JIMS ENGINEERING MANAGEMENT TECHNICAL CAMPUS,

SCHOOL OF LAW, GREATER NOIDA

Assignment on

Acquisition under Competition Act 2002: A Detailed Analysis

INVESTMENT AND COMPETITION LAW

Submitted to: Submitted by:

Dr. (Prof.) Pallavi Gupta

Head of Department VIth Semester

School of Law, BBA LLB (Hons.)

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 ACKNOWLEDGEMENT

It is my privilege to express my sincerest regards to my project coordinator, Prof. Pallavi Gupta,

for her valuable inputs, able guidance, encouragement, and whole-hearted cooperation
throughout the duration of this project.

I deeply express my sincere thanks to Prof. Pallavi Gupta Ma’am for encouraging and allowing
me to present the assignment on the topic “Acquisition under Competition Act 2002” for the
partial fulfillment of the requirements leading to the award of LLB degree.

I take this opportunity to thank my lecturers who have directly or indirectly helped my project.
I pay my respects and love to my parents and all other family members and friends for their
love and encouragement throughout my career.

Last but not the least we express my thanks to all my friends for their cooperation and support.

Siddhant Puri

B.B.A. LL.B, JIMS School of Law

E-mail: siddhant.puri9599@gmail.com

Phone: +91 9810940064

Signature: Date:

_______________ _______________

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 UNDERTAKING

I Siddhant Puri, a student of JEMTEC School of Law and the author of this paper do hereby
solemnly affirm:

1. That each and every content of this research paper is drafted by me.
2. That all documents I’ve submitted to support the authenticity of my paper are true and
fair to my knowledge.
3. That I’ve not committed any sought of plagiarism, misrepresentation, or any faking of
report and everything is done my honesty and sincerity.

DATE: SIGNATURE:

_____________ _______________

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 ABSTRACT
Over the past several years, the market of mergers and acquisition in India has become quite
active. The overseas trade or cross border mergers and acquisitions have become a part of day
to day transactions. The era of such transactions became so common that almost every
individual entity started getting involved in a domestic or cross border acquisition. Due to the
popularity of such a trading, lead to the existence of laws that would regulate these practices.
Laws were therefore enacted to bring out a merger control regime and to curb anti-competitive
effects, since the MRTP Act in that time was proved to be inefficient to deal with such
practices. Therefore, to prevent various anti- competitive agreements which reduces healthy
competitions between the potential competitors, Competition Act 2002 was enacted which was
mainly made to curb with the said issue of acquisitions.

HYPOTHESES

The paper deals with the following hypotheses:

1) What were the factors that lead to the enactment of Competition Act 2002.
2) What is the concept of Acquisition and existence of Competition Act 2002.
3) What is the relationship between Acquisition and Competition Act 2002 with special
emphasis to Section 5 and 6.

OBJECTIVE

The objective of the present project are:

a) Firstly, to know about the reasons behind enactment of Competition Act 2002 and
replacing it with the MRTP Act.
b) Secondly, to see how the 2002 Act regulates the companies from involving itself into
anti competitive agreements.
c) Thirdly, to learn about the past and present relation between concept of acquisition and
its relation with Competition Act 2002.

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 Introduction

“I think the acquisition of might be on the verge of being mapped. The battlefield is going
to be retention and lifetime value.”

 Gary Vaynerchuk

The Competition Act, 2002 (as amended), follows the philosophy of modern competition laws
and aims at fostering competition and protecting the Indian markets against anti-competitive
practices. The Act prohibits the anti-competitive agreements, abuse of dominant position and
regulates combinations (mergers and acquisitions) with a view to ensure that there is no adverse
effect on competition within India. The provisions of the Act relating to regulation of
combinations have been enforced with effect from 1st June, 2011.

Broadly, a combination under the Act means acquisition of control, shares, voting rights or
assets, acquisition of control by a person over an enterprise where such person has direct or
indirect control over another enterprise engaged in competing businesses. Combinations are
classified into horizontal, vertical and conglomerate combinations. If a proposed combination
causes or is likely to cause appreciable adverse effect on competition, it cannot be permitted to
take effect.

