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Impact of competition laws
on domestic and foreign
Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
INTRODUCTION • Scope of CCI - CCI shall look into any alleged violations
under the Act, (a) either on its own motion, or (b) on
scenario in India and abroad. enterprise abuses its dominant position is outside India; or
a combination has taken place outside India; or any party
The Competition Act has repealed the Monopolies and to combination is outside India; or any other matter or
Restrictive Trade Practices Act, 1969 and has dissolved the practice or action arising out of such agreement or
Monopolies and Restrictive Trade Practices Commission. dominant position which causes an appreciable adverse
The cases pending before the MRTP Commission are effect on competition in the relevant market in India.
transferred to Competition Commission of India “CCI”, • Powers of CCI-- CCI has the power
barring those which are related to unfair trade practices and • to grant interim relief award compensation,
the same are proposed to be transferred to the National • impose penalty and
Commission constituted under the Consumer Protection Act, • to grant any other appropriate relief.
1986.
• to levy penalty for contravention of its orders,
making of false statements or omission to furnish
material information, etc.
HIGHLIGHTS OF COMPETITION ACT 2002
• Division of dominant enterprise— CCI can recommend
the Central Government division of a dominant enterprise
• It provides for the establishment of a Competition
to ensure that it does not abuse its position. On the
Commission of India “CCI” to prevent practices having
recommendation, the Central Government under Section
adverse effect on competition, to promote and sustain
28 may direct division of such an enterprise.
competition in markets, to protect interests of consumers
and to ensure freedom of trade carried on by other • Extent of penalty— For abusing its dominant position or
participants in markets. entering in anticompetitive agreements, CCI can levy
penalty to the extent of 10 per cent of the average of the
• CCI prohibits enterprises to enter into anti-competitive
turnover for the preceding three financial years. The
agreements, abusing their dominant position and forming
penalty is higher in case of such abuses by cartels and
combinations.
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
penalty can be equivalent to three times of the amount of competition for bids or adversely affecting or manipulating
the process for bidding.
profits made out of such agreement by the cartel or ten
per cent of the average turnover of the cartel for the (4) Any agreement amongst enterprises or persons at
different stages or levels of the production chain in
preceding three financial years.
different markets, in respect of production, supply,
• Appeal from CCI.—Any person aggrieved by any distribution, storage, sale or price of, or trade in goods
or provision of services, including-
decision or order of CCI may file an appeal to the
(a) tie-in arrangement;
Supreme Court within 60 days from the date of the (b) exclusive supply agreement;
communication of the decision or order. (c) exclusive distribution agreement;
(d) refusal to deal;
(e) resale price maintenance,
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
(ii) the right of any person to export goods from India to Section 5. Combination- The acquisition of one or more
the extent to which the agreement relates enterprises by one or more persons or merger or
exclusively to the production, supply, distribution or amalgamation of enterprises shall be a combination of such
control of goods or provision of services for such enterprises and persons or enterprises, if—
export. Prohibition of abuse of dominant position
(a) any acquisition where—
Section 4. Abuse of dominant position-
(1) No enterprise shall abuse its dominant position. (i) the parties to the acquisition, being the acquirer and
(2) There shall be an abuse of dominant position under the enterprise, whose control, shares, voting rights
sub-section (1), if an enterprise,- or assets have been acquired or are being acquired
(a) directly or indirectly, imposes unfair or jointly have,—
discriminatory-
(i) condition in purchase or sale of goods or (A) either, in India, the assets of the value of
service; or more than rupees one thousand crores or
(ii) price in purchase or sale (including predatory turnover more than rupees three thousand
price) of goods or service. crores; or
Explanation- For the purposes of this clause, the unfair or (B) in India or outside India, in aggregate, the
discriminatory condition in purchase or sale of goods or assets of the value of more than five
service referred to in sub-clause (i) and unfair or hundred million US dollars, including at least
discriminatory price in purchase or sale of goods (including rupees five hundred crores in India, or
predatory price) or service referred to in sub-clause (ii) shall turnover more than fifteen hundred million
not include such discriminatory condition or price which may US dollars, including at least rupees fifteen
be adopted to meet the competition; or hundred crores in India; or
(b) limits or restricts- (ii) the group, to which the enterprise whose control,
(i) production of goods or provision of services or shares, assets or voting rights have been acquired
market therefore; or or are being acquired, would belong after the
(ii) technical or scientific development relating to acquisition, jointly have or would jointly have,—
goods or services to the prejudice of
consumers; or
(c) indulges in practice or practices resulting in denial (A) either in India, the assets of the value of
of market access; or more than rupees four thousand crores or
(d) makes conclusion of contracts subject to turnover more than rupees twelve thousand
acceptance by other parties of supplementary crores; or
obligations which, by their nature or according to
commercial usage, have no connection with the (B) in India or outside India, in aggregate, the
subject of such contracts; or assets of the value of more than two billion
(e) uses its dominant position in one relevant market to US dollars, including at least rupees five
enter into, or protect, other relevant market. hundred crores in India, or turnover more
than six billion US dollars, including at least
Explanation-For the purposes of this section, the rupees fifteen hundred crores in India; or
expression-
(b) acquiring of control by a person over an enterprise when
(a) "dominant position" means a position of such person has already direct or indirect control over
strength, enjoyed by an enterprise, in the another enterprise engaged in production, distribution or
relevant market, in India, which enables it to- trading of a similar or identical or substitutable goods or
