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CHAPTER-IV

COMPETITION ACT AND ITS IMPACT

ON MERGERS AND ACQUISITIONS

4.1. Introductory

We are living in a free market economy age where business entities are engaged in

competitive practices. This sometimes (if not always) leads to the monopolisation of the

market by way of anti-competitive agreements, abuse of dominance, mergers and

takeovers between business entities which result in distortion of the market. Most

countries in the world have enacted competition laws to protect their free market

economies and have thereby developed an economic system in which the allocation of

resources is determined solely by demand and supply.1

Although the antitrust laws are very much new to the Indian regulatory framework but

the western countries likes US and Canada has this kind of regulatory framework since

last decade of the 19th century. Canada became the first country of world to enact the

antitrust law i.e. Combines Act of 1889, followed by the US in the form of the Sherman

Act, 1890. The Sherman Act was followed by the Clayton Act 1914 which expanded on

the general prohibition of the Sherman Act to price discrimination, exclusive dealing

and mergers. In the same year in US, the Federal Trade Commission Act, 1914 also

declared unlawful unfair methods of competition and unfair or deceptive acts or

practices in or affecting commerce and moreover, the Cellar-Kefauver Act, 1950 which

has amended the Clayton Act and now both stock as well as asset acquisitions are

prohibited which would result in a restraint of commerce or creation of monopoly.2 The

United Kingdom, on the other hand, introduced the considerably less stringent

Restrictive Trade Practices Act, 1956, but later on more elaborate legislations like the

1 Neeraj Tiwari, “Merger under the Regime of Competition Law: A Comparative Study of Indian

Legal Framework with EC and UK”, Bond Law Review, 25 August 2011, Vol. 23, Issue 1, 117-141, p. 117.

2 For further details, see, Stephen Calkins, “Competition Law in the United States of America”, in Vinod Dhall (ed.), Competition Law Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 401-425.

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Competition Act 1998 and the Enterprise Act, 2002 were introduced.3 India had anti-

trust legislation in the form of the Monopolies and Restrictive Trade Practices Act, 1969

which was replaced by Competition Act, 2002. The Competition Act regulates mergers

and acquisitions which results in distortion of the market. The Indian Competition Act

is more in line with competition laws across the globe with its focus on promoting and

maintaining competition as well as consumer welfare.

4.2. Background and Evolution of Competition Law in India

Monopoly imposes heavy costs in every society. It is a conspiracy against the public to

raise prices. It hates competition because competition lowers prices to a level which is

fair, honest and earned under competitive environment. Adam Smith spoke of ‘the

wretched spirit of monopoly’, the ‘mean rapacity, the monopolising spirit’ in which ‘the

oppression of the poor must establish the monopoly of rich.’ Monopoly is exercised

through market shares gained by buying up or bullying the present competitors out of,

and the potential from, the market. The purpose is to earn maximum profit at the cost of

consumers and rival competitors, more than the natural profit which the fair and free

competition endures. It also destroys efficiency and discourages innovation. On the

other hand, competition enhances consumer choice and promotes competitive prices,

with the result society as a whole benefits from the best possible allocation of resources.

That’s why most countries in the world have enacted competition laws to protect there

free market economies-an economic system in which the allocation of resources is

determined solely by supply and demand.4

The competition law of India was previously contained in the Monopolies and

Restrictive Trade Practices Act, 1969 (MRTP Act). This Act was formed as a result of

‘command and control’ policies adopted by Indian government after independence. The

government intervention and control pervaded almost all areas of economic activity in

the country as India followed the strategy of planned economic development. The

3 For further details, see, Christopher Bellamy, “The Competition Regime in the UK”, in Vinod Dhall

(ed.), Competition Law Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 386-400.

4 D.P. Mittal, Competition Law and Practice, Taxmann Publications (P.) Ltd., New Delhi, 2011, p. 7, para 0.4.

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companies needed license for everything from setting up an industrial understanding, to

its expansion or layoff of workers and closing it down. The era was also known as

‘License-Raj.’ The out come of the ‘License-Raj’ system was restriction of freedom to

entry into industry which ultimately resulted in concentration of power into few

individuals or groups.5 Thus, MRTP Act came into existence in 1969 to control such

monopolies. The word ‘socialist’ in the Preamble to the Constitution of India has been

embodied with a high object. The principal aim of a socialist state is to eliminate

inequality in income, status and standard of life.6 The genesis of this Act is traceable to

the Preamble of our Constitution and Article 38 and 39 of the Directive Principles of

State Policy. Further, Article 38 mandates upon the state to secure a social order in

which justice-social, economic and political, shall inform all the institutions of the

national life. This provision further recognises the need to eliminate and minimise the

inequalities in income which applied not only to the individuals but also to the groups in

different areas. Article 39 takes a step further and states that, the state shall strive to

secure that the operation of the economic system does not result in the concentration of

wealth and means of production to the common detriment. The thrust of the Act was

directed towards:

Prevention of concentration of economic power to the common detriment;

Control of monopolies;

Prohibition of monopolistic, restrictive and unfair trade practices;

With the focus on curbing monopolies and not on promoting competition, the MRTP

Act became obsolete in certain respects in the light of international economic

developments relating more particularly to competition laws. It lacked provisions to

deal with anti-competitive practices that may accompany the operation and

implementation of the WTO agreements.7 But 1991 was a watershed year. The license

and control regime, which continued beyond when it might have been justified, severely

5 Hari Krishan, “A Review of Mergers and Acquisitions in India”, A Research Paper, Submitted to

Competition Commission of India (CCI), New Delhi, September 2012, pp. 1-56, p. 10. 6 D.S. Nakara v. Union of India, AIR 1983 SC 130. 7 D.P. Mittal, 2011, p. 13, para 0.5.

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stunted economic ‘development.’8 Financial crisis faced by the government prompted it

to usher economic reforms of a magnitude and at a pace not witnessed before.

Liberalisation became the buzzword. The economy was opened up- privatisation,

liberalisation of international trade, inviting private investment to hitherto closed sectors

and other reforms took centre stage.9 Part A of chapter III of MRTP Act which dealt

with provisions dealing with monopolistic enterprises seeking prior approval was

deleted. As a market economy has its own drawbacks and potential for market failure,

this led to more than hundred countries enacting modern competition law. Therefore, in

India, same need was felt.

With liberalisation and increased competition among firms to conquer the market,

competition law emerged as the solution to such antagonism that has the potential to

row its own destruction. A free market economy can cause a small number of firms to

be more successful than the others and thus create a state of monopoly, thereby

adversely affecting the competition in the market. Competition law, thus, intervenes in

such situations to regulate the market and thereby foster healthy competition.10

With the economic liberalisation making sweeping changes in industrial and trade

policies, foreign investment rules, capital controls and other spheres, it was felt that

there is a need for a new and modern competition law in the place of the old

Monopolies and Restrictive Trade Practices Act, 1969. Under the MRTP Act, the

Central Government had the power to approve mergers, amalgamation and takeovers

etc. As a result thereof, this Act became another tool for the government to keep with

itself the control over big companies, which wanted to grow faster and become globally

competitive.11 As this Act could not keep pace with the sweeping changes introduced by

liberalisation and globalisation, the Central Government, therefore, constituted a High

8 Vinod Dhall, “Competition, Growth and Prosperity”, Essays on Competition Law and Policy,

retrieved from www.cci.gov.in/images/media/articles/essay_articles_compilation_text2904new_2008

0714135044.pdf, accessed on 2 January 2012 at 6.24 pm. 9 Amitabh Kumar, “The Evolution of Competition Law in India”, in Vinod Dhall (ed.), Competition

Law Today (Concepts, Issues and the Law in Practice), Oxford University Press, 2007, pp. 479-498, p, 489.

10 Vidyulatha Kishor, “Comparative Merger Control Regulations-Lessons from EU and US”, Project

Report, Competition Commission of India, New Delhi, 2-27 January 2012, p. 5. 11 S. Ramanujam, Mergers et al (Issues, Implications and Case Law in Corporate Restructuring),

LexisNexis Butterworths Wadhwa, Nagpur, 2012, p. 1175.

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Level Committee on Competition Policy and Law, under the chairmanship of S.V.S

Raghavan. The Committee submitted its report to the Central Government on the 22nd

May 2000.12 On the basis of that report, the Competition Act, 2002 was enacted.

The background to the enactment of the Competition Act was succinctly explained by

the Supreme Court in the case of Competition Commission of India v. Steel Authority of

India Ltd.13

“The decision of the Government of India to liberalize its economy with

the intention of removing controls persuaded the Indian Parliament to

enact laws providing for checks and balances in the free economy. The

laws were required to be enacted, primarily, for the objective of taking

measures to avoid anti-competitive agreements and abuse of dominance

as well as to regulate mergers and takeovers which result in distortion of

the market. The earlier Monopolies and Restrictive Trade Practices Act,

1969 was not only found to be inadequate but also obsolete in certain

respects, particularly, in the light of international economic

developments relating to competition law. Most countries in the world

have enacted competition laws to protect their free market economies –

an economic system in which the allocation of resources is determined

solely by supply and demand. The rationale of free market economy is

that the competitive offers of different suppliers allow the buyers to

make the best purchase. The motivation of each participant in a free

market economy is to maximise self-interest but the result is favourable

to society. As Adam Smith observed: there is an invisible hand at work

to take care of this.”

The Raghavan Committee took the view that regulatory focus should change from

limitation of the size of undertakings to prohibiting trade practices which cause a

appreciable adverse effect on competition. The Raghavan committee observed that

competition regime in the world today regulate (1) anti-competitive agreements (2)

abuse of dominance, and (3) mergers, or more generally, combinations among

enterprises. By adopting this tripartite scheme, the Competition Act, 2002 has made a

12 See, The Report of High Level Committee on Competition Policy and Law (The Raghavan

Committee) in H.K. Saharay, Textbook on Competition Law, Universal Law Publishing Co. Pvt. Ltd., New Delhi, 2012, pp. 6-73.

13 (2010) 103 SCL 269 (SC).

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historic shift bringing Indian law in line with the conceptual regulatory framework

prevailing in the United Kingdom, the European Community and the United States.14

4.3. Rationale for Merger Control

A true (or full) merger involves two separate undertakings merging entirely into a new

entity.15 However, under competition law, the term ‘merger’ is used in a broad sense

covering combinations of enterprises in various forms e.g., a merger proper,

amalgamations, acquisition of shares, voting rights or assets, or acquisition of control

over an enterprise. Mergers are a normal activity within the economy and are a means

for enterprises to expand business activity.16 As already discussed in chapter I, mergers

have numerous advantages. They provide business entities opportunity to grow, to enter

new markets and diversify without the need to start afresh and face many related risks.

As a consequence of their many benefits, mergers are not treated as per se anti-

competitive.17 In fact, Justice Dhananjyay Chandrachud commented in Ion Exchange

(India) Ltd., In re:18

“Corporate Restructuring is one of the means that can be employed to

meet the challenges and problems which confront business. The law

should be slow to retard or impede the discretion of corporate enterprise

to adapt itself to the needs of the changing times and to meet the

demands of the increasing competition.”

But still mergers need to regulated as they generally have implications for the

concentration of, and ability to use, market power, which in turn can impact negatively

upon competition and harm consumer welfare by foreclosing other players from

entering the market. A merger sometime can lead to a bad outcome if it creates a

14 Reeti Sonchhatra, “Regulation of Mergers under Indian Competition Law”, Madras Law Journal,

2009, Vol. 5, pp. 13-19, p. 13. 15 Richard Wish, Competition Law, 6th Edition, Oxford University Press, New Delhi, 2009, p. 798. 16 Vinod Dhall, “Overview: Key Concepts in Competition Law”, in Vinod Dhall (ed.), Competition

Law Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 1-35, p. 15.

17 In fact, as many commentators have noted, most mergers pose little threat to competition for instance, an OECD/World Bank Report states that most mergers pose little or no threat to competition. OECD/World Bank, “A Framework for the Design and Implementation of Competition Policy and Law”, 1999, p. 41, available at http://www.oecd.org/dataoecd/10/30/27/122278.pdf,

accessed on 5 June 2009 at 5.00 pm. 18 (2001) 105 Comp Cases 115 (Bom.).

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dominant enterprise that subsequently abuses its dominance. In this way, merger attract

the attention of competition policy makers and need competition regulation. According

to Goldberg, mergers impact upon the concentration and use of market power as they

lead to: 19

Reduction in the number of business entities operating in a market, and

Increase in the market share controlled by the merged entity.