Horizontal combinations are those that are between rivals and are most likely to cause
appreciable adverse effect on competition. Vertical combinations are those that are between
enterprises that are at different stages of the production chain and are less likely to cause
appreciable adverse effect on competition. Conglomerate combinations are those that are
between enterprises not in the same line of business or in the same relevant market and are
least likely to cause appreciable adverse effect on competition.1

The article will begin with the study of the evolution of the MRTP act and will analyze the
loopholes in the act that led to the passing of the competition act. The article will mainly focus
on the concept of merger and will also lay emphasis on the factors that has led in the increase
of this business arrangement so extensively.2 The article will also discuss several kinds of
merger. The article will profoundly analyse the role of the competition commission of India
and the powers conferred upon it in regard to combinations under the act. 3

The main motive of the author behind writing this article is to make an easy understanding of
the concept of merger and how it is regulated by the competition commission.

1
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
2
D.S. Nakara v. Union of India, AIR 1983 SC 130. 7
3
D.P. Mittal, 2011, p. 13, para 0.5.

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 THE COMPETITION ACT

The Competition Act (CA) attempts to make a shift from curbing monopolies to curbing
practices that have adverse effects on competition both within and outside India. It is interesting
to see that under the new regime the legislature has chosen to regulate unfair trade practices
under only the Consumer Protection Act 1986 and not the Competition Act. In 2007 the
Competition (Amendment) Act introduced significant changes to the competition law regime.
Most noteworthy of these changes was the introduction of a mandatory notification process for
persons undertaking combinations above the prescribed threshold limits. In early 2008 the
Competition Commission of India also promulgated and circulated a draft of the Competition
Commission (Combination) Regulations.
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.4 “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 5. 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.6”
The Raghavan Committee took the view that regulatory focus should change from limitation
of the size of undertakings to prohibiting trade practices which cause 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.

4
(2010) 103 SCL 269 (SC).
5
S. Krishnamurthi, Principles of Law Relating to MRTP, 3rd Edition, 1989, p. 85 as quoted in Mallika
Ramachandran, 2009, p. 44.
6
Abhijit Mukhopadhyay, “Merger and Amalgamation in India”, Chartered Secretary, 1997, pp. 780- 785, p.
781.

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The regulations provide a framework for the regulation of combinations which include M&A
transactions or amalgamations of enterprises. The merger provisions are not yet in force.
Nonetheless, it is only a matter of time before the relevant provisions will be notified.

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 POSITION OF COMBINATIONS

Before considering combinations, it is necessary to look at two important sections of the CA.
On May 15 2009 the government formally notified certain provisions in the CA relating to anti-
competitive agreements and abuse of dominance, covered in Sections 3 and 4 of CA
respectively, which came into force on May 20 2009. Section 3 of CA governs anti-competitive
agreements and prohibits: agreements involving production, supply, distribution, storage,
acquisition or control of goods or provision of services, which cause or are likely to cause an
‘appreciable adverse effect on competition’ in India.
Section 4 of CA prohibits the abuse of a dominant position by an enterprise. Under the
Monopolies Act, a threshold of 25% constituted a position of strength. However, this limit has
been eliminated under the CA. Instead, the CA relies on the definitions of ‘relevant market ’,
‘relevant geographic market’ and ‘relevant product market’ as a means of determining an abuse
of a dominant position.
Under Section 6, the CA prohibits enterprises from entering into agreements that cause or are
likely to cause an ‘appreciable adverse effect on competition within the relevant market in India
’. Under the new regime, the Competition Commission has investigative powers in relation to
combinations. Various factors are provided for determining whether a combination will or is
likely to have an appreciable adverse effect on competition in India, and penalties are provided
for such violations.
A true (or full) merger involves two separate undertakings merging entirely into a new
entity.7However, 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.8 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
anticompetitive.9 In fact, Justice Dhananjyay Chandrachud commented in Ion Exchange (India)
Ltd., In re:10 “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.”

7
Richard Wish, Competition Law, 6th Edition, Oxford University Press, New Delhi, 2009, p. 798.
8
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.
9
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.
10
(2001) 105 Comp Cases 115 (Bom.).

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The law of merger in relation to competition law was elaborately discussed in the case of
United States v. Philadelphia National Bank11, 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 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 anticompetitive 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 regulation12.

Merger control needs to be designed to prohibit mergers which are likely to be anticompetitive
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 elements13.

