisfied – (i) when two or more previously independent companies merge; (ii) when one or more persons already holding control of at least one undertaking or when one or more undertakings acquire, directly or indirectly, whether by taking a stake in the capital or by purchasing assets, contract or any other means, control of all or parts of one or more other undertakings; (iii) the creation of a joint venture performing on a long-term basis all the functions of an autonomous economic entity.13
(c) Turkey – It amended the Law on the Protection of Competition in 2020 with Article 1 stating that the existence of all of the following conditions: agreement, concerted practice and association of undertakings decisions are exempt from the application of the provisions of Article 4: (i) production or distribution of goods and services new developments and improvements in the presentation or economic or technical ensuring development, (ii) the consumer benefits from this, (iii) competition in a significant part of the relevant market not to disappear.14
(d) Philippines – Bureau of Internal Revenue (BIR) under Revenue Regulations (RR) No. 29-2025 adjusted the non-taxable thresholds for de minimis benefits to address macroeconomic inflationary conditions within an exhaustive list of allowable de minimis benefits and their legal ceilings for combined total of the employee’s mandatory 13th-month pay, discretionary Christmas bonuses, productivity incentives outside CBA, and all excess de minimis amounts is evaluated against a macro-ceiling of ₱90,000 per taxable year.15
(e) European Union – The Commission adopted the Guidance setting out its revised approach to Article 22 of the EUMR, allowing any Member State to request the Commission to examine a merger that does not have an EU dimension but affects trade within the Single Market and threatens to significantly affect competition within the territory of the Member States making the request.16
(f) USA – It provides flexible mechanisms wherein the regulators are empowered to conduct an assessment of non-notifiable combinations if there are concerns regarding antitrust violations under Section 7 of the Clayton Act, 15 U.S.C. § 18, where the transaction may substantially lessen competition or tend to create a monopoly.17 The agencies may seek injunctive relief in federal court regardless of whether the transaction was subject to Hart–Scott–Rodino (HSR) premerger notification.
Key CCI’s Actions in De Minimis Exception
CCI v. Thomas Cook (India) Ltd18 – The issue came on record where on 7 February 2014, the Boards of Thomas Cook India Ltd. (TCIL), Thomas Cook Insurance Services India Ltd. (TCISIL), and Sterling Holiday Resorts India Ltd. (SHRIL) approved a demerger/amalgamation, Share Subscription Agreement (SSA), Share Purchase Agreement (SPA), an open offer, and market purchases as part of a single transaction. Between 10 and 12 February 2014, TCISIL acquired 90,26,794 equity shares (9.93%) of SHRIL through purchases on the Bombay Stock Exchange. However, only the demerger and amalgamation were notified under Section 6(2) of the Competition Act, while the SSA, SPA, open offer, and market purchases were not notified, claiming exemption under the Notification.
Pooja V and Bhawna Lakhina, De Minimis Exemption and CCI’s Jurisdiction: Time To Revamp?, The Competition and Commercial Law Review, <https://www.tcclr.com/post/de-minimis-exemption-and-cci-s-jurisdiction-time-to-revamp>.↩︎
See MCA revises de minimis thresholds under Section 54 of the Competition Act, 2002, <https://taxguru.in/corporate-law/mca-revises-de-minimis-thresholds-section-54-competition-act-2002.html>.↩︎
§54 of the Competition Act, 2002 (No. 12 of 2003).↩︎
Ibid §54(a).↩︎
Ibid §54(b).↩︎
Ibid §54(c).↩︎
Shweta Shroff Chopra, CCI Revised Deal Value Threshold Regulations Explained, <https://www.amsshardul.com/insight/cci-revised-deal-value-threshold-regulations-explained/>.↩︎
Start-ups, Killer Acquisitions and Merger Control, OECD, <https://www.oecd.org/en/events/2020/06/start-ups-killer-acquisitions-and-merger-control.html>.↩︎
Supra Note No. 1.↩︎
Isha Shah, Payaswini Upadhyay & Ruchir Sinha, Part V: CCI Filing in India – The De Minimis Check & Control Clarity, <https://resolutpartners.com/research/part-v-cci-filing-in-india-the-de-minimis-check-control-clarity>.↩︎
Kenton, W., What Is a Shell Corporation? How It’s Used, Examples and Legality, Investopedia (31 October 2024).↩︎
Supra Note No. 1. See also <https://classic.austlii.edu.au/au/legis/cth/consol_act/caca2010265/s155.html>.↩︎
See <https://www.legifrance.gouv.fr/codes/article_lc/LEGIARTI000006232013>.↩︎
Amendment to the Law on the Protection of Competition, Law No. 7246, <https://www.resmigazete.gov.tr/eskiler/2020/06/20200624-1.htm>.↩︎
De Minimis Benefits Eligibility Rules in the Philippines, <https://www.respicio.ph/commentaries/de-minimis-benefits-eligibility-rules-in-the-philippines>.↩︎
EU Commission withdraws guidance on Article 22 merger referrals, <https://ieu-monitoring.com/editorial/eu-commission-withdraws-guidance-on-article-22-merger-referrals/480729>.↩︎
Merger Guidelines, U.S. Department of Justice and the Federal Trade Commission, <https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf>.↩︎
CCI v. Thomas Cook (India) Ltd., (2018) 6 SCC 549.↩︎