(i) operate independently of competitive provision of a similar or identical or substitutable
forces prevailing in the relevant market; or service, if—
(ii) affect its competitors or consumers or the
relevant market in its favour;
(b) "predatory price" means the sale of goods or (i) the enterprise over which control has been acquired
provision of services, at a price which is below along with the enterprise over which the acquirer
the cost, as may be determined by regulations, already has direct or indirect control jointly have,—
of production of the goods or provision of
services, with a view to reduce competition or (A) either in India, the assets of the value of more
eliminate the competitors. than rupees one thousand crores or turnover
more than rupees three thousand crores; or
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
(B) in India or outside India, in aggregate, the Explanation— For the purposes of this section,—
assets of the value of more than five
hundred million US dollars, including at least (a) "control" includes controlling the affairs or management
rupees five hundred crores in India, or by—
turnover more than fifteen hundred million (i) one or more enterprises, either jointly or singly,
US dollars, including at least rupees fifteen over another enterprise or group;
hundred crores in India; or (ii) one or more groups, either jointly or singly, over
another group or enterprise;
(ii) the group, to which enterprise whose control has
been acquired, or is being acquired, would (b) "group" means two or more enterprises which, directly
belong after the acquisition, jointly have or would or indirectly, are in a position to —
jointly have,— (i) exercise twenty-six per cent. or more of the voting
rights in the other enterprise; or
(A) either in India, the assets of the value of (ii) appoint more than fifty per cent. of the members of
more than rupees four thousand crores or the board of directors in the other enterprise; or
turnover more than rupees twelve thousand (iii) control the management or affairs of the other
crores; or enterprise;
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
bank or venture capital fund, pursuant to any covenant (3) The Commission may invite any person or member of
of a loan agreement or investment agreement. the public, affected or likely to be affected by the said
(5) The public financial institution, foreign institutional combination, to file his written objections, if any, before
investor, bank or venture capital fund, referred to in sub- the Commission within fifteen working days from the
section (4), shall, within seven days from the date of the date on which the details of t e combination were
acquisition, file, in the form as may be specified by published under sub-section (2).
regulations, with the Commission the details of the
acquisition including the details of control, the (4) The Commission may, within fifteen working days from
circumstances for exercise of such control and the the expiry of the period specified in sub-section (3), call
consequences of default arising out of such loan for such additional or other information as it may deem
agreement or investment agreement, as the case may fit from the parties to the said combination.
be.
Explanation- For the purposes of this section, the (5) The additional or other information called for by the
expression- Commission shall be furnished by the parties referred to
(a) "foreign institutional investor" has the same in sub-section (4) within fifteen days from the expiry of
meaning as assigned to it in clause (a) of the the period specified in sub-section (4).
Explanation to section 115AD of the Income-tax
Act, 1961 (43 of 1961) (6) After receipt of all information and within a period of
(b) "venture capital fund" has the same meaning as forty-five working days from the expiry of the period
assigned to it in clause (b) of the explanation to specified in sub-section (5), the Commission shall
clause (23FB) of section 10 of the Income-tax Act, proceed to deal with the case in accordance with the
1961 (43 of 1961). provisions contained in section 31.
Section 18. Duties of Commission- Subject to the Section 30. Inquiry into disclosures under sub-section
provisions of this Act, it shall be the duty of the Commission (2) of section 6-
to eliminate practices having adverse effect on competition,
promote and sustain competition, protect the interests of Where any person or enterprise has given a notice under
consumers and ensure freedom of trade carried on by other sub-section (2) of section 6, the Commission shall inquire-
participants, in markets in India:
Section 29. Procedure for investigation of combinations- 1) Where the Commission is of the opinion that any
combination does not, or is not likely to, have an
(1) Where the Commission is of the opinion that a appreciable adverse effect on competition, it shall, by
combination is likely to cause, or has caused an order, approve that combination including the
appreciable adverse effect on competition within the combination in respect of which a notice has been given
relevant market in India, it shall issue a notice to how under sub-section (2) of section 6.
cause to the parties to combination calling upon them to
respond within thirty days of the receipt of the notice, as 2) Where the Commission is of the opinion that the
to why investigation in respect of such combination combination has, or is likely to have, an appreciable
should not be conducted. adverse effect on competition, it shall direct that the
combination shall not take effect.
(2) The Commission, if it is prima facie of the opinion that 3) Where the Commission is of the opinion that the
the combination has, or is likely to have, an appreciable combination has, or is likely to have, an appreciable
adverse effect on competition, it shall, within seven adverse effect on competition but such adverse effect
working days from the date of receipt of the response of can be eliminated by suitable modification to such
the parties to the comb nation, direct the parties to the combination, it may propose appropriate modification to
said combination to publish details of the combination the combination, to the parties to such combination.
within ten working days of such direction, in such
manner, as it thinks appropriate, for bringing the 4) The parties, who accept the modification proposed by
combination to the knowledge or information of the the Commission under sub-section (3), shall carry out
public and persons affected or likely to be affected by such modification within the period specified by the
such combination. Commission.
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
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An anti-competitive agreement is an agreement having Any person, consumer, consumer association or trade
appreciable adverse effect on