In other words, if the motive of the merger is to create anti-competitive effects likely to

reduce the number of competitors or to create dominance in the market, it need to be

regulated by formulating a suitable competition policy. The principle for exercising

merger control is that if a merger is likely to give rise to market power, it is better to

prevent this from happening than to control the exercise of market power after the

merger has taken place, that is to say, prevention is better than cure. Also, the social and

economic cost of de-merging the firms after the merger is usually very heavy, and thus

not an easy option for competition authorities. Further, enterprises should not be

allowed to evade the competition law by using the merger route to achieve an

agreement between themselves which would have been found to be anti-competitive by

a competition authority.20

The anti-competitive effects of mergers arise from increased risk of collusion among

reduced number of players or from creation of excessive market power or even

monopoly. These effects can eliminate or dilute the benefits of effective competition i.e.

increased consumer welfare, higher levels of efficiency and greater innovation.

Moreover, mergers change the industry structure and are more long lasting than a

collusion.21 It is for these reasons that competition law concerns itself with mergers and

many of the jurisdictions are having a merger control regime.22 But still 95 percent of

mergers are cleared with or without modification worldwide. Even the merger of

19 Alan H. Goldberg, “Merger Control”, in Vinod Dhall (ed.), Competition Law Today (Concepts,

Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 93-107, p. 93. 20 Vinod Dhall, “Overview: Key Concepts in Competition Law” in Vinod Dhall (ed.), Competition Law

Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 1-35, p. 15.

21 Vinod Dhall, “Rationale for Merger Regulation in Competition Law”, Essays on Competition Law

and Policy, retrieved from www.cci.gov.in/images/media/articles/essay_articles_compilation_text2904

new_2008 0714135044. pdf, accessed on 2 January 2012 at 6.24 pm. 22 Neeraj Tiwari, 2011, p. 118.

291

world’s largest steel producers, Mittal-Arcelor did not raise many competition concerns.

In India, no merger has been disapproved by the Competition Commission of India.

Mergers are rarely, if ever, completely blocked. But worldwide, a few illustrations

could be cited. The Lonrho & Gencor merger was blocked by the European commission

because the two firms would have accounted for 70 percent of the world platinum

supply, whereas the other suppliers were fragmented. The merger of office supply retail

chains, Staples and Office Depot, was opposed by the US Fair Trading Commission

(FTC) because of the resulting high market share and likelihood of increased prices.23

Above all, we can cite the illustration of blocked merger of Honeywell Inc and General

Electric Co. The EC argued that the combination would have resulted in the creation of

dominant positions in the aerospace industry which would have enabled the merged

entity to use the respective market power for the benefit of their other products, thereby

eventually eliminating competition. The merger was blocked completely since none of

the remedies proposed by GE were seen as sufficient to remove the competition issues

identified by the Commission.24 Thus, some of the mergers/acquisitions give rise to

deep concerns over dilution of competition and require regulation. According to

Fairburn and Kay (1989), from the past it is evident that mergers may cause more harm

than bring the advantages to the merging firms.25 The anti-competitive effects of merger

vary with the nature of the merger i.e. whether the merger is horizontal, vertical or

conglomerate.

4.3.1. Horizontal Mergers

These mergers are viewed as presenting a greater danger to competition than any other

type of mergers. They have effect on market concentration and use of market power as

they lead to (a) reduction in number of market players and (b) increase in market share

of the merged entity. Such increases in market power may result in turn in increased

prices, restricted output, diminished innovation, etc. which is damaging to the

competitive process.26

23 Vinod Dhall, “Rationale for Merger Regulation in Competition Law”, Essays on Competition Law

and Policy, retrieved from www.cci.gov.in/images/media/articles/essay_articles_compilation_text2904

new_2008 0714135044. pdf, accessed on 5 March 2013 at 1.45pm. 24 H.S. Chandhoke and Abdullah Hussain, “Mergers Qua Competition Act, 2002”, Chartered Secretary,

July 2006, pp. 1024-1027, p. 1026. 25 Hari Krishan, 2012, p. 21. 26 Alan H. Goldberg, 2007, p. 93.

292

The possible anticompetitive effects of horizontal mergers are thus similar to what may

occur in case of cartels or horizontal anti-competitive agreements. The impact of

horizontal mergers on competition would be more adverse where there are fewer firms

operating in the relevant market or where the market shares of the acquiring or target or

merged entity are high so that the resulting entity would be the dominant firm in the

market. The impact of horizontal mergers on competition can be classified into

unilateral effects and coordinated effects.27

(1) Unilateral Effects: A merger may lead to a monopoly (in an extreme case) or

otherwise create an enterprise with substantial or substantially increased market

power.28 The enterprise can then over charge or increase its profit margin or able to

reduce output, quality or variety. In this way, the enterprise can unilaterally abuse its

dominant position.

(2) Coordinated Effects: A horizontal merger may decrease the number of competing

enterprises and make it easier for the remaining enterprises to co-ordinate their

behaviour in terms of price, quantity or quality i.e. a cartel-type arrangement.29 The co-

ordination can be tacitly or expressly to raise the prices. As a result, competitive prices

may not be reached and firms may earn monopoly or oligopoly profits. Many other

factors also affect the ability to coordinate. For example, all other things equal, it is

easier for competitors to reach and monitor agreements if the products are relatively

homogenous and the pricing by individual competitors is relatively transparent.30

4.3.2. Vertical Mergers

The adverse impact of vertical mergers on competition is comparatively less. They may

also bring benefits for the merging enterprises and for consumers which is less likely

and less convincing in the case of horizontal mergers. However, in certain

27 OECD/World Bank, “A Framework for the Design and Implementation of Competition Policy and

Law”, 1999, retrieved from http://www.oecd.org/dataoecd/10/30/27/22278.pdf, accessed on 5 June 2009 at 5.00 pm.

28 Vinod Dhall, “Overview: Key Concepts in Competition Law” in Vinod Dhall (ed.), Competition Law

Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 1-35, p. 16.

29 Ibid. 30 Hari Krishan, 2012, p. 21.

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circumstances, vertical mergers can attract action by competition authorities. For

example, if a dominant enterprise acquires source of raw materials, this enterprise could

deny access to raw materials to competitors or potential competitor.31 Vertical mergers

can result in following anti-competitive effects:

(1) Fear of Fore Closure: Vertical integration can sometimes lead to foreclosure for the

rival firms. Foreclosure can take two forms: Input foreclosure and Customer

foreclosure.

Input foreclosure has already been discussed above i.e. when dominant

enterprise acquires source of raw material and denies this to others.

Customer foreclosure occurs when the supplier integrates with a customer base

in the market, thereby depriving other player’s access to customers.32

(2) Entry Blocking: Monopolies can have the ability to prevent the entry of firms into

the market. Sometime it is claimed that even competitors can come together or prevent

a potential entrant. This is sometimes referred to as collective foreclosure. If through

integration, firms are able to internalise different levels of production, artificial barriers

to entry could be created. This implies that because of the size of the incumbent, a

potential entrants capital requirements will be high.33

(3) Differential Pricing: If a firm has a monopoly over the supply of a particular input

and it integrates downstream into processing of the input into finished products, an anti-

competitive effect may arise if the firm charges a high price for the input supplies and a

low price for the finished products. This differential price jeopardises the economic

viability of all the other firms in the downstream finished product market. This practice

mainly prevails in the steel industry, where integrated steel manufacturers follow

differential pricing in hot-rolled coils to harm the interest of cold-rolled steel

manufacturers, the downstream players.34

31 Vinod Dhall, “Overview: Key Concepts in Competition Law” in Vinod Dhall (ed.), Competition Law

Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 1-35, p. 16.

32 EC Non-Horizontal Merger Guidelines, 2007, Regulation 58. 33 Report of High Level Committee on Competition Policy and Law (The Raghavan Committee), para

4.70, as quoted in H.K. Saharey, 2011, p. 43. 34 Hari Krishan, 2012, p. 21.

294

Vertical merger is forbidden if it causes or is likely to cause an appreciable adverse

effect within the relevant market in India. It will have such effect, if it results in

foreclosure of market, entry blocking or price squeeze. It will not have that effect if the

administrative direction rather than a market transaction forms the basis of cooperation.

In that case there is no fear of foreclosure, including collective foreclosure (entry

blocking) and reduction in output prices (price squeeze) and it also creates a favourable

environment for collusive behaviour. It may be administratively desirable as a business

expediency or to create efficiency, if a firm chooses, on the basis of relative costs, to

sell its finished or unfinished product to other firms who in turn sell it to the market

with or without further processing, rather to perform the activity by itself. But anti-

competitive effects are likely when at the vertical levels, there appears to be horizontal

market power.35

An example of vertical acquisition affecting adversely the competition is found in the

case of United States v. E.I. du Pont de Nemours and Co.,36 where the du Pont acquired

23 percent of stock interest in General Motors as a result of which General Motors

purchased majority of automotive finishes and fabrics from du Pont General Motors. It

was held to be violating section 7 of the Clayton Act, as it tended to create a monopoly

as du Pont obtained an illegal preference over other competitors. The Supreme Court of

the United States observed:

“The bulk of du Pont’s production of automotive finishes and fabrics has

always supplied the largest part of the requirements of General Motors,

the one customer in the automobile industry connected to du Pont by a

stock interest; and there is an overwhelming inference that du Pont’s

commanding position was promoted by its stock interest and was not

gained solely on competitive merit.”

4.3.3. Conglomerate Mergers

The theories for restraining vertical and horizontal merges are well-formulated. There,

however, is no clear mechanism for similar restraints on conglomerate mergers as these

mergers are not considered potentially anti-competitive as the structure of the

35 D.P. Mittal, 2011, pp. 342-343, para 5.5-3. 36 353 US 586 (1957).

295

competition in the relevant market does not ostensibly change but on the other hand, it

gives the additional financial strength to the parties concerned. A considerable increase

in the financial strength of the combined enterprise could provide for a wider scope of

action and leverage vis-à-vis competitors or potential competitors of both the acquired

and the acquiring enterprise and specially if one or both are in a dominant position of

the market power, enabling it to resorting to predatory pricing (because of deep

pockets), raising entry barriers and eliminating potential competition.37 An example of

conglomerate acquisition could be found in FTC v. Proctor and Gamble.38 Merger was

found to be anti-competitive because the powerful acquiring firm, Proctor and Gamble

(P&G), could substantially reduce the competitive structure of the industry by

dissuading the smaller firms from competing aggressively, and also raising barriers to

new entrants who would be reluctant to face the huge P&G with its large advertising

budget. As these mergers are not considered potentially anti-competitive, but still there

are some objections to these forms of mergers which are due to the under mentioned

competitive effects.

(1) The Theory of Deep Pockets: Some competition authorities are wary of mergers

that may produce a conglomerate with great financial and market power and with deep

pockets.39 It is believed that firms operating in many markets can devastate their rivals

through their potentially infinite capital resources.40

(2) Reciprocal Dealing: These mergers can lead to increase in opportunity for

reciprocal dealing which arises in a structure where firms meet as seller to buyer in

some markets and as buyer to seller in other to the disadvantage of the rivals.

(3) Mutual Forbearance: Conglomerate mergers may enhance the likelihood of mutual

forbearance, where each enterprise may independently decide to compete less

vigorously with the other in that section of the market where its position is relatively

weak, thereby leading to a situation of peaceful co-existence rather than vigorous

37 D.P. Mittal, 2011, p. 345, para 5-6. 38 386 US 568. 39 Vinod Dhall, “Overview: Key Concepts in Competition Law” in Vinod Dhall (ed.), Competition Law

Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 1-35, p. 16.

40 H.K. Saharay, 2012, p. 43.

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competition,41 i.e. the development of a ‘live and let live policy’ that is comfortable for

firms but harms consumers.

Apart from these, other impacts of mergers in general include increase in overall

industrial concentration and a danger of dilution of functioning of capital markets.

Merger control is necessary because mergers can lead to concentration of market power

in a business entity and can enhance a business entity’s (or a group of business entities’)

ability to use market power in a manner which impedes competition. In turn, this may

lead to prices being raised above the level that would otherwise exist in a competitive

market, restricted output, diminished innovation, increased barriers to entry and

expansion, rival business entities being eliminated, rivals costs being raised and other

behaviour damaging to the competitive process. That’s why, competition law seeks to

prohibit mergers which are likely to bring about a concentration of market power or an

enhanced ability to use market power.

