Part IV: CCI Filing in India – The De Minimis Check

In today’s high-stakes M&A environment, regulatory clearances are not a post-closing checklist item – they’re a strategic priority. Nowhere is this more evident than with the Competition Commission of India (“CCI”), where even minority acquisitions or offshore transactions can trigger a mandatory filing. The question is: when exactly does this obligation arise?

This is Part IV in our series on “CCI Filing in India: The Deal Maker’s Lens” where we dive into one of the most nuanced exemptions in Indian competition law: the De Minimis Exemption.

We build on Part I – CCI approval for minority PIPE deals – to file or not to file?; Part II – Deal Value Trigger and CCI Approval – How does it affect dealmaking? and Part III: Inter-Connected Transactions – CCI’s Recent Penalty Order In Matrix Pharma’s Case, turning the spotlight now to De Minimis Exemption.

When must you file?

Section 5 lays out the law on combinations, or ‘merger control’ as we commonly understand. Effectively, any acquisition of shares, control, voting rights, or assets by a person could qualify as a ‘combination’, if it exceeds the given thresholds, requiring prior CCI approval. Whilst CCI has seldom rejected a combination application, the practical challenges that dealmakers face are two-fold – first, computing the thresholds under Section 5 (which can often get complex, given the expansive definitions of ‘enterprise’, ‘group’ etc.), and second, the time it may take to wait for CCI approval (note that an approval is deemed given if you do not hear from CCI within 150 days of filing).

If the thresholds are crossed and you don’t file, you risk gun-jumping, which is a serious contravention under Indian competition law. CCI can impose penalties (causing financial, but more importantly, reputational loss), and the regulator has not shied away from using that power.

To that end, the preference for dealmakers is to look for exemptions that obviate the need for such filing – either fall below prescribed thresholds and do not qualify as a ‘combination’ in the first place (“De Minimis Exemption”), and if not, at least qualify as a combination that doesn’t need a filing as listed in Competition (Criteria for Exemption of Combination) Rules, 2024 (“Exempt Combinations”).

Currently, transactions qualify for De Minimis Exemption if the target enterprise’s assets are below INR 450 crores (~ USD 52 million), or its turnover is below INR 1,250 crores (~ USD 143 million). Note that ‘turnover’ for the purposes of ‘combination’, excludes intra-group sales, revenue from customers outside India, indirect taxes and trade discounts; and assets include intangible assets.

De-Minimis Exemption: The Nuances

Until recently, the De Minimis Exemption was granted through notifications issued by the Ministry of Corporate Affairs (“MCA”). However, it was formally incorporated into the Competition Act, 2002 the (“Act”) through an amendment effective from September 9, 2024.

“Notwithstanding anything contained in clause (a) or clause (b) or clause (c), where either the value of assets or turnover of the enterprise being acquired, taken control of, merged or amalgamated in India is not more than such value as may be prescribed, such acquisition, control, merger or amalgamation shall not constitute a combination under Section 5.”

On a plain reading, the provision seems to suggest that the De Minimis Exemption would only apply if the enterprise being acquired were in India. But 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.

In that light, it’s important to understand the terms ‘indirect’ acquisition and ‘control’.

Decoding Indirect Acquisitions – Ownership or Control?

The term ‘indirect’ acquisition is ambiguous in itself and needs to be interpreted in line with the scheme of the Act. For instance, should an investment in an offshore holding company be seen as an investment in the Indian subsidiary on a pro-rated basis irrespective of control (as in the case in the insurance sector), or should it be a function of ‘control’? Net-net, is the term ‘indirect’ acquisition a function of economic interest, or ‘control’, or both?

Let’s take a simple example. If Company A acquires 5% shares in Company B, and Company B holds 51% shares in Company C, then what would be Company A’s indirect holding in Company C? If one were to apply the control test, the holding would be zero (since A does not exercise control over B, it can have no indirect influence over C) (the “Control Test”). However, if one were to apply the proportionate test or the ownership test, then Company’s indirect holding in Company C would be 2.55% (5% of 51%) (the “Pro-Rata Test”).

Several combinations leading to indirect acquisition approved by CCI suggest application of the Control Test. For instance, Veolia/Suez¹ ; Titan International U.S./Titan Europe² ; TPG Manta/Thoma Bravo³ .

In fact, most legislations such as the Takeover Code, Exchange Control Regulations etc., and also several concession agreements like by NHAI apply the Control Test for determining indirect holding or indirect acquisitions. Pro-Rata Test is a rarity.

While the applicability of the Pro-Rata Test cannot be entirely dismissed and will depend on the specific facts and interpretation of each case, the Control Test appears to be the more appropriate benchmark, as CCI’s primary concern is whether an acquisition grants any form of control – rather than merely an economic interest – over an Indian entity

What is ‘control’? Could mere information rights or director appointment qualify as ‘control’?

The standard of ‘control’ in Indian competition law has evolved from requiring decisive influence – such as majority shareholding or the ability to appoint majority of the board members – to recognizing ‘material influence’ as sufficient for establishing control. Early cases, like the IMT order⁴ , focused on whether an acquirer could exercise decisive influence over management and affairs, typically through significant shareholding or contractual rights. However, over the years and as seen in the UltraTech Cement case⁵ , CCI clarified that control is a matter of degree and can arise not only from outright majority or board control, but also from factors like minority shareholding, board representation, special rights, or even industry expertise. Here, the regulator explicitly recognized ‘material influence’ as the lowest threshold of control, where an entity can influence key decisions or policies even without majority power.