11
374 US 321.
12
Alan H. Goldberg, 2007, p. 94.
13
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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 INTERPRETATION

Mergers and acquisitions (or combinations) refer to a situation where the ownership of two or
more enterprises is joined together. A merger is said to occur when two or more companies
combine to form a new company. In this, two or more companies may merge with an existing
company or they may merge to form a new company. The assets and liabilities of the transferor
company become the assets and liabilities of the transferee company after the merger. The
purpose of a merger is usually to create a bigger entity, which accelerates growth and leads to
economies of scale. However, a merger may lead to unwanted socio- economic implications
that are often frowned upon.14
This was proved when the European commission on competition blocked the merger of GE
and Honeywell, which would have been one of the largest industrial mergers in history. This
merger however, was earlier cleared by the concerned US agency – the Department of Justice15.
This clearly shows each country has its own rules on competition. What one perceives as a
threat may not be taken the same way by the other. India, which has now opened itself to global
competition, now has its own competition law.
This new law, which seems to be in line with the trend globally, replaces the Monopolies and
Restrictive Trade Practices (MRTP) Act, 1969. In the pursuit of globalisation, India has
responded to opening up its economy, removing controls and resorting to liberalisations. The
natural corollary of this is that the Indian market must be geared to face competition from
within the country and outside.16
The MRTP Act, 1969 had become obsolete in certain respects in the light of international
economic developments relating more particularly to competition felt to shift the focus from
curbing monopolies to promoting competition so that the Indian market is equipped to compete
with the markets worldwide.
The preamble of the Competition Act, 2002 states that it is a law to foster and maintain
competition in the Indian market to serve consumer interest while protecting the freedom of
economic action of various market participants and to prevent practices, which affect
competition, and to establish a commission for these purposes (Competition Committee of
India or CCI).
In India, mergers are regulated under the Companies Act, 2002 and also under the SEBI Act,
1992. With the enactment of the Competition Act in 2002, mergers have also come within the
ambit of this legislation17. In the Companies Act, 1956, mergers are regulated between

14
Alan H. Goldberg, 2007, p. 96
15
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.

16
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.

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companies inter alia to protect the interests of the secured creditors and the SEBI Act it tries to
protect the interests of the investors. Apart from protecting the interests of private parties, these
objectives are different and mutually exclusive. In the Competition Act, 2002, the objective is
much broader. It aims at protecting the appreciable adverse effect on trade-related competition
in the relevant market in India (AAEC).

CRITERAI UNDER SECTION 5 & 6 FOR MERGERS

One of the most significant provisions of CA, Section 5, which defines ‘combination’ by
providing threshold limits in terms of assets and turnover is yet to be notified. There is no
clarity as to when it will be made effective. At present, any acquisition, merger or
amalgamation falling within the ambit of the thresholds constitutes a combination.
Section 5 states that:
The acquisition of one or more enterprises by one or more persons or merger or amalgamation
of enterprises shall be a combination of such enterprises and persons or enterprises, if-

(a) any acquisition where-

(i) the parties to the acquisition, being the acquirer and the enterprise, whose control, shares,
voting rights or assets have been acquired or are being acquired jointly have,-
(A) either, in India, the assets of the value of more than rupees one thousand crores or turnover
more than rupees three thousand crores; or
(B) in India or outside India, in aggregate, the assets of the value of more than five hundred
million US dollars or turnover more than fifteen hundred million US dollars; or

(ii) the group, to which the enterprise whose control, shares, assets or voting rights have been
acquired or are being acquired, would belong after the acquisition, jointly have or would jointly
have,- (A) either in India, the assets of the value of more than rupees four thousand crores or
turnover more than rupees twelve thousand crores; or (B) in India or outside India, in aggregate,
the assets of the value of more than two billion US dollars or turnover more than six billion US
dollars; or

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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(b) 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 substitutable goods or provision of a similar or identical or substitutable
service, if-
(i) the enterprise over which control has been acquired along with the enterprise over which
the acquirer already has direct or indirect control jointly have,- (A) either in India, the assets
of the value of more than rupees one thousand crores or turnover more than rupees three
thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more
than five hundred million US dollars or turnover more than fifteen hundred million US dollars;
or
(ii) the group, to which enterprise whose control has been acquired, or is being acquired, would
belong after the acquisition, jointly have or would jointly have,- (A) either in India, the assets
of the value of more than rupees four thousand crores or turnover more than rupees twelve
thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more
than two billion US dollars or turnover more than six billion US dollars; or