The law of merger in relation to competition law was elaborately discussed in the case

of United States v. Philadelphia National Bank,42

by the US Supreme Court. The

appellants are-a national bank and a State Bank of Philadelphia. They are the second

and the third largest of the commercial banks in the metropolitan area of Philadelphia

and its three contiguous countries and have branches throughout that area. Their board

of directors approved an agreement for their consolidation/merger under which the

national bank’s stockholders would retain their stock certificates, which would

represent shares in the consolidated bank, while the State bank stockholders would

surrender their shares in exchange for shares in the consolidated bank. After obtaining

report from the Federal Reserve System’s Governors, the Federal Deposit Insurance

Corporation and the Attorney General under the Bank Merger Act, 1960, the Supreme

Court observed that the proposed combination would violate Article 7 of the Clayton

Act as after the merger, the consolidated bank would control at least 30 percent of the

share of the relevant market and a significant increase in the concentration of

41 Vinod Dhall, “Overview: Key Concepts in Competition Law” in Vinod Dhall (ed.), Competition Law

Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 1-35, p. 16.

42 374 US 321.

297

commercial banking facilities of 33 percent in the area and this is likely to lessen

competition substantially and the fact that commercial banking is subject to high degree

of governmental regulation and it deals with intangibles of credits and services and not

the manufacture and sale of tangible commodities do not immunise it from anti-

competitive effects of undue concentration.

However, mergers can also be an effective means of generating efficiencies and

achieving public-interest type benefits. For example, mergers can be an effective means

of generating economies of scale and of scope, resulting in the production of products at

a lower cost or of higher quality. Mergers can also help businesses to combine research

and development in a more effective manner to create new or improved products.

Accordingly, merger control regimes need to ensure that beneficial mergers are

permitted to proceed and are not unduly hampered by regulation.43

Merger control needs to be designed to prohibit mergers which are likely to be anti-

competitive and to permit mergers which are likely to be beneficial. This requires a

delicate balancing effect. Getting the balance between prohibition and permission right

is important as an overly restrictive approach to merger control can prevent beneficial

mergers from proceeding, entrench existing inefficient market structures and limit

incentives for new investment; whilst an overly permissive approach to merger control

can entrench monopoly elements.44

A number of approaches have been adopted by national competition regimes in their

quest to achieve the right balance between prohibition and permission in merger

control. As nations learn from their own and one another’s experiences, common trends

are emerging, particularity in the substantive concepts used to assess what types of

mergers ought to be prohibited and what types of merges ought to be permitted.

Increasingly, competition policy-makers are focusing upon harmonisation of merger

control across nation, but significant differences do remain. This is primarily due to the

fact that competition policy is influenced by a number of goals, only some of which are

43 Alan H. Goldberg, 2007, p. 94. 44 For details, see, Michael S. Gal, Competition Policy for Small Market Economies, 2003, pp.195-6, as

quoted in Alan H. Goldberg, 2007, p. 94.

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common across nations. Further, different resources and levels of expertise dictate the

extent to which national competition regimes can employ complex and resource-

intensive processes.45

4.4. Remedies for Merger Control

Successful merger enforcement is defined by obtaining effective remedies, whether that

means blocking a transaction of settling under terms that avoid or resolve a contested

litigation while protecting consumer welfare. As it has been already submitted that

provisions on merger control/regulations in most competition laws essentially seek to

prevent mergers that would negatively affect competition. This is done either way:46

By reviewing the mergers to determine their effects on competition and

undertaking remedial measures to ensure that the anti-competitive impact can be

averted.

Where such remedial measures are not effective enough, the mergers are

prevented from taking effect.

4.5. Competition Act in Reference to Mergers and Acquisitions

Throughout the last century, there has been a proliferation of competition laws in

countries across the globe and as of now, there are 106 of these. Almost all of these

have merger control provisions. Such large number overwhelmingly demonstrates the

necessity of having competition law, including provisions of merger control.47 We have

already discussed in the previous topic, the necessity of regulating mergers. The

mergers need to be regulated by formulating suitable anti-trust legislation to protect the

interest of the consumers and the whole economy. Mergers and acquisitions are subject

to competition law because they may result in the modification of the existent market

structure by giving rise to single firm dominance or co-ordinated practices. Over the

past several years, the mergers and acquisitions market in India has been very active.

The percentage of domestic as well as cross-border transaction has risen significantly.

45 Alan H. Golberg, 2007, p. 94. 46 Neeraj Tiwari, 2011, p. 119. 47 Amitabh Kumar, “Regulating Mergers and Acquisitions”, The Economic Times, 20 December 2007,

p. 4.

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The practice of mergers and acquisitions has attained considerable significance in the

contemporary corporate scenario with the prevalence of family run business houses in

India, corporate restructuring is also widely used for reorganising the business entities,

succession planning and seeking tax advantages within the group.48 Thus, there was

considerable pressure from the industry representatives, various interest groups and

trade association to bring out a merger control regime to curb anti-competitive effects of

combinations whereas the then existing Monopolies and Restrictive Trade Practices Act

was found to be inadequate in pursuit of changes brought about by liberalisation.

The MRTP Act, in comparison with competition laws of many countries, was found

inadequate for fostering competition in the market and trade and for reducing, if not

eliminating, anti-competitive practices in the country’s domestic and international trade.

Therefore, in the light of expanding global transactions and enhanced interaction of

firms across territorial bounds, the Indian competition regime underwent a paradigm

shift, from a reformist premise to one encouraging and promoting competition in the

market.49

Thus, after a long and troubled gestation, India’s competition law and Competition

Commission of India came into existence. The Competition Act, 2002 came into

existence in January 2003 and the Competition Commission of India was established in

October 2003.50 The objective of the Act can be known from its Preamble which is

reproduced below:

“An act to provide, keeping in view of the economic development of the

country for the establishment of a Commission to prevent practices

having adverse effect on competition, to promote and sustain

competition in markets, to protect the interest of consumers and to ensure

freedom of trade carried on by other participants in markets, in India and

for matters connected therewith or incidental thereto.”

48 Kanika Goel and Jasreet Kaur, “Merger Control Regime-Old Game, New Rules”, SEBI and

Corporate Laws, 19-25 September 2011, Vol. 109, pp. 44-48, p. 44. 49 Renuka Medury and Rinie Nag, “Cross-border Mergers: Implications under the Competition Act,

2002”, SEBI and Corporate Laws, 2-8 August 2010, Vol. 101, pp. 71-76, pp. 72-73. 50 Vidyulatha Kishor, 2012, pp. 19-20.

300

Further, it can also be known from the observations of the Supreme Court in

Competition Commission of India v. Steel Authority of India:51

“The overall intention of competition law and policy has not changed

markedly over the past century. Its intent is to limit the role of market

power that might result from substantial concentration in a particular

industry. The major concern with monopoly and similar kinds of

concentrations is not that being big is necessarily undesirable. However,

because of the control exerted by a monopoly over price, there are

economic efficiency losses to society and product quality and diversity

may also be affected. Thus, there is a need to protect competition. The

primary purpose of competition law is to remedy some of those

situations where the activities of one firm or two lead to the breakdown

of the free market system, or, to prevent such a breakdown by laying

down rules by which rival businesses can compete with each other. The

model of perfect competition is the ‘economic model’ that usually comes

to an economist’s mind when thinking about the competitive markets. As

far as the objectives of competition laws are concerned, they vary from

country to country and even within a country they seem to change and

evolve over the time. However, it will be useful to refer to some of the

common objectives of competition law. The main objective of

competition law is to promote economic efficiency using competition as

one of the means of assisting the creation of market responsive to

consumer preferences. The advantages of perfect competition are

threefold: allocative efficiency, which ensures the effective allocation of

resources, productive efficiency, which ensures that costs of production

are kept at a minimum and dynamic efficiency, which promotes

innovative practices. These factors by and large have been accepted all

over the world as the guiding principles for effective implementation of

competition law.”

Thus, the competition law seeks to promote efficiency and innovation in the market and

protects consumer interests by preventing the corporate entities from engaging in anti-

competitive practices such as raising prices abnormally.52 The Competition Act

prohibits anti-competitive agreements (section 3), abuse of dominant position (section

4) and regulates mergers, amalgamations and acquisitions (section 5 and 6). The law

51 (2010) 103 SCL 269 (SC). 52 H.R. Tuteja, “Cross-Border Mergers and Acquisitions under Indian Competition Law”, retrieved

from http://www.tpcc.in/DATA/CA086041.html, accessed on 2 February 2013 at 10.28 am.

301

regulating mergers can be found under sections 5 and 6. Mergers have been grouped

along with amalgamations and acquisitions under the wider category of combinations.53

In India, mergers are regulated under the Companies Act, 1956 and the Takeover Code,

2011 also. In the Companies Act, mergers are regulated between companies inter alia to

protect the interest of the secured creditors and the shareholders. The Takeover Code

tries to protect the interest of the investors. But under the Competition Act 2002, the

objective is much broader. It aims at protecting the whole market from the appreciable

adverse effect of trade-related competition in the relevant market in India. Thus, the

Companies Act, 1956 and Takeover Code aims to protect the interest of private

individuals, whereas the Competition Act, 2002 aims to protect the whole market,

players in the market including consumers from appreciable adverse impacts of

combinations. We may, therefore, safely say that that all these legislations are mutually

exclusive. The Companies Act, 1956 and the Takeover Code are the sub-sets of

Competition Act, 2002 in so far as legal scrutiny of mergers is concerned. Thus, the

Competition Law prevents the misuse of modes of inorganic restructuring by

introducing a regulatory mechanism which governs mergers and acquisitions. The Act

which was passed to curb the anti-consumer activities in mergers and acquisitions, is the

only legislation in India, which examines the effect of M&A on competition in the

relevant market.

The regulation of mergers is an important part of the Competition Act, which seeks to

prevent ‘combinations’ that cause or likely to cause an ‘appreciable adverse effect’ on

competition in India. This includes combinations that have taken place outside the

country where the adverse effects of the same occur in India. With growing

international trade and merger activity in the country, a study of the provisions on

merger control assumes greater importance.54

Merger control under competition law involves ex-ante review i.e. to prevent a

transaction adversely affecting competition.55 It is based on preventive theory as

53 Ibid. 54 Mallika Ramachandran, “Merger Control under Competition Law: A Comparative Study of the Laws

of India, the United States and the European Union”, Dissertation, Indian Law Institute, New Delhi, 2009, pp. 2-3.

55 Tejas K. Motwani, “Analysis of Merger Control under Indian Competition Law”, Project Report, Competition Commission of India (CCI), 3 November 2011, p. 3.

302

practically de-merging of entities after the merger transaction is very difficult and

involves high costs which is not feasible for competition and other regulatory

authorities. On the other hand abuse of dominance and anti-competitive agreements

under competition law involve ex-post review. The Competition Act soon after its

enactment in January 2003, was embroiled in litigation which went on for over twenty

months till the Supreme Court delivered its final judgement in Brahm Dutt v. Union of

India,56

which paved the way for its amendment in 2007. The Competition

(Amendment) Act, 2007 provides that:

The Competition Commission of India shall be an expert body which would

function as a market regulator for preventing and regulating anti-competitive

practices in the country and also having advisory and advocacy functions in its

role as a regulator;

One of the most important amendment as regards merger control is the

mandatory notice of merger or combination by a person or enterprise to the

commission within thirty days. Failing, a penalty can be imposed which can

extend to one percent of the total turnover or the assets whichever is higher;

The amended Act specifically provides that continuation of the Monopolies and

Restrictive Trade Practices Commission (MRTPC) till two years after the

constitution of Competition Commission of India (CCI), for trying pending

cases under the MRTP Act, 1969 after which it would stand dissolved.

Establishment of a Competition Appellate Tribunal (CAT) to hear and dispose

of appeals against any direction issued or decision or order made by the CCI.

The amended Act has how plugged a number of loopholes in the original act. The

passage of the Competition (Amendment) Act, 2007 set the stage for fully activating the

Act and the Commission. The provisions of the Competition Act have been notified in

phases and it was only in March 2011 that the merger control provisions have been

notified and came into force effective from 1 June 2011. It cannot be said that the

merger control law has been introduced in a hurry with the final notification coming

56 AIR 2005 SC 730.

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atleast eight years after the enactment of the Act in 2003.57 As a critical step to

implementing the merger control regime, the Commission also notified the

implementing regulations titled “The Competition Commission of India (Procedure in

regard to the Transaction of Business Relating to Combinations) Regulations, 2011

(hereinafter called ‘the Combination Regulations’) as per the notification issued on 11

May 2011. These regulations set out the relevant notice forms and details of the review

process. These regulations coupled with the relevant provisions of the Competition Act

completed the implementation of the merger control framework in India.58

These much-awaited regulations, which encompasses within them every large merger

and acquisition deal regulate all acquisition of shares, voting rights, control, merger or

amalgamation, which cause or are likely to cause an appreciable adverse effect on

competition in the relevant market in India. Therefore, all the big-ticket mergers above

a certain threshold provided in section 5 of the Competition Act will require prior

approval of the CCI.59 These regulations seek to govern, ‘combinations’ (a term defined

under the Act) which include within its ambit an acquisition merger or amalgamation

and to provide much awaited clarity on several issues pertaining to combinations. The

gradual succession from the MRTP Act of 1969 to the Competition Act of 2002 is one

of the most important milestones as far as economic reforms in the field of competition

laws in the country are concerned. By shifting the focus from the state of merely

‘curbing monopolies’ in the domestic market to ‘promoting competition’, the

competition regime in India has attainted recognition for its progressive ways.60 Since

June 2011, till March 2013 the Commission has scrutinised and approved fifteen

combinations. Competition law in India, can thus be successfully classified as a ‘means

to achieve the end’ rather than just an end in itself.