Then in 2019, the Competition Law Review Committee recommended adopting this material influence standard after reviewing international best practices. The Committee noted that jurisdictions such as the UK and Canada already consider material influence as a basis for control, allowing their regulators to capture a wider range of potentially anti-competitive transactions.

Consequently, ‘Control’ under the Act has been expansively defined (under Section 5) to mean “…the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions by –

i. one or more enterprises, either jointly or singly, over another enterprise or group; or

ii. one or more groups, either jointly or singly, over another group or enterprise”;

Material Influence hasn’t been defined as such in the Act, but the CCI’s FAQ’s shed light on the regulatory approach. For context, we quote the entire portion from the FAQ below:

“The ability to control the management and affairs of an enterprise may be inferred from the extent of shareholding and/ or statutory rights associated with the shareholding and/ or contractual rights such as veto rights, consultation rights, participation in management and affairs. However, special rights/ veto rights are not the only basis for inferring the ability to manage/ control the affairs of an enterprise and there can be other sources of control as well, viz., status and expertise of an enterprise or person, board representation, structural/ financial arrangements, etc. In competition law practice, control is considered a matter of degree. However, all degrees and forms of control nonetheless constitute control. International jurisprudence considers “material influence” as the lowest form of control, alongside other higher forms such as de facto control and controlling interest (de jure control), in that order. Material influence – the lowest level of control – implies the presence of factors that give an enterprise/ person the ability to influence the affairs and management of the other enterprise, including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/ financial arrangements, etc. De facto control implies a situation where an enterprise holds less than majority of the voting rights but, in practice, controls over half of the votes actually cast at a meeting. Further, the factors relevant for material influence are relevant for ascertaining de facto control as well. It may be noted that the concepts of material influence and de facto control are very significant in competition law as there can be situations where commercial realities can be more telling than formal agreements and structures. Controlling interest, or de jure control, means a shareholding conferring more than fifty per cent (50%) of the voting rights of an enterprise. It may be noted that only one enterprise can have a controlling interest in the other enterprise, but more than one enterprise can control the other enterprise (situation of joint control). Likewise, there are other terms which are used to express control, such as negative control (by virtue of ability to block special resolutions) or operational control (by virtue of commercial cooperation agreements with or without involving equity).

The control may be classified as negative control, positive control, sole control or joint control.”

To this extent, right to appoint a director or observer, or to secure any special rights not ordinarily available to all shareholders, may trigger “control”. The fact that the “solely as an investment” exemption is disqualified if the acquirer is getting a board or observer seat or obtaining special rights provides valuable insight into how CCI might interpret control or material influence within the De Minimis exemption framework – particularly since exemptions tend to be assessed conservatively.

What about giving up of rights?

Certain statutory rights cannot be given up at all (for instance, right to vote on shares etc.). Contractual rights can be given up – however, if the right has not been given up, it does not matter whether the right has been exercised or not (for instance, you have the right to appoint a director, but you are not appointing a director – from a CCI perspective, it doesn’t make a difference).

Aggregation of assets and turnover?

For instance, if Company A has ‘control’ over Company B and B has multiple SPVs under it, the question arises: for the purpose of determining the De Minimis Exemption, should the thresholds be tested for each entity individually, or should the assets and turnovers of all entities be aggregated and then assessed against the de minimis thresholds?

The answer is the latter – you may need to treat the direct and indirect acquisitions as one composite transaction.

Look at the entire scheme, and not just a step – interconnected transactions trumping De Minimis Exemption

The concept of ‘inter-connected transactions’ serves as a general exception to all exemptions. Under this principle, various legs or stages of a transaction, even if executed separately at different times, are treated as parts of a single composite transaction. Therefore, exemptions must be evaluated collectively at the outset, provided at least one leg meets the notification thresholds. Conversely, deliberately structuring a transaction into multiple smaller steps – each individually below notification thresholds – may be viewed by CCI as an attempt to circumvent notification requirements, potentially violating Regulation 9(5) of the Combination Regulations and attracting penalties. However, as an anti-abuse measure, this provision is not intended to impact genuine commercial transactions. [Read our detailed piece here].

DVT Trumping

Another exception to the De Minimis Exemption is the recently announced DVT Thresholds. Effective September 9, 2024, if the target qualifies for the De Minimis Exemption but the value of the transaction exceeds INR 2000 crore and the target has substantial business operations in India, the exemption will not apply. Please see our DVT paper here for a detailed analysis.

Conclusion

The De Minimis Exemption remains a critical tool for dealmakers navigating Indian merger control, but its application is far from mechanical. While it streamlines smaller transactions by exempting them from CCI scrutiny, the exemption’s scope hinges on nuanced assessments of control, material influence, and the aggregation of assets and turnover.

Further, the key consideration, in our view, should not simply be the percentage of shares acquired but whether the transaction results in control. Besides being more aligned to the intent of the law – assess transactions which can cause appreciable adverse effects on competition – the Control Test offers a more reliable basis for determining whether an indirect acquisition qualifies for De Minimis Exemption.

This control-centric approach ensures that transactions with the potential to impact Indian markets – regardless of how they are structured – do not escape regulatory scrutiny by focusing on the substance of influence rather than the form of ownership.

That said, the De Minimis Exemption can expedite deals and reduce regulatory friction, but only if parties conduct rigorous early-stage diligence and avoid structuring aimed at circumventing notification requirements.

¹ Veolia/ Suez.
² Titan International/Titan Europe.
³ TPGManta/Thoma Bravo.
⁴ IMT.
⁵ UltraTech Cement.