(c) any merger or amalgamation in which-

(i) the enterprise remaining after merger or the enterprise created as a result of the
amalgamation, as the case may be, have,- (A) either in India, the assets of the value of more
than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in
India or outside India, in aggregate, the assets of the value of more than five hundred million
US dollars or turnover more than fifteen hundred million US dollars; or
(ii) the group, to which the enterprise remaining after the merger or the enterprise created as a
result of the amalgamation, would belong after the merger or the amalgamation, as the case
may be, have or would have,- (A) either in India, the assets of the value of more than rupees
four thousand crores or turnover more than rupees twelve thousand crores; or
(B) in India or outside India, the assets of the value of more than two billion US dollars or
turnover more than six billion US dollars.
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
anticompetitive practices such as raising prices abnormally18. 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 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.19 In India, mergers are regulated under
the Companies Act, 1956 and the Takeover Code, 2011 also. In the Companies Act, mergers

18
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.
19
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.

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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
importance20.

20
Tejas K. Motwani, “Analysis of Merger Control under Indian Competition Law”, Project Report, Competition
Commission of India (CCI), 3 November 2011, p. 3.

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 CROSS BORDER ACQUISITION AND POWERS OF THE
COMISSION

Expectations regarding the enforcement ambitions of the Competition Commission of

India(hereinafter CCI) along with risks of hefty financial penalties for firms as well as
imprisonment for individuals means that it is vital for all companies that deal with India to
factor antitrust law into decisions affecting their Indian businesses. Antitrust impacts on firms’
longer-term as well as day-to-day operational issues. Additionally, antitrust must be factored
into the due diligence and contractual negotiation processes of mergers and acquisitions to
ensure that any risks arising from antitrust compliance are addressed properly. The powers of
merger review of CCI thus impacts the feasibility of certain deals. The Competition Act,
2002(hereinafter CA) introduces three enforcement areas usually found in modern competition
law regimes: prohibition of anticompetitive agreements, prohibition of abuse of dominance and
merger regulation. Many concepts of the new law are similar to those found in other
jurisdictions, such as European Union or US competition law.
But since the market conditions are very different in India, these concepts may not be
interpreted or applied in the same way. The first confession that needs to be made and accepted
without any reservations is that in an interdependent world economy everything affects
everything else.
Economic and industrial globalization has increased international competition and given rise
to the need for an increasingly integrated and evolving legal system. A number of trends have
contributed to the accelerated globalization of industry and the integration of international
economies. For instance, the growing similarity in available infrastructure, distribution
channels, and marketing approaches has enabled companies to introduce products and brands
to a universal marketplace. However this is not to suggest that the Competition Act,
2002(hereinafter CA) should govern all the international economic conduct. There is a need to
identify ways of distinguishing those international matters affecting Indian commerce
sufficiently to warrant sufficient attention from our law.21
It needs to be kept in mind that many ordinary difficulties of applying antitrust principles are
compounded by the different mores and economic circumstances of international markets.
These issues would have been at the background with a much lesser significance if the basis of
jurisdiction was territorial and focused on the question as to where the relevant conduct
occurred. However, with the judicially created “effects” test having come to the fore and the
rise of its dominance these issues have acquired tremendous prominence.22

21
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.
22
Neeraj Tiwari, 2011, p. 133.

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Commission’s Extra-Territorial Powers
Section 32 of the Competition Act explicitly allows the Competition Commission to examine
a combination already in effect outside India and pass orders against it provided that it has an
‘appreciable adverse effect’ on competition in India. This power is extremely wide and allows
the Competition Commission to extend its jurisdiction beyond the Indian shores and declare
any qualifying foreign merger or acquisition as void.
An ‘appreciable adverse effect’ on competition means anything that reduces or diminishes
competition in the market. Section 32 states that
The Commission shall, notwithstanding that,- (a) an agreement referred to in section 3 has been
entered into outside India; or (b) any party to such agreement is outside India; or (c) any
enterprise abusing the dominant position is outside India; or (d) a combination has taken place
outside India; or (e) any party to combination is outside India; or (f) any other matter or practice
or action arising out of such agreement or dominant position or combination is outside India,
have power to inquire into such agreement or abuse of dominant position or combination if
such agreement or dominant position or combination has, or is likely to have, an appreciable
adverse effect on competition in the relevant market in India