4.6. Analysis of Provisions of Competition Act Relevant to Mergers and Acquisitions

Merger control provisions under competition law seek to prevent creation of mergers

that will negatively impact competition and unlike the other focus areas of competition

57 Kanika Goel and Jasreet Kaur, 2011, p. 44. 58 Pallavi S. Shroff, “Merger Control”, retrieved from http://www.globalcompetitonreview.com/reviews

/42/sections/196/chapters/1646/India-merger-control, accessed on 14 June 2013 at 6.25 pm. 59 Vidyulatha Kishor, 2012, p. 20. 60 Ibid.

304

law involves an ex-ante analysis of the probable effects of the proposed merger. In

India, the first competition statute was the MRTP Act which was enacted pursuant to

the recommendations of inter alia, the Monopolies Inquiry Committee appointed in

1964. This legislation contained provisions on Monopolistic and Restrictive Trade

Practices (which included anti-competitive agreements) and on the concentration of

economic power. Chapter III of the MRTP Act which related to the ‘concentration of

economic power’, included provisions on mergers which required that prior approval be

obtained from the Central Government or any scheme of merger or amalgamation

involving undertakings, the assets of which exceeded certain threshold limits or where

the merged entity exceeded certain threshold limit.61 The object of this provision, was to

see among other things that “amalgamation is not used as a device to create new

monopolies or to bring about restrictive trade practices.”62 These provisions were,

however, deleted vide an amendment to the Act in 1991, brought about in the wake of

structural reforms introduced by the government through the new industrial policy.63

In the context of this amendment, it was observed by R.M. Sahai J, in Hindustan Lever

Employees Union v. Hindustan Lever Ltd. and Others:64

“With the growing complexity of industrial structure and the need for

achieving economies of scale for ensuring higher productivity or

competitive advantage in the international market, the thrust of industrial

policy has shifted to controlling and regulating monopolistic, restrictive

and unfair trade practices rather than making it necessary for certain

undertakings to obtain prior approval from Central Government for

expansion, establishment of new undertakings, amalgamations, take over

and appointment of directors. It has been the experience of the

government that pre-entry restrictions under the MRTP Act on the

investment decisions of the corporate sector has outlived its utility and

has become a hindrance to the speedy implementation of industrial

projects.”

61 Section 20 and 23 of the MRTP Act, 1969. 62 S. Krishnamurthi, Principles of Law Relating to MRTP, 3rd Edition, 1989, p. 85 as quoted in Mallika

Ramachandran, 2009, p. 44. 63 Abhijit Mukhopadhyay, “Merger and Amalgamation in India”, Chartered Secretary, 1997, pp. 780-

785, p. 781. 64 AIR 1994 SC 470.

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These changes are noted to have given new freedom to companies from the stifling

provisions of the earlier law and led to an increase in merger activity.65 But gradually a

need was felt to have a new competition law having merger control provisions to

regulate the adverse effects of mergers. This lead to the enactment of modern

competition law in India. The competition law enforcement regime comprising of the

Competition Commission of India,66 and its appellate authority, the Competition

Appellate Tribunal have been established in accordance with the Competition Act 2002,

to provide institutional support to prevent practices having adverse effects on

competition to promote the interest of consumers and to ensure freedom of trade carried

on by other participants in markets.

Our Competition Act prohibits anti-competitive agreements and abuse of dominance as

they are per se harmful, whereas combinations (mergers, acquisitions etc.) are regulated

by orders of CCI. The reason is combinations ensure economic growth, more economic

opportunities for business to compete with their overseas counterparts and consumer

welfare ultimately. On the other hand, anti-competitive combinations harm markets and

subvert the interest of consumers. In amicable and consensual mergers, the parties have

a unanimity of interests and any Competition Authority would really have not much to

do but to allow such proposals. On examination of annual reports of several competition

authorities, it is seen that in almost all jurisdictions across the globe 90 percent cases of

merger notification are allowed and in the remaining 10 percent cases they are either

modified or rejected.67 That’s why our Competition Act, 2002, only regulates mergers

as M&As have become a necessity for an economy to compete and withstand global

competition.

The specific provisions of Competition Act, 2002 that deal with or regulate

combinations are section 5, 6, 20, 29, 30 and 31. Section 5 and 6 are the operative

provisions dealing with combinations. Besides mergers and amalgamations, the

provisions pertaining to regulation of ‘combination’ for the purposes of Competition

65 Mallika Ramachandran, 2009, p. 45. 66 The Competition Commission of India CCI was established in 2003 which could not be made fully

operational due to the writ petition filed before the Supreme Court in Brahm Dutt v. Union of India, AIR 2005 SC 730.

67 Aamukthamaalyada, “Competition Regulation of Mergers and Acquisitions”, retrieved from http://

www.indlaw.com, accessed on 4 February 2013 at 10.04 am.

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Act, covers acquisitions and takeovers also. ‘Acquisition’ for the purpose of

combination is not only the acquisition of shares or voting rights or control of

management, but also acquisition of or control of assets of the target company.68 The

Competition Act sets a threshold below which a merger, acquisition or acquiring of

control is not regarded as a combination and is therefore outside the merger regime of

the Act. The threshold is fairly high and is defined in terms of assets or turnover.69

4.6.1. Combination

Section 5 of the Competition Act explains the circumstances under which acquisition,

merger or amalgamation of enterprises would be taken as ‘combination’ of enterprises.

They are enumerated here under:

1. The acquisition of one enterprise by another involves acquiring shares, voting

rights or assets of another enterprise to enable it to exercise control. If as a

result, the value of assets or the turnover of the combining enterprises or groups

exceeds the specified thresholds the combination is deemed to have potential of

affecting the competition adversely.

2. Acquiring of control by a person over an enterprise when such person has

already direct or indirect control over another enterprise engaged in production,

distribution or trading of a similar or identical or substituted goods or provision

of similar or identical or substituted service, if the value of assets or turnover of

both the said enterprises is more than the amount mentioned in section 5(b).

Thus, the combination of two enterprises as a result of one having now been

acquired, under the same control is a combination having potential of affecting

competition.

3. Merger or an amalgamation of enterprise is a combination in case the enterprise

remaining after merger or the enterprise created as a result of merger has more

than the assets or turnover above the prescribed thresholds.

68 See, Section 2(a) of the Competition Act, 2002; also see, Seth Dua and Associates, Joint Ventures

and Merges and Acquisitions in India, LexisNexis Butterworths Wadhwa, Nagpur, 2011, p. 43. 69 Vinod Dhall, “Competition Law in India”, Essays on Competition Law and Policy, retrieved from

www.cci.gov.in/images/media/articles/essay_articles_compilation_text 29042008new_2008071413

5044.pdf, accessed on 2 January 2012 at 6.24 pm.

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4.6.2. Threshold Limits

Threshold limits in terms of assets or turnover are set out in merger control provisions

of competition statutes to determine which merger, acquisition or joint venture as the

case may be, will qualify as a combination or concentration or such transaction which is

required to be notified to or which may be reviewed by the competition authority. It

may be noted that while thresholds are essentially set out for the purpose of notification

requirements, in India, they form part of the definition of the term ‘combinations’.

Goldberg observes that the application of thresholds for notification lessens the

administrative burden for competition authorities, compared with mandatory

notification for all mergers, also enabling competition authorities to focus on mergers

most likely to cause concern.70 The ICN”s recommended practices for merger

notification provide that thresholds should be clear, understandable, based on

objectively quantifiable criteria and on information that is readily assessable to the

merging parties.71

Thresholds limits have been set out in various jurisdictions in terms of assets of the

undertakings involved, turnover and net sales. In addition the laws/regulations also set

out what is known as a local nexus provision which requires a certain minimum part of

the assets of the acquiring or target company to be within the territorial limits of the

country, the authority of which is reviewing the transaction.72

Indian law has this local nexus provision while setting out the threshold limits. The

section 5 of Indian Competition Act, 2002 sets out certain thresholds and as already

explained only an acquisition, acquiring of control, merger or amalgamation above

these thresholds is covered by the definition of combination. The thresholds are:

(1) Enterprise Level: Parties to the combination have, either combined assets of more

than Rs. 1,500 crores or combined turnover of more than Rs. 4,500 crores in India. If

70 Alan H. Goldberg, 2007, p. 96. 71 ICN Recommended Practices on Merger Notification Procedures, 2002, pp. 3-4, retrieved from

http://www.internationalcompetitionnetwork.org, accessed on 12 October, 2010 at 3.05 pm. 72 Id., p. 1. Such a provision is also in line with the recommended practices of the ICN, which provides

that the jurisdiction must be exercised only on those transactions that have appropriate nexus with the jurisdiction concerned.

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both or any of the parties to the combination have assets/turnover outside India also,

then parties to the combination have, either combined assets of more than $750 million

including at least Rs. 750 crores in India or combined turnover of more than $2250

million including at least Rs. 2,250 crores in India. As certain part of turnover or assets

is required to be in India, thus Indian law has this local nexus provision which is in line

with the recommended practices of the International Competition Network.

(2) Group Level: The group to which the enterprise whose control, shares, assets or

voting rights are being acquired i.e. the target enterprise would belong after the

acquisition or the group to which the enterprise remaining after the merger or

amalgamation would belong has either assets of more than Rs. 8,000 crores in India or

turnover of more than Rs. 18000 crores in India. If the group has assets/turnover outside

India also, then the group has assets of more than $ 3 billion including at least Rs. 750

crores in India or turnover of more than $ 9 billon including at least Rs. 2,250 crores in

India.

Assets: Assets include fixed, current as well as intangible assets. Value of tangible

assets is to determined by taking the book value of the assets as shown in the audited

books of account of the enterprise of the financial year immediately preceding the

financial year in which the date of proposed merger falls as reduced by depreciation.

For intangible assets value has to be determined if not shown. There will not be much

difficulty, it the enterprise has acquired the asset by purchase. In that case the amount

paid is spread over the economic life of the asset and the value for the unexpired period

is taken into account.

Turnover: As defined in section 2(f) of the Competition Act ‘includes value of sale of

goods or services’. Hence, the gross value of turnover has to be taken into account. In

CIT v. Karur Vysya Bank Ltd.73 it refers to total value of all sales effected by a

manufacturer or trader, or the amount of money turnover in a business.

These thresholds are displayed in tabular form in the following Table:

73 (2000) 109 Taxman 168 (Mad.).

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Table 4.1: Thresholds in Cases of Combinations.

Group

Status

Geographical

Coverage

Threshold Assets Turnover

No group

(Enterprise level)

India Rs. 1500 crores Rs. 4500 crore

Worldwide US $ 750 million including at least Rs. 750 crores in India

US $ 2250 million of which atleast Rs. 2250 crores in India

Group India Rs. 6000 crores Rs. 18000 crores

Worldwide US $ 3 billion including at least Rs. 750 crores in India

US $ 9 billion including atleast Rs. 2250 crores in India

Thus, combinations below the given thresholds are beyond the jurisdiction of the

Commission in so far as regulation of combination is concerned. Section 20(3) provides

that these thresholds are subject to periodic revision by the Central Government so as to

account inter alia for inflation and exchange rate fluctuations.74 The value of assets or

turnover can be enhanced or reduced by the Central Government in consultation with

the Commission, after every two years. There is, thus, no rigidity about the threshold

monetary limit to define a combination. But setting of thresholds does not solve all the

problems because in some cases small mergers which do not meet the monetary

requirements can have adverse impact on competition. On the other hand large

conglomerates will have to incur heavy notification fee and wait for 210 to acquire a

small company that has no significant presence in the market and where the acquirer

alone meets the minimum thresholds. Moreover, setting of thresholds in terms of assets

and turnover as done under our Competition Act may prove to be troublesome for

capital intensive industries such as oil and gas which may lead to an in-consequential

merger covered under the provisions of the Act.

4.6.3. Exemption from the Provisions of Section 5

The Government of India vide two separate notifications dated 4th March 2011 has

exempted the following from the provisions of section 5 of the Act for a period of five

years.

74 Vinod Dhall, “The Indian Competition Act, 2002”, in Vinod Dhall (ed.) Competition Law Today:

Concepts, Issues and the Law in Practice, Oxford University Press, New Delhi, 2007, pp. 498-539, p. 526.

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1. Keeping in view, the long standing demand of the industry to exempt small

takeovers, the Ministry of Corporate Affairs in a separate notification has

introduced a diminimis target based threshold and has given an exemption to an

enterprise whose control, shares, voting rights or assets are being acquired and

having turnover of less than Rs. 750 crores in India or assets of less than Rs. 250

crores in India. This notification is applicable only to combinations in form of

acquisition of control, shares, voting rights or assets only and is not applicable to

combinations in the form of mergers and amalgamations.

2. Through a separate notification, general exemption is granted for all groups

exercising less than 50 percent of voting rights in any other enterprise.

4.6.4. Regulation of Combinations

While the definition of combination is contained in section 5, the regulation thereof is

provided in section 6. Section 6 of the Competition Act deals with regulation of

combinations. It contains a prohibition against a combination which causes or is likely

to cause an appreciable adverse impact on competition and also provisions requiring

pre-notification of combinations.

The core component of any merger control regime is the assessment of proposed merger

to determine their possible effects on competition. Every system of merger control sets

out a substantive test to determine whether or not a merger ought to be blocked and

must decide upon a standard of proof required before a competition authority can block

a merger.75 A substantive test usually involves the examination of various factors such

as pre and post merger market shares, market concentration, barriers to entry, extent of

effective competition etc among others to assess whether the proposed transaction will

negatively impact competition.76 Each of the jurisdiction employs various quantitative

and qualitative criteria to examine the effects of merger. But we shall focus our

attention on the substantive test applied in the Indian jurisdiction to reach a conclusion

whether merger should be blocked or not. It is contained in section 6(1) and 20(4) of the

Competition Act, 2002. Section 6(1) states that no person or enterprise shall enter into a

75 Richard Whish, Competition Law, Oxford University Press, New Delhi, 2005, p. 788. 76 Neeraj Tiwari, 2011, p. 133.

311

combination which causes or is likely to cause an appreciable adverse effect on

competition within the relevant market in India and such a combination shall be void.

A combination leads to adverse effect only if it creates a dominant enterprise which is

likely to abuse its dominance. Market dominance need not necessarily lead to abuse.

But when the companies are too big, they can indulge in abuse and exploit the

consumers through market manipulation.77 But on the other hand, bigness has its own

advantages in form of economies of scale, accelerated growth and larger expenditure on

research (such as in pharmaceuticals).

The basic assumptions which were the foundations of a closely regulated or controlled

economy have altered in the present day society.78 Today enterprises have to withstand

global competition. Therefore, a balance has to be struck between the advantages and

disadvantages. The likely abuse of bigness has to prevented in incipiency.79 Every type

of merger whether horizontal, vertical or conglomerate should be prohibited when it

abuses its position to drive competing business from the market.

A combination, whether horizontal, vertical or conglomerate is to be tested by the

standard of section 6(1), that is, whether it “causes or is likely to cause appreciable

adverse effect on competition within the relevant market in India” which requires a

prediction of the combination’s impact on present or future competition. Section 6(1),

therefore, requires not only an appraisal of the immediate impact of the combination on

competition but also a prediction of its effect on competitive conditions in future, to

prevent the destruction of competition.80

This fact was well highlighted in FTC v. Proctor and Gamble Co.81 the Supreme Court

of the United States observed that any merger must be tested by the standard of Article

7 of the Clayton Act, that is, whether it may substantially lessen competition, which

requires a prediction of merger’s impact on present and future competition. In that case,

Proctor and Gamble, a large, diversified manufacturer of household products, acquired

in 1957 the assets of Clorox Chemical Co., the leading manufacturer of household

77 D.P. Mittal, 2011, p. 370, para 6.2. 78 Ibid. 79 Id., para 6.2-1. 80 See, United States v. Philadelphia National Bank, 374 US 321. 81 386 US 586 as cited in D.P. Mittal, 2011, pp. 372-373, para 6.2-2.

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liquid bleach, and the only one selling on a national basis. Clorox had 48.8 percent of

the national market with higher percentages in some regional areas. Clorox and one

other firm accounted for 65 percent of liquid bleach sales, and with other four firms for

almost 80 percent with the rest divided among more than 200 small producers. Proctor

is a dominant factor in the areas of soaps, detergents and cleaners, with total sales in

1957 in excess of a billion dollars and an advertising budget of more than $80,000,000,

due to which Proctor receives substantial discounts from the media. The FTC

challenged the acquisition, and after hearings found that the substitution of Proctor for

Clorox would:

Dissuade new entrants in the liquid bleach field;

Discourage active competition from the firms already in the industry due to fear

of retaliation from Proctor; and

Diminish potential competition by eliminating Proctor, the most likely prospect,

as a potential entrant.

The Court of Appeals reversed, stating that FTC’s finding of illegality was based on

treacherous conjecture, mere possibility and suspicion.

The Supreme Court held, inter alia, as follows:

In this oligopolistic industry the substitution of the powerful acquiring firm for

the smaller but dominant firm may substantially reduce the competitive structure

of the industry by dissuading the smaller firms from competing aggressively,

resulting in a more rigid oligopoly with Proctor the price leader.

The acquisition may also tend to raise the barriers to new entrants who would be

reluctant to face the huge Proctor, with its large advertising budget.

In the context of the Indian competition law, the above decision is relevant to suggest

that while judging illegality of a combination under section 6(1) thereof, what is

required to be seen is not only its immediate but also the likely effect in future, on the

competition conditions.

Section 6(1) prohibits combination which causes or is likely to cause an appreciable

adverse effect on ‘competition within the relevant market in India.’ The objective of the

regulation is the maintenance of competition and preservation of the competitive

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structure of the relevant market in India. A combination which adversely affects or is

likely to affect it is void. Thus, in order to assess whether a combination shall have that

effect, it is necessary to determine that:82

The combination has acquired a market power;

As a result of which the competition is, or likely to be effected adversely and

appreciably within the relevant market.

Section 6(1) aims at preventing the creation of enterprises, through acquisition or other

combinations which have the ability to exercise market power to adversely affect

competition within the relevant market in India. Therefore, it is first necessary to

delimit the market in which the enterprises compete and determine the relevant market

in India before holding a combination anti-competitive.

The term ‘relevant market’ itself has been defined in section 2(r) as “the market which

may be determined by the Commission with reference to the relevant product market or

the relevant geographic market or with reference to both the markets.” The terms

‘relevant geographic market’ and ‘relevant product market’ have also been defined in

the Act.

Section 2(s) states that the relevant geographic market ‘means a market comprising the

area in which the conditions of competition for supply of goods or provision of services

or demand of goods or services are distinctly homogenous and can be distinguished

from the conditions prevailing in the neighbouring areas. The factors which are to be

considered while determining the relevant geographic market have been listed in section

19(6) of the Act, namely (a) regulatory trade barriers (b) local specification

requirements (c) national procurement policies (d) adequate distribution facilities (e)

transport costs (f) language (g) consumer preferences and (h) need for secure or regular

supplies or rapid after sales services.

Similarly, the relevant product market is defined in section 2(t) as ‘a market comprising

all those products or services which are regarded as interchangeable or substitutable by

the consumer, by reason of characteristics of the products or services, their prices and

82 D.P. Mittal, 2011, p. 373, para 6.2-3.

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intended use. The factor that are to be considered while determining the relevant

product market are listed in section 19(7) namely:

Physical characteristics or end-use of goods;

Price of goods or services;

Consumer preferences;

Exclusion of in-house production;

Existence of specialised producers; and

Classification of industrial products.

The determination of the relevant market is generally the starting point of the analysis

of a particular case. According to world bank/OECD Glossary:

“If markets are defined too narrowly in either product or geographic

terms, meaningful competition may be excluded from the analysis. On

the other hand, if the product and geographic markets are too broadly

defined, the degree of competition may be overstated. Too broad or too

narrow market definition lead to understating or overstating market share

and concentration measures.”83

Once the relevant market has been determined, it would be necessary to determine

whether the combination causes or is likely to cause an appreciable adverse effect in

that relevant market. The factors which are to be considered by the Commission in

making this inquiry are set out in section 20(4), namely:

Actual and potential level of competition through imports in the market;

Extent of barriers to entry in the market;

Level of combination in the market;

Degree of countervailing power in the market;

Likelihood that the combination would result in the parties to the combination

being able to significantly and substantially increase prices or profit margins; 83 World Bank/OECD, “Glossary of Industrial Organisation Economics and Competition Law”, as

quoted in Vinod Dhall “The Indian Competition Act, 2002”, in Vinod Dhall (ed.), Competition Law

Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 498-539, p. 514.

315

Extent of effective competition likely to sustain in a market;

Extent to which the substitutes are available or likely to be available in the

market;

Market share, in the relevant market, of the persons or enterprise in

combination, individually and as a combination;

Likelihood that the combination would result in the removal of a vigorous and

effective competitor or competitors in market;

Nature and extent of vertical integration in the market;

Possibility of a failing business;

Nature and extent of innovation;

Relative advantage, by way of contribution to the economic development, by

any combination having or likely to have adverse effect on competition;

Whether the benefits of the combination outweigh the adverse impact of the

combination, if any:

The factors listed in section 20(4) contain both negative and positive factors and the last

factor specifically states ‘whether the benefits of the combination outweigh the adverse

impact of the combination, if any.’ This recognises that a merger can have adverse

effects, but it could also have positive gains for the economy such as economies of scale

and increased efficiency. Thus, the Act prescribes rule of reason approach while

inquiring into any combination.84 Moreover, the inquiry relating to the competitive

effects of mergers is forward looking.

Factors similar to those listed in section 20(4) are considered by competition authorities

in many jurisdictions in appraising a merger. As an illustration, the 1997 US

Department of Justice Horizontal Merger Guidelines list the following five steps for

merger analysis:

84 Vinod Dhall “The Indian Competition Act, 2002”, in Vinod Dhall (ed.), Competition Law Today

(Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 498-539, p. 529.

316

Market definition and description;

Identification of firms and their market shares;

Potential adverse effects;

Ease of market entry;

Efficiencies that might arise.85

Under the efficiency defence, the ‘failing firm’ factor is also considered which is similar

to the factor in section 20(4) i.e. ‘the possibility of a failing business.’ In Staples Inc.

and Office Depot Inc.,86 the court noted that the proposed merger between Staples and

Office depot will lead to undue concentration in the market and allow Staples to

increase prices or otherwise maintain prices at an anti-competitive level. Further, the

court noted the significant entry barriers on account of extremely high sunk costs and

difficulty in achieving economies of scale and it considered and rejected the efficiencies

defence. It would be observed that in this case, several of the factors similar to those

listed in section 20(4) were considered by the court.

4.6.5. Mandatory Reporting or Notification

Section 6(1), as aforesaid, prohibits a person or enterprise form entering into a

combination which causes or is likely to cause an appreciable adverse impact on

competition within the relevant market in India. Such a combination is void. There is

however, an exception to this in the form of section 6(2). Section 6(2) provides that any

person or enterprise proposing to enter into combination in terms of section 5 shall give

notice to the Competition Commission of India. The notice in the prescribed form with

the fee as determined, is to be given within thirty days of:

Execution of an agreement or other document for acquisition or acquiring of

control;

Approval by the board of directors of the enterprise concerned with merger or

amalgamation;

85 “Horizontal Merger Guidelines”, retrieved from http://www.usdoj.gov/atr/public/guidelines/horiz-

book/toc.html, accessed on 29 December 2009 at 12.36 pm. 86 Federal Trade Commission v. Staples Inc. and Office Depot. Inc., Civ. No. 97-101 (TFH), as cited in

Vinod Dhall “The Indian Competition Act, 2002”, in Vinod Dhall (ed.), Competition Law Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 498-539, p. 529.

317

In JSW Steel Ltd., In re,87 the CCI held that as per the details provided in the notice

given under section 6(2) and the assessment of the combination after considering the

relevant factors mentioned in section 20(4), it may be found that the proposed

combination is not likely to have appreciable adverse effect on competition in India and

therefore CCI approved the proposed combination under section 31(1).