The wording of Section 32 succinctly lays down the scope of the applicability of the provision
as far as the subject matter is concerned. It shall apply to:
• Anti-competitive agreements
• Abuse of dominant position
• Combinations

Combinations in the terminology of CA or cross border mergers have thus been included within
the domain of the regulatory and investigative powers of the Commission. This provision needs
to be read along with Section 18 of CA. Section 18 specifies in rather generic terms the duties
of the Commission and the steps it can take to perform its functions under CA. It states that:
Subject to the provisions of this Act, it shall be the duty of the Commission to eliminate
practices having adverse effect on competition, promote and sustain competition, protect the
interests of consumers and ensure freedom of trade carried on by other participants, in markets
in India: Provided that the Commission may, for the purpose of discharging its duties or
performing its functions under this Act, enter into any memorandum or arrangement with the
prior approval of the Central Government, with any agency of any foreign country

15
Appreciable Adverse Effect
The Commission has been granted wide powers under Section 32 read with Section 18 of CA.
However, the caveat is that such agreement or abuse of dominant position or combination if
such agreement or dominant position or combination has, or is likely to have, an appreciable
adverse effect on competition in the relevant market in India.

Section 20(4) is indicative of the factors or the circumstances when ‘appreciable adverse effect
on competition’ can be inferred. There are fourteen factors under this subsection and any one
or all shall have to be considered by the Commission so as to ascertain the cause of AAEC in
any given case:
1. Actual and potential level of competition through imports in the market;
2. Extent of barriers to entry into the market;
3. Level of competition in the market;
4. Degree of countervailing power in the market;
5. Likelihood that the combination would result in the parties to the combination being able to
significantly and sustainably increase prices or profit margins;
6. Extent of effective competition likely to sustain in a market;
7. Extent to which substitutes are available or are likely to be available in the market;
8. Market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;
9. Likelihood that the combination would result in the removal of a vigorous and effective
competitor or competitors in the market;
10. Nature and extent of vertical integration in the market;
11. Possibility of a failing business;
12. Nature and extent of innovation;
13. Relative advantage, by way of the contribution to the economic development by any
combination having or likely to have appreciable adverse effect on competition;
14. Whether the benefits of the combination outweigh the adverse impact of the combination,
if any.

However, there is nothing to indicate that is the list is exhaustive. The exercise of the powers
of the Commission over cross border mergers is crucially hinged on the meaning that the phrase
‘appreciable adverse effect on competition’ is given and how the jurisprudence surrounding
the phrase develops.

16
The test thus laid down under the Act is that the Commission can investigate into a cross border
merger taking place outside India if the (i) agreement or (ii ) abuse of dominant position or (iii)
combination has or is likely to have an appreciable adverse effect on competition in the relevant
market in India. Cross border merger regulation in India has only been partly taken care under
the regulatory landscape of Securities and Exchange Board of India (SEBI). With the
emergence of the new Competition Law regime in India a host of issues need to be looked into
as far as cross border merger regulation is concerned and recognize the need to find a purposive
solution to the possible conflicts and grey areas.
For an example:-
Air India and Indian (erstwhile Indian Airlines) have combined. Consequent upon that, the
market share of the combined entity has increased considerably. The enhanced market share
may cause, barriers to entry to other competitors; (competitors may not have market to trade),
rise in passenger fares and poor quality of service.
On the contrary, it may not cause any concern at all if we look at the following factual issues:
(1) passengers have wider choice (Jet Airways, Spicejet, Kingfisher, Air Deccan, Indigo, Go
Air, foreign airlines etc.);
(2) with wider choice, the combined entity may not be able to create entry barriers; and
(3) in order to maintain an optimal passenger base (for successful and viable business venture)
the combined entity may have to provide competitive level price for tickets and maintain
highest or at least similar levels of quality of services that its competitors would extend.

The Companies Act, 1956 and SEBI Act, 1992 (though mutually exclusive) aim to protect the
interests of private individuals. Whereas, in the Competition Act, 2002, the impact of
combinations directly affects the market and the players in the market including the consumers.
We may, therefore, safely say that apart from the fact that all these legislations are mutually
exclusive, the Companies Act, 1956 and the SEBI Act, 1992 are the sub-sets of Competition
Act, 2002 in so far as legal scrutiny of mergers are concerned.