Similarly in Alstom Bharat Forge Power Ltd. (ABFPL), In re,88 two power generation

companies i.e. ABFPL and KAPL, jointly gave a notice of the proposed combination

pursuant to approval by Board of Directors of these Companies to a scheme of

amalgamation under the provisions of the companies Act. Under proposed combination,

KAPL will merge into ABFPL, as a result of which KAPL will lease to exist and all

assets and liabilities of KAPL would be transferred to ABFPL. There existed no

horizontal overlap between activities of ABFPL and KAPL in India. Products of both

the companies would be complementary to each other. The CCI approved the merger

after considering the details provided under section 6(2) and concluded that the

proposed combination was not likely to have appreciate adverse effect on competition

in India and approved the merger under section 31(1).

While previously, reporting of a combination was optional, the Competition

(Amendment) Act now makes it mandatory for persons undertaking combinations, to

give prior notice to the CCI. The system of pre-merger notifications contemplates a

notification being given to competition authorities of a proposed merger in order that its

probable effects on competition in the relevant market may be assessed prior to the

close of the merger. Most countries with a competition law have some form of pre-

merger notification, either mandatory or voluntary. Pre-merger notification ensures that

the competition authority is able to obtain all the requisite information to determine its

effects on competition. This is particularly important as merger review is conducted ex-

ante, in view of the problems and cost-involved in ‘undoing’ a merger that has already

taken place.89 Most regimes having a mandatory pre-merger notification requirement

87 (2014) 125 SCL 37 (para 11). 88 (2014) 125 SCL 34. 89 Choe and Shekhar point out that the ‘fundamental rationale’ for the notification process is to give the

regulatory bodies time to challenge mergers and it also avoids a costly and complicated process of seeking an order from the courts to ‘unscramble’ a merger after it has been consummated. See, Chongwoo Choe and Chander Shekhar, “Compulsory or Voluntary Pre Merger Notification? A Theoretical and Empirical Analysis”, 2006, retrieved from http://ssrn.com/abstract_id=912925, accessed on 26 March 2011 at 11.20 pm.

318

also provide for penalties in the form of fines in the event of failure by parties to notify.

Usually, it is mergers that meet/exceed prescribed threshold limits that are required to

be notified, in the form and within the time period stipulated by the applicable

law/regulation.90 It may be noted that while the United States and EU have mandatory

notification systems, but still India, initially in the Competition Act, 2002 introduced a

system of voluntary notification system.

Major amendments were made to the Act in 2007 which lead to the introduction of

mandatory notification system. In India, the Competition Act, 2002, as initially enacted

provided for a voluntary notification mechanism as Raghavan Committee felt that

mandatory prior approval may lead to delays or unjustified bureaucratic interventions.

Further, according to the committee, this is likely to hamper the vital process of

industrial evolution and restructuring.91 In 2007, however, by an amendment, pre-

merger notification was made mandatory.

4.6.5.1. Prior ‘Informal’ Consultation with CCI: The current regulations do not

expressly provide for pre-notification consultation with the CCI before filing of

notification, unlike the previous draft regulations. However, the CCI chairman clarified

in a press conference dated 11 May 2007,92 that the CCI shall conduct pre notification

consultations as and when necessary in accordance with international best practices.

This is a very welcome step as it seeks to alleviate the concerns and confusions that may

exist before any combination. Although the views expressed by CCI during such

consultation may not be binding on it, yet pre-notification consultations are often

valuable in terms of establishing the appropriate scope of a notification or resolving

jurisdictional queries with a view to avoid notification of deals outside an agency’s

jurisdiction.

4.6.5.2. Form of Notice: The form of notice to be filed for the proposed combination is

given under the Competition Commission of India (Procedure in regard to the

Transaction of Business Relating to Combinations) Regulations, 2011 as amended on

90 Mallika Ramchandran, 2009, p. 50. 91 See, para 4.7.5 of the Report of the High Level Committee on Competition Policy and Law (the

Raghavan Committee) in H.K. Saharay, 2012, p. 44. 92 Excerpts of the press conference are available at http://www.thehindubusinessline.com/companies/

article 2008975.ece?homepage=true, accessed on 10 October 2011 at 3.05 pm.

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23rd February 2012. The notice related to the proposed Combination can be filed with

the Commission either in the Form I or Form II specified in Combination Regulations.93

(1) Form I: Form I is a very short form wherein basic details regarding parties to the

combination, basic information on combination, proof of payment of fees etc. are to be

given. It is simple and user friendly. All the combinations that have been notified by the

end of the year 2012 have Form I filings. The Combination Regulations previously

permitted the filing of only Part I of Form I (i.e. truncated form) for certain transactions

which did not have any significant impact on competition. The 2012 amendment to the

Regulations have done away with option of filing only a part of Form I. It has to be

filled in entirety in all the combinations. This will lead to more clarity and uniformity in

filing requirement.

(2) Form II: Form II is a long and detailed form which requires extensive and minute

details about the proposed combination, the parties to the combination, group

companies, all products manufactured by the group, the relevant market, nature of the

market, including details such as the level of concentration, new entrants, potential

entrants, regulatory barriers, pricing strategies, distribution networks and so on.

Though, parties have a choice to file the notice in any of these forms, but the

commission desires that, in following cases, notice may be given preferably in Form II:

Where the parties to the combination are engaged in similar or identical business

activities and their combined market share is more than 15 percent in relevant

market.

Where parties to the combination have vertical relationship with each other and

their individual or combined market share is more than 25 percent in relevant

market.94

(3) Form III: This post- facto intimation form is required to filed by those parties

which are exempted from provisions of section 6 by virtue of section 6(4) which is

elaborated hereafter.

93 Sachin Goyal, “Merger Control Regime in India”, The Chartered Accountant, June 2012, pp. 1874-

1881, p. 1879. 94 Ibid.

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4.6.5.3. Filing Fee: As per regulation 11 of Combinations Regulations, filing fee has

been revised w.e.f. 23rd February 2012, the amount of fee payable along with the notice

filed in Form I is Rs. 10 lakhs and Form II is Rs. 40 lakhs. There is no filing fee for

Form III.

4.6.5.4. Obligation to File the Notice: In case of an acquisition or acquiring of control

of enterprise(s), the acquirer shall file the notice in Form I or Form II, as the case may

be95 and in case of a merger or amalgamation, parties to the combination shall jointly

file the notice in Form I or Form II, as the case may be.96

4.6.5.5. Time Period: No combination shall come into effect until the Commission has

passed order or two hundred and ten days have passed since the notice has been given,

whichever in earlier,97 i.e. if the commission fails to complete the investigation and pass

an order regarding the combination within the prescribed time period, the combination

is deemed to have been approved.

4.6.5.6. Prima Facie Opinion: The Commission has to form a prima facie opinion

within a period of 30 calendar days of the receipt of the said notice as to whether the

proposed combination is likely to cause or has caused appreciable adverse effect on

competition within the relevant market in India.98 For forming such opinion, the

commission may require the parties to the combination to file additional information. It

may also accept modification if offered by the parties to the combination before the

Commission has formed its prima facie opinion.99 The regulations further provide that

the time taken by the parties to the combination in furnishing the additional information

or offering modification shall be excluded in the above period of 30/210 days.100 If the

Commission is of the prima facie opinion that the combination has caused or is likely to

cause appreciable adverse effect on competition, it will issue a show cause notice to the

parties as to why investigation in respect of such combination should not be conducted.

95 Regulation 9(1) of the Competition Commission of India (Procedure in Regard to the Transaction of

Business Relating to Combinations) Regulations, 2011. 96 Regulation 9(3) of the Competition Commission of India (Procedure in Regard to the Transaction of

Business Relating to Combinations) Regulations, 2011. 97 Section 6(2A) of the Competition Act, 2002. 98 See, Regulation 19(1) of the Competition Commission of India (Procedure in Regard to the

Transaction of Business Relating to Combinations) Regulations, 2011. 99 See, Regulation 19(2) of the Competition Commission of India (Procedure in Regard to the

Transaction of Business Relating to Combinations) Regulations, 2011. 100 Proviso to regulation 19(2) of the Competition Commission of India (Procedure in Regard to

Transaction of Business Relating to Combinations) Regulations, 2011.

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On receipt of the response, if Commission is of the prima facie opinion that the

combination has or is likely to have appreciable adverse effect on competition, the

Commission may initiate investigation as per the provisions of the Act.101 In the course

of inquiry conducted by CCI, if it is found by the Commission that it requires additional

information, it may direct the parties to file such additional information.102 Further, in

cases where the parties have filed notice in form I and the Commission requires

information in form II to form its prima facie opinion, it shall direct the parties to file

notice in form II.103 Similarly the time taken by the parties in furnishing the additional

information or filing notice in Form II shall be excluded from the period of 30/210

days.104

4.6.5.7. Defects and Incomplete Information in the Notice: During scrutiny of the

notice, if the commission is of the opinion that notice has not been filed properly or

incomplete information has been given in the notice, it may ask the parties to the

combination to remove such defects or furnish the required information.105 Time taken

by the parties in submission of their response is excluded from the period of 30/210

days as the case may be.106 In case, the parties fail to remove the defects or fail to

furnish the required information within the time specified, the notice filed under

regulation 5 or regulation 8 shall not be treated as a valid notice.107

4.6.5.8. Belated Notice: Without prejudice to the provisions of the Competition Act, the

CCI may admit belated notice but subject to penalty under section 43A of the Act.108

4.6.5.9. Failure to File Notice: Where the parties to the combination fail to file notice

under section 6(2) of the Act, the Commission may suo moto inquire that whether such

101 Sachin Goyal, 2012, p. 1878. 102 See, Regulation 5(4) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 103 See in regulation 5(5) of the Competition Commission of India (Procedure in Regard to Transaction

of Business Relating to Combinations) Regulations, 2011. 104 See, Proviso to Regulation 5(4) and 5(5) of the Competition Commission of India (Procedure in

Regard to Transaction of Business Relating to Combinations) Regulations, 2011. 105 Regulation 14(3) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 106 Regulation 14(5) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 107 Regulation 14(6) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 108 Regulation 7 of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011.

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a combination has caused an appreciate adverse effect on competition in India.109

Where the Commission decides to commerce an inquiry, it will direct the parties to the

combination to file notice in form II which will be without any prejudice of its right to

impose any penalty on the parties.110

4.6.6. Exemption Gateway

The provision of section 6 discussed above are not applicable to:

A public financial institution;

Foreign institutional investor;

Bank;

Venture capital fund

These categories are exempted from the provisions of section 6 while entering into

combination in pursuance of any covenant of loan or investment agreement for share

subscription or financing facility or any acquisition.111

Deviating further from the strict interpretation of section 6 of the Competition Act

which requires all combinations except those mentioned in 6(4) and 6(5) to be notified

to the CCI. Regulation 4 of Combination Regulations provides the categories of

combinations (mentioned in schedule I of the combination regulations) which are

ordinarily not likely to cause an appreciable adverse effect on competition in India, and

therefore not normally to be reported to the Commission. These categories are

summarized as below:

(1) 25 Percent Threshold Acquisitions: An acquisition of shares or voting rights, solely

as an investment or in the ordinary course of business in so far as the total shares or

voting rights held by the acquirer does not entitle the acquirer to hold 25 percent or

more of the total shares or voting rights of the target enterprise and also do not lead to

acquisition of control of the target enterprise. In the original combination regulation this

figure was at 15 percent. It was raised to 25 percent by the amendment to the

109 Regulation 8(1) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 110 Regulation 8(2) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 111 Section 6(4) of the Competition Act, 2002.

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regulations in 2012. The threshold for acquisition was increased from 15 to 25 percent

so as to bring the merger control regime in line with the new Takeover Code. Further,

the use of the word ‘entitle’ in the language of the exemption indicates that convertibles

would also be calculated under the 25 percent threshold. However, this could potentially

affect private equity transactions if a less than 25 percent controlling interest were to be

acquired and the transaction meets the prescribed thresholds for notification under the

Act.112

(2) Acquisition Above 50 Percent: An acquisition of shares or voting rights, where the

acquirer already holds 50 percent or more shares or voting rights in the target enterprise,

except in the cases where the transaction results in transfer from joint control to sole

control. This would potentially impact exits in joint ventures and pre-emption rights,

which meet the prescribed thresholds under the Act. Further, acquisition of shares or

voting rights between 25.01 percent and 49.99 percent is not addressed by the

combination regulations and would require notification to the CCI, even if not leading

to acquisition of control. This could affect all the private equity transactions and

creeping acquisitions, where thresholds are met, irrespective of whether control is being

acquired or not.113

(3) Acquisition of Shares or Voting Rights: An acquisition of shares or voting rights,

where the acquirer already holds 50 percent or more shares or voting rights in the target

enterprise, except in the cases where the transaction results in transfer from joint control

to sole control.

(4) Asset Acquisition: An acquisition of assets, not directly related to the business

activity of the acquirer or made solely as an investment or in the ordinary course of

business, not leading to control of the target enterprise.

(5) An Amended or Renewed Tender Offer: An amended or renewed tender offer

where a notice to the Commission has been filed by the party making the offer, prior to

such amendment or renewal of the offer.

112 Cyril Shroff, “Trends in Merger Control”, 2012, retrieved from http://www.irc.caltech.edu., accessed

on 12 December 2012 at 10.12 am. 113 Ibid.

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(6) Routine Business Acquisitions: An acquisition of stock-in trade, raw materials,

stores and spares in the ordinary course of business.

(7) Changes to Share Capital: An acquisition of shares or voting rights pursuant to a

bonus issue or stock splits or consolidation of face value of shares or buy back of shares

or subscription to rights issue, not leading to acquisition of control.

(8) Acquisition by Securities Underwriter: An acquisition of shares or voting rights by

a securities underwriter or a registered stock broker of a stock exchange on behalf of its

clients.

(9) Intra-group Acquisitions or Amalgamation/Combinations: An acquisition of

control or shares or voting rights or assets by one person or enterprise of another person

or enterprise within the same group. A merger or amalgamation of subsidiaries wholly

owned by enterprises belonging to the same group.

(10) Others: An acquisition of current assets in the ordinary course of business and a

combination taking place entirely outside India with insignificant local nexus and effect

on markets in India.

4.6.7. Intra-group Mergers and Amalgamations

Mergers and amalgamations between a holding company and its subsidiary wholly

owned by enterprises within the same group and between subsidiaries wholly owned by

enterprises belonging to the same group, would not require notification to the CCI.

Thus, we can see that there is a distinction made between acquisitions and mergers for

intra-group re-organisations, given that for an intra-group exemption by way of a

merger, the enterprises involved should be wholly owned within the same group, which

is not in case of intra-group acquisitions, although there is no competitive impact in

either case, to raise any competition concern.114 Thus in case of merger or

amalgamation, the exemption is partial. Moreover, this partial exemption has been

provided by the amendment regulations. Earlier the notification requirement was

dispensed only in respect of intra-group acquisitions of control or voting rights or shares

or assets.

114 Ibid.

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4.6.8. Assessment of Combination

This section will make an analysis of how upon receiving notice of the combination or

otherwise, the Commission proceeds to make an assessment of combination i.e. the

steps taken by Commission to inquire and investigate into a combination to reach a

decision on whether it should be allowed, disallowed or needs modifications.

4.6.8.1. Inquiry into Combination [Section 20(1) and 20(2)]: Section 20 empowers the

Commission to make inquiries as to whether a combination causes or is likely to cause

an appreciable adverse effect on competition in India and also lays down factors which

it has to take into account for making such a determination.115 The Commission may

inquire into whether a combination has caused or is likely to cause an appreciable

adverse effect on competition within India, which relates to acquisition, acquiring of

control, or merger or amalgamation as referred to respectively in sub-clauses (a), (b)

and (c) of section 5:

Upon its own knowledge or information [section 20(1)];

Upon receipt of a notice from a person or an enterprise who or which proposes

to enter into combination as referred to in section 6(2) [section 20(2)].

4.6.8.2. Procedure for Investigation of Combination Followed by CCI: Section 29

provides the procedure for investigation. It lays down the detailed procedure for

investigation of combination if the Commission is of the opinion that any combination

is likely to cause or has caused an appreciable adverse effect on competition within the

relevant market in India. It provides that if in the prima facie,116 opinion of the

Commission, the combination causes or is likely to cause any adverse effect, then it

would issue a show-cause notice to the parties calling them to respond within thirty

days of its receipt as to why any investigation regarding such combinations should not

be conducted.117

When the Commission receives response from the parities, it may call upon Director

General for investigation and report.118 If the Commission is prima facie of the opinion

115 These factors are laid down in section 20(4) and discussed earlier. 116 The word ‘prima facie’ inserted by the Competition (Amendment) Act, 2007. 117 Section 29(1) of the Competition Act, 2002. 118 Section 29(1A) of the Competition Act, 2002.

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that the combination is likely to cause adverse effect on the market, it may direct the

parties to publish the details of the combination in any manner prescribed within ten

working days. It has to be done by the Commission within 7 working days from the date

of receiving information from the Director General or response from the parties,

whichever is earlier. The Commission may then ask any affected person to file written

objections against the combination within 15 working days from the date of such

publication.119 The Commission may again ask the parties within 15 working days from

the completion of aforementioned 15 days to provide any further or additional

information as it deems fit.120 This additional information has to be provided by the

parties within 15 working days again, which is than furnished to the objecting person.121

After the Commission has received all the relevant information, it will proceed under

section 31 of the Act.

After receipt of all information and within forty five working days from the expiry of

the period specified in sub-section (5), the Commission shall proceed to deal with the

case in accordance with the provisions contained in section 31. The detailed procedure

for the investigation under the provisions of this section is also provided under

regulation 19 to 23 of the Combination Regulations 2011.

According to the Combination Regulations, the Commission is required to form the

opinion about whether the combination is likely to cause or has caused adverse effect on

combination, within thirty days of the receipt of the notice.122 For that purpose, the

Commission may, if considered necessary, require the parties to file additional

information or accept modification, if offered by the parties, before the Commission has

formed prima facie opinion.123 In Orchid Chemicals and Pharmaceuticals, Ltd., In re,124

the parties to the combination offered the following modifications under the provisions

of sub-regulation (2) of regulation 19 of the Combination Regulations:

119 Section 29(3) of the Competition Act, 2002. 120 Section 29(4) of the Competition Act, 2002. 121 Section 29(5) of the Competition Act, 2002. 122 Regulation 19(1) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 123 Regulation 19(2) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 124 (2014) 125 SCL 27.

327

(a) To limit the duration of non-complete obligation to four years in relation to

domestic market in India.

(b) To provide in the BTA (Business Transfer Agreement) that Orchid Chemicals

and Pharmaceuticals Ltd. shall be allowed to conduct research, development and

testing on such new molecules which would result in the development of new

Penem and Pencillin APIS for injectable formulations which are currently non-

existent worldwide.125

The Commission accepted the modifications offered by the parties to the combination

under regulation 19(2) of the combination regulation and opined that the proposed

combination is not likely to have an appreciable adverse effect on competition in India

and therefore Commission, approved the proposed combination under sub-section (1) of

section 31.

After receipt of the response to the notice of show cause, issued under section 29(1) of

the Competition Act, 2002, the Commission may decide to call for a report from the

Director General within the time specified by it,126 with a copy of the notice field by the

parties, all documents, materials, affidavits, statements, the notice to show cause and

response of the parties thereto.127 The report of the Director General (two copies) along

with an electronic version in document format shall be forwarded to the Secretary

within the time specified by the Commission.128 The report shall include the basis of

Director General conclusion together with all evidences or documents or statements

collected during the investigation and analysis thereof.129 The Secretary shall convey

the direction of the Commission to the parties if the latter has formed a prima facie

opinion about the combination having adverse effect on competition, within four

working days, to publish within ten working days of details of the combination in Form

IV as submitted by the parties in all India editions of four leading dailies including

125 Para 10 of the judgement. 126 Regulation 20(1) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 127 Regulation 20(2) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 128 Regulation 21(2) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 129 Regulation 21(1) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011.

328

atleast two business newspapers and also hosted on Commission’s website.130 The

parties shall submit proof of publication by submitting copies of the publication to the

Secretary not later than fifteenth day of the direction of the Commission for

publication.131

On inquiring and investigating into the combination as discussed above, the

Commission can come to opinions:

Combination does not or is not likely to have an appreciable adverse effect on

competition.

Combination has or is likely to have an appreciable adverse effect on

competition.

Combination has or is likely to have an appreciable adverse effect on

competition but such adverse effect can be eliminated by suitable modification

to such combination.

In forming the opinion, the Commission takes into consideration such factors as market

shares, total annual turnover, number of employees and total assets, general market

structure, the existing degree of market concentration, barriers to entry and the

comparative position of the enterprises in the relevant market, as well as advantages

currently enjoyed and to be gained by the acquisition.132

In case 1, the commission shall approve the combination, in case 2, direct that such

combination shall not take effect and in case 3, the commission will order that such

combination shall incorporate certain proposed modifications. If the anti-competitive

effect of the combination could be eliminated by the proposed modification, the

commission will propose it.

The parties may accept the proposal. They may not accept as such and submit

amendment, within thirty working days.133 If accepted, the parties are required to carry

130 Regulation 22 of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 131 Regulation 23 of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 132 D.P. Mittal, 2011, p. 486, para 31.2. 133 Section 31(6) of the Competition Act, 2002.

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it out within the period specified by the Commission.134 If not so done, the combination

shall be deemed to have an appreciable adverse effect on competition and treated in

accordance with the provisions of the Act.135 The amendment submitted by the parties

may be agreed upon by the Commission. Then, it shall, by order, approve the

combination.136 If not agreed upon, it shall allow a further period of thirty working days

for the parties to accept the modification proposed under sub-section (3).137 The parties

shall carry out the said modification within the period specified by the Commission and

file a compliance report for the actions required for giving effect to the combination

within seven days of completion of modification. If no such compliance report is filed,

the Secretary shall place the matter before the Commission for appropriate directions.138

4.6.9. Appointment of Independent Agencies to Oversee Modification

Where the Commission is of the opinion that the modification proposed by it and

accepted by the parties, needs supervision, it may appoint agencies to oversee

modification, on such terms and conditions as may be decided by the Commission from

time to time. Such agencies may include an accounting firm, management consultancy,

law firm, any other professional organisation, or part thereof, or independent

practitioners of repute. The agencies shall submit a report to the Commission upon

completion of each of the actions required for carrying out the modification. The

payment to the agencies shall be made by the parties by depositing it with the

Commission as may be directed by the Commission.139

4.6.10. Combination Ordered Void is Void under other Laws Also

Section 31(13) provides that where the Commission has ordered a combination to be

void, the acquisition or acquiring of control or merger or amalgamation referred to in

section 5 shall be treated as void ab initio by the authorities under any other law and the

parties to the combination shall be dealt with accordingly. For example, if a merger has

134 Section 31(4) of the Competition Act, 2002. 135 Section 31(5) of the Competition Act, 2002. 136 Section 31(7) of the Competition Act, 2002. 137 Section 31(8) of the Competition Act, 2002. 138 Regulation 26 of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 139 See, Regulation 27 of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011.

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been approved under the Companies Act, but has been ordered by the Commission to be

void, it would be deemed as if no merger had taken place.

4.6.11. Penalties under the Competition Act

Section 43A of the Competition Act deals with imposition of penalty for failure to give

notice under section 6(2). Failure is visited with a penalty which may extend to one

percent of the total turnover or assets, whichever is higher, of such combination.

Further, the Act empowers the CCI to ‘look back’ and inquire into a combination that

has not been notified (suo moto or on the basis of information received by it) for upto

one year from the date of consummation of such combination and if the combination

causes an appreciable adverse effect on competition, it can be held to be void.140 A

penalty of between Rs. 50,00,000 to Rs, 1,00,00,000 can also levied for making fake

statements or omitting material information in the merger control filing.141 The CCI

may also impose penalty of upto Rs. 1,00,000 per day upto a maximum of Rs,

1,00,00,000 on parties for contravention of its orders.142 Officers in charge the

company’s business would attract liability for contravention by companies of provisions

of the Act, unless they can prove lack of knowledge despite exercise of due diligence.

It is pertinent to note that even though there have been a number of belated filings in the

first year of implementation of merger control regime, the CCI has not imposed any

penalty on transacting parties owing to the fact that the merger control regime is in its

nascent stage. For example, in its first order on penalty proceedings in the

EAPL/BBTCL Order,143 the CCI chose not to impose any penalty on account of the fact

that the transaction was an intra-group re-organisation by way of an amalgamation and

the fact that the merger control regime is in its first year of implementation. In future, it

remains to be seen as to how the CCI would treat belated filings in more complex cases

with horizontal/vertical overlaps, change in control, etc.

140 Section 20(1) and (2) read with section 6(1) of the Competition Act, 2002. 141 Section 44 of the Competition Act, 2002. 142 Section 43 of the Competition Act, 2002. 143 C-2012/12/16, Order of the CCI on penalty proceedings, retrieved from http://cci.gov.in/May 2011/

Order of Commission/Combination Orders/C-2011-12-16/2043A.pdf, accessed on 19 March 2012 at 4.00 pm.