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 PROVISIONS UNDER THE MRTP ACT 1969 VIS-À-VIS THE
COMPETITION ACT 2002

In the MRTP Act, 1969, ss. 23 read with 20 states that the originally required approval of the
Central Government for any scheme of merger or amalgamation or any proposed takeover
relating to an undertaking the value of assets of which (along with its interconnected
undertakings) was not less than Rs. 100 crores or which was a dominant undertaking having
the value of assets (alongwith its inter- connected undertakings) not less than Rs. one crore.
These provisions were deleted by the MRTP (Amendment) Act, 1991 and the said provisions
of law have again been revived under the Competition Act, 2002, s. 5 with certain changes as
to the threshold limit of the value of assets or turnover. The concept of assets/turnover ‘outside
India’ is, however, new in the Competition Act, 2002. No distinction has been made under the
Competition Act, 2002, between different types of mergers or amalgamations. Instead of
restricting the regulatory framework to only horizontal mergers, vertical and conglomerate
mergers have also been covered under the Competition Act, 2002, although they are primarily
meant to curb concentration of economic power.
Under the extent provisions the power has been vested in the Competition Commission while
under the MRTP Act, 1969, the power was rested with the Central Government. It is a modern
piece of economic legislation. Worldwide, competition or anti-trust laws have three main
contours. They are:
(1) prohibition of anti-competitive agreements;
(2) prohibition of abuse of dominance; and
(3) regulating mergers amd acquisitions.
Indian law has all these essential ingredients of anti-competitive practice provisions. Anti-
competitive agreements and abuse of dominance are intended to be prohibited by orders of the
Commission; whereas, combinations (mergers etc) are to be regulated by orders. This
distinction in law indicates the intentions of the legislators.
Combinations ensure economic growth, more economic opportunities for businesses to
compete with their overseas counterparts and consumer welfare ultimately. On the other hand,
anti-competitive combinations harm markets and subvert the interests of the 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 per cent cases of merger notifications are allowed and in
the remaining 10 per cent cases they are either modified or rejected. This clearly indicates that
our law is moving in the right direction. Besides, it is a regulatory act of the Commission, there
are at lease four ‘filters’ available in the law before a notification of merger may be taken up
for investigation and inquiry by the Competition Commission of India. The filters are as under:
(1) establishment of ‘prima facie’ case – s. 29
(2) exceeding thresholds – s. 5

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(3) establishing AAEC in relevant market – s. 20(4) (4) effect in relevant market only – ss.
19(5) to (7)

Apart from the aforesaid conditions required to be fulfilled before any matter is formally
admitted for inquiry and investigation, the AAEC also needs to be happening in a relevant
product/geographic market in India. If the cause of AAEC is not conclusively proved to have
happened in a relevant product/geographic market then again the action against a merger
notification fails. In short, the entire process is business-friendly and not that the moment a
reference or information comes to the Commission it sets out to serve a notice and then
proceeds to pass quasi-judicial order.
The Competition Act, 2002 has mandatory provisions under s. 49 to promote the provisions of
the law through public awareness campaigns amongst stakeholders. Besides, the Act also
empowers the CCI under s. 64 to frame regulations to conduct the business of the CCI in
accordance with the provisions of the enactment. When one reads these two provisions of the
law together, one tends to believe, keeping the international best practices in view, that the CCI
may also come up with Merger Guidelines for information of general public and stakeholders.
The above guidelines clearly bring out the fact that the ‘acquirer’ and not the ‘target’ is the
repository of all business, commercial and legal information and, therefore, it is the only entity
that would be liable to share all such information with the Commission transparently before
any acquisition (formal or informal) is taken up for clearance or otherwise.
Thus, a merger notification is generally a regulatory action between an ‘acquirer’ and the
Commission unlike a prohibitory action of settling disputes between two parties. Secondly, on
perusal of some of the Competition Authorities’ role in handling merger notification in some
selected jurisdictions, it is reiterated that over 90 per cent cases are allowed by Competition
Authorities in these jurisdictions and out of remaining ten per cent (or so) some are allowed
with conditions and others are rejected outright. Combinations have been brought within the
purview of the Competition Act. The acquisition of enterprises by persons, the acquisition of
control by enterprises, and the merger or amalgamation of enterprises is considered
combinations when their asset value and turnover cross certain threshold limits. S. 5 contains
provisions regarding acquisitions, acquiring of control, mergers and amalgamations.
However, the Competition Act, 2002 does not delve into the repercussions of arrangements on
competition. The Companies Act, 1956, s. 390 (b) defines the term arrangement as ‘including
a re-organisation of the share capital of the company by the consolidation of shares of different
classes, or by the division of shares into shares of different classes or, by both those methods’.
This term is of wide import and includes all modes of re-o rganisation of the share capital,
takeover of shares of one company by another including interference with preferential and other
special rights attached to shares. Arrangements may have dire consequences on competition
and must, therefore, be specifically included in the provisions regarding combinations under
the Competition Act, 2002.
The Raghavan Committee (the committee that introduced the enactment) had suggested much
lower limits than those mentioned above. But these limits were raised for the reason, that very
few Indian companies are of international size and in the light of continuing economic reforms,
opening up of trade, and foreign investment, a great deal of corporate restructuring is taking
place in the country and that there is need for mergers, amalgamations as part of the growing
economic process. This change also resulted in the exclusion of more enterprises with a lower
asset value and turnover from the purview of this stipulation. It must be noted that although s.
5 limits its application to companies with the prescribed asset value and turnover limit, smaller

19
companies are kept from being anti-competitive by virtue of Competition Act, 2002, s. 4 which
prevents a company from abusing its dominant position.
Moreover, another prevailing dissenting opinion seems to be that a company’s assets do not
accurately reflect the company’s presence in the market and instead only the turnover test
should be used to check whether a merger leads to a monopoly or not. Therefore the cap of Rs.
1,000 crores of assets on mergers between single entities and of Rs.4,000 crores in case of
groups should be done away with. The Competition Act, 2002, s. 6(2) gives enterprises and
persons the option to notify the CCI of the proposed combination. However, it is subject to s.
6(1), which renders the proposed combination, if it has an adverse effect on competition, void
ab initio. Furthermore, pursuant to the Competition Act, 2002, s. 20(1), the CCI can inquire
into any combination, suo moto or upon receiving information, within one year from when
such combination takes effect. The pre-notification option granted to enterprises under s. 6(2)
and the power of the CCI to inquire suo moto under s. 20 may lead to an anomalous situation,
since companies that do not exercise their option under s. 6(2) are not automatically exempt
from the investigations of the CCI.

Example:
Company ‘A’ merges with company ‘B’. A and B do not consider their merger anti-competitive
even though they have an asset value and turnover above the prescribed threshold limit. The
two companies do not notify the CCI about their merger. The companies invest a large amount
on their merger within the first six months. The CCI on receipt of information from a
competitor carries out an inquiry and passes a judgment within one year of the merger, that the
merger has an adverse effect on competition and must not take effect. In this case, the two
merged companies will incur huge losses as a result of the CCI’s order.
All these inconsistency may be removed by making pre-notification of combinations
mandatory for all enterprises that have the prescribed asset value and turnover. Competition
Act, 2002, s. 6 refers to ss. 29, 30 and 31, which provide the procedure for investigation into
the combination by the CCI. By virtue of s. 29(1), the CCI may issue a notice to the parties to
a combination that the CCI considers anti-competitive, to show cause against an investigation
into the combination. Under s. 29(2), the CCI may require the parties to a combination to
publish the details of the combination. Pursuant to s. 29(3), the CCI may invite any person or
member of the public affected or likely to be affected by the combination, to file a written
objection. This provision gives the CCI excessive discretion to decide as to which persons are
eligible to be invited to file their objection against the combination. The provision must,
therefore, be amended to allow anyone affected by the combination to file a written objection
against the combination.
Pursuant to the Competition Act, 2002, s. 31(2), the CCI may direct that the combination will
not take place, if it is of the opinion that the combination will have an appreciable adverse
effect on competition. S. 20(4) sets out the factors that the CCI must consider while determining
whether a combination has an adverse effect on competition.
Under s.31(3), the CCI may also propose a modification to such combinations. However, the
CCI must pass an order with respect to the combination within 90 days of the publication under
s. 29(2), failing which, the combination is deemed to be approved by the CCI. And even though
it might be asking for too much from the ‘already struggling to keep pace jury’, the 90 day rule
if reduced to 30 days, might prevent unnecessary delays.