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4.6.12. Confidentiality of Information Furnished by Parties

Any party may submit a written request for confidentiality of information or documents

submitted during investigation and such request shall be considered as per the procedure

laid down in regulation 35 of the Competition Commissions of India (General)

Regulations, 2009.144 The request for confidentiality needs to be accompanied by a

statement setting out cogent reasons (such as, making part or whole of the document

public would result in disclosure of trade secrets, price sensitive information, business

plans, destruction or appreciable diminution of commercial value of any information

etc.) for such treatment.145 The CCI has been given discretion to determine if and to

what extent and for what period the request for confidentiality to be granted and order

accordingly. Where request for confidentiality is rejected and the party is still not

willing to make the documents or part thereof public, such documents or parts thereof

shall be returned to the party and the information contained therein should not be

considered. While arriving on any opinion regarding combination any person, party or

expert appointed or engaged by the CCI, who is privy to the confidential information

shall be bound by confidentiality obligations and any breach thereof shall constitute

ground for initiation of disciplinary proceedings by the CCI. The right to seek

confidentiality extends only to documents submitted and not to the transaction itself.146

4.6.13. Appeals from the Order of CCI

An appeal against the order of the Commission may be filed with Competition

Appellate Tribunal within 60 days of the receipt of order/direction/decision of the

Commission.147 The Competition Appellate Tribunal is expected to dispose appeal as

expeditiously as possible within 6 months. A further appeal from the decision of CAT

can be made to Supreme Court.

144 Regulation 30(1) of the Competition Commission of India (Procedure in Regard to Transaction of

Business Relating to Combinations) Regulations, 2011. 145 See, regulation 30(2) of the Competition Commission of India (Procedure in Regard to Transaction

of Business Relating to Combinations) Regulations, 2011. 146 Regulation 35(15) and first and second proviso to it, CCI (General) Regulations, 2009. 147 Section 53B of the Competition Act, 2002.

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4.7. Cross Border Mergers and the Competition Act

Keeping in line with global practices, the competition law of India makes provision for

extra-territorial merger control. Justification for this form of extra-territorial application

of laws is found in the realisation that even mergers taking place wholly outside the

borders of a country can result in reducing or affecting the competition within a

country, in numerous ways.148 That’s why, section 32 provides that the Commission

shall have the power to inquire into combination even if it has taken place outside India

or party or enterprise is outside India provided that it has an appreciable adverse effect

on competition in the relevant market in India. Thus the governing factor is the effect in

the domestic market, this is also referred to as the ‘effects doctrine’.149

If the quantitative jurisdiction criteria based on the size of the enterprise is fulfilled,

then notwithstanding whether the principal business of the enterprise is carried outside

India, it has to be notified and approved by CCI. The international combinations may

have effect in India if the enterprises involved have subsidiaries in India. For example, a

Japanese company acquiring Brazilian company and if both the companies have their

subsidiaries in India having assets above the threshold limit and such an acquisition is

expected to have certain adverse effect on the relevant Indian market, then a merger that

is, between two non-Indian companies proposed in a foreign nation and approved by the

laws of those nations is mandatorily required to be reported to the Competition

Commission of India.150

An example of this was the April 2012 deal, where Swiss food company Nestle agreed

to acquire American Pharma firm Pfizer’s nutrition business for US $11.85 billion. Both

foreign companies have presence in India through their subsidiaries. Therefore, India

became one of the many countries where the two multinational companies needed the

approval of the competition regulators before completing the transaction. Therefore, a

148 Snighdha Pandey, “Concept Paper: Extra Territoriality and Merger Control: Study from Major

Jurisdictions (US, EU and Canada) and Provisions in Indian Competition Law”, A Project Report, Submitted to Competition Commission of India (CCI), retrieved from http://cci.gov.in/images/media/

ResearchReports/Concept_20081202123940.pdf , accessed on 15 January 2013 at 10.20 am. 149 Vinod Dhall, “The Indian Competition Act, 2002, in Vinod Dhall (ed.), Competition Law Today

(Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007, pp. 498-539, pp. 530-531.

150 Shubham Khare and Niharika Maske, “Mergers, Amalgamations and Acquisitions under Competition Act, 2002: An Analysis”, Company Law Journal, 2009, Vol. 4, pp. 49-65, p. 59.

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notification was filed with CCI. The CCI in its order dated 1 August 2012, cleared the

merger and said that the transaction would not have any appreciable adverse effect on

competition in India.

This clearly restates the effects doctrine, which should undo the Supreme Court’s

disabling of the MRTP commission in its far-reaching verdict delivered in July 2002.

The court held that wording of the MRTP Act did not give it any extra-territorial

jurisdiction. The effects doctrine in the Indian context was propounded in the above

judgment of the Supreme Court in Haridas Exports v. All India Float Glass

Manufactures Association.151 The Court in this case stated that “the effects doctrine will

cloth the Commission with jurisdiction to pass an appropriate order even though a

transaction had been carried outside the territory of India, if the effect of that results in a

restrictive trade practice in India.”

Overall, the rationale behind the introduction of extraterritorial provision in

Competition Act can be inferred from the Commentary of the UN Model Law an

Competition:

“Mergers, takeovers or other acquisitions of control involving

transnational corporations should be subject to some kind of scrutiny in

all countries where the corporation operates, since such acquisition of

control, irrespective of whether they take place solely within the country

or abroad, might have direct or indirect effects on the operations of the

other unit of economic activities.”152

The effects doctrine is now well accepted in competition law. It was first used in a

significant manner in the US where the position now is that US courts can intervene

provided that there is a direct, substantial and foreseeable effect on domestic or certain

export commerce. Similarly, courts in the EU have asserted the effects doctrine in

several cases involving overseas firms. The OECD Guidelines for Multinational

Enterprises expressly caution these enterprises to take into account the competition laws

151 (2002) 6 SCC 600. 152 For further details, see, Vinod Dhall, “Overview: Key Concepts in Competition Law”, pp. 1-35 and

Eleaner M. Fox, “World Competition Law: Conflicts Convergance and Cooperation”, pp. 224-248 in Vinod Dhall (ed.), Competition Law Today (Concepts, Issues and the Law in Practice), Oxford University Press, New Delhi, 2007.

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of not only the countries in which they operate, but also of those countries where their

acts are likely to have effect.153

But this extra territorial jurisdiction of competition law has its own criticism also. This

extra territorial application of domestic competition policies has been criticised for its

undermining of international principles relating to territorial jurisdiction of states. This

principle in international jurisprudence recognises the right of every state to exercise

sovereign jurisdiction over its national territory.154

Jurisdictional conflicts in the field of competition laws arise because of the inherent

differences in the legal policies adopted by nations to regulate competition within their

respective territories. Concomitantly, it may arise when a conduct stands validated

under the legal regime of one nation, while it simultaneously impacts the markets of

another nation.155 The international tussle in the field of competition laws is aptly

reflected in the statement of the English House of Lords:

“Claims to extra-territorial jurisdiction are particularly objectionable in

the field of (competition) legislation because, among other reasons, such

legislation reflects national economic policy which may not coincide and

directly conflict, with that of other states.”156

Keeping in mind, the shortcomings of extra-territorial jurisdiction and the hiccups

involved in the enforcements of private international law, section 18 of the Act also

empowers the CCI to enter into any memorandum or arrangement with the prior

approval of the Central Government, with any agency of any foreign country in order to

discharge its duty under the provisions of this Act.157 This enabling provision provides

teeth to the power conferred to Commission under section 32. An illustration of

application of section 18 is Memorandum of Understanding with the US Anti-trust

Agencies.

153 See, para 104, Commentary on UN Model Law on Competition, as quoted in Shubham Khare and

Niharika Maske, 2009, p. 60. 154 Martyn D. Taylor, “International Competition Law: A New Dimension for the WTO”, Cambridge

University Press, p. 34, as quoted in Renuka Medury and Rinie Nag, “Cross-Border Mergers: Implications under the Competition Act, 2002”, SEBI and Corporate Laws, 2-8 August 2010, Vol. 101, pp 71-76, p. 75.

155 Ibid. 156 Lord Frazer in Rio Tinto Zinc Corporation v. Westing House Electric Corporation (1978) 2 WLR 81

at p. 125. 157 Kartik Maheshwari and Simone Reis, “Extra Territorial Application of the Competition Act and its

Impact”, Competition Law Reports, January 2012, pp. 144-148, p. 146.

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The CCI is currently lauded for its quick turn around time on approvals for

combinations as well as its swift decisions. However, such turnaround time in the case

of an extra-territorial combination is yet to be tested. The Act may empower the CCI to

investigate any acts/agreements/combinations which take place outside India but have

an effect in India, however the practical application of the provision is yet to be seen.

The questions which needs consideration at the moment is how well equipped is the

CCI in terms of infrastructure as well as logistics to strike a balance between its

domestic responsibilities and international developments which have an effect on

competition in India. Although the CCI is well empowered under section 32, till date no

regulations or rules have been framed or introduced to govern the manner or the time

frame within which the regulator is required to act in matters beyond Indian territorial

limits.

4.8. Conclusion

Combinations whether in the form of mergers, amalgamations or acquisitions are very

important for a developing country like India. They provide numerous advantages to an

economy like India in the form of diversification of business, increased synergy,

accelerated growth, tax benefits, improved profitability etc. They enable foreign

collaboration through cross-border mergers and enable companies to withstand global

competition. But on the other hand, they may lead to monopoly or create barriers to

entry and similar anti- competitive practices. Therefore, they need regulation. The need

to swiftly permit such mergers which are beneficial to the economy and prohibit anti-

competitive ones has led to the formulation of merger control regime all over the world.

In India, mergers were regulated under the MRTP Act, 1969. But the Act had become

obsolete in the light of international economic developments and was replaced by the

Competition Act, 2002. The provisions relating to combinations came into force

recently on 1 June 2011. The CCI also notified the implementing combination

regulations effective from the same date.

The Act and the Regulations together constitute the merger control regime. The gradual

succession from the MRTP Act to Competition Act is one of the most important

milestones as far as economic reforms in the field of competition law in the country are

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concerned. By shifting the focus from the stage of merely ‘curbing monopolies’ in the

domestic market to ‘promoting competition’ the competition regime in India has

attained recognition for its progressive ways.158 It provides for pre-merger notification,

review and remedies in the form of modifications which if applied effectively can play a

crucial role in regulating mergers. The merger control provisions are designed in such a

way to prevent mergers that are likely to have an appreciable adverse impact on

competition.

Mandatory pre-merger notification is provided which can help in ensuring that the CCI

would have relevant information of all proposed mergers above the threshold limit and

would be able to avert the competition problems that may arise in case of certain

mergers.159 The merger control law in India has all the elements of a progressive law

and has imbibed several practices from the EU and US regimes. The underlying theme

in this new enactment appears to be compliance with transparency. Despite its nascent

existence, it has achieved tremendous success. But there are certain problems which

need to be addressed so that the law can effectively regulate mergers. These areas which

have been highlighted in the last chapter entitled ‘Conclusion and Suggestions’ need to

be deliberated upon and need further modifications.160

But overall, the efficiency of the CCI is commendable as it has been approving

competition in a time bound manner given the nascency and ambiguities that are

prevalent in the regime. Therefore, such lacunas and ambiguities in the regime should

be removed at the earliest to make it more effective. If the various problems and

concerns raised by the current provisions on merger regulation in the Competition Act

are addressed, the act can be an effective instrument in achieving its aim and preventing

anti-competitive practices in the market. Moreover, none of the merger control

decisions that have been arrived so far have resulted in any substantive legal issues,

which have made the role of the Commission much easier. The true test of the

Commission will only arise when complex and substantial legal issues are brought

before it. But commission should be commended to correctly analyse most of the

158 Vidyullatha Kishor, 2012, p. 20. 159 Neeraj Tiwari, 2011, p. 141. 160 The areas of concern in Competition Act and the combination Regulations have been highlighted in

the topic ‘Suggestions for Amendments in Competition Law’.

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decisions and to arrive at clearances ahead of the time limit set by Combination

Regulations.

Thus the CCIs responsiveness to the industry concerns and its eagerness to develop a

unique body of jurisprudence comparable to that of more advanced jurisdictions, is

encouraging and puts to rest any fears of merger control acting a road block to M&A

activity in India.161 Overall, the Indian competition law is forward looking and intends

to create an economy which will enable all to enjoy the fruits of developments through

vigorous competition.

161 Nisha Kaur Uberoi and Cyril Shroff, “Latest Indian Merger Control Trends Analysed”, retrieved

from http://www.iflr.com/article/3094583/latest-Indian-merger-control-trend-analysed.html, accessed on 1 February 2013 at 11.00 am.