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International Transactions
Competition Act, 2002, s. 32 permits the CCI to inquire into agreements, abuse of dominant
position, or combinations taking place outside India, if they have or are likely to have an
appreciable adverse effect on competition in the relevant market in India. As a result of a
recession in the global market, a large number of companies are merging with other companies
in order to consolidate their position. Consider a situation where there is a merger between tw
o enterprises abroad, such as Compaq and Hewlett Packard, which have subsidiaries in India.
The CCI will have the power to inquire into the combination abroad by virtue of s. 32.
Therefore, international companies having subsidiaries in India will have to adhere to the
provisions of the Competition Act, 2002, ss. 3, 4 and 5 when enacted. Referring to the above
instance of Hewlett Packard and Compaq, if their asset value and turnover exceed the
prescribed limits, they will have to notify the CCI about their combination.
Some critics of this enactment feel that the Committee’s fear of mergers seems to stem from
the fear that they would lead to monopolies that may hamper competition. But there seems to
be no reason why these may not be considered by the high courts, which necessarily have to
approve mergers under the Companies Act, 1956.
Hence instead of an additional set of procedures before the Competition Commission that may
lead to a delay, these issues may be addressed in a holistic and cohesive manner by the high
court, where the commission may play an advocacy role. However, it is easy to point to the
Microsoft’s case in the US in support of the Committee’s recommendation for the creation of
a regulatory authority to prevent abuse of dominance.

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 CONCLUSION

International examples can be of some assistance for the purpose of serving a broad guideline
or a roadmap. They cannot be definitive for other jurisdictions where the legal systems are
differently positioned. The routes taken by Europe and US need not be necessarily followed
by India. They can be digressed from and other alternatives more suitable to the mores and
needs of socio-economic scenario of India can be followed. In fact, the legislative and
administrative mechanism for cross border merger control as prevalent in US and Europe can
serve little purpose while determining the competition policy for India.
Practical experience has shown that the majority of mergers notified are cleared quite
quickly. The Competition Act, 2002 itself lays down stringent time lines – the Commission
must take a view within 90 working days from the day it has obtained complete information
failing which the merger is deemed to have been approved . Further, the Commission may
initiate suo-motu enquiry into merger only within a period of one year from the day the
merger has taken effect . These provisions adequately dispel any apprehension of inordinate
delay or unbridled scrutiny into mergers Further global experience suggests that hardly four
per cent of the all notified mergers are taken up for a detailed scrutiny by the competition
authorities, of which 50 per cent are approved, and a further 25 per cent are approved with
modifications.
Even the proposed merger of the two largest steel producers in the world did not attract many
competition concerns. Whereas the US authorities have already cleared the proposed merger,
recent news reports indicate that the controversial Mittal Steel/ Arcelor takeover bid which
has been notified to the European Commission will be cleared ‘due to the largely
complementary nature of the combined group’ .In other cases, where the authority comes to
the conclusion that a proposed merger would lead to an appreciable adverse effect on
competition, it may yet allow the merger but subject to one of several directions including
divestment, requiring access to essential inputs/ facilities, dismantling exclusive distribution
agreements, removing no -competition clauses, imposing price caps or other restraints on
prices, refrain from conduct inhibiting entry, and so on.
The Commission needs to swing into action undertaking substantial capacity building to
implement the extra territorial jurisdiction that is embodied in the Competition Act, 2002. As
India integrates at a fast pace with the global economy there is a need to ensure international
co-operation to tackle cross border challenges.

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 REFERENCE BOOKS/ SITES
PRIMARY SOURCES

1) Competition Commission of India (Procedure in regard to the transaction of Business

relating to Combinations) Regulations 2011. Also available at
http://www.cci.gov.in/sites/default/files/regulation_pdf/Combination%20Regulations
%202016%20-%20FINAL.pdf
2) Competition Act 2002
3) Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeover) Regulations, 2001.
4) 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
5) D.P. Mittal, Competition Law and Practice, Taxmann Publications (P.) Ltd.,
6) Hari Krishan, “A Review of Mergers and Acquisitions in India”, A Research Paper
7) Renuka Medury and Rinie Nag, “Cross-border Mergers: Implications under the
Competition Act, 2002”, SEBI and Corporate Laws.

SECONDARY SOURCES:

1) Official website of Competition Commission of India. Also available at

http://www.cci.gov.in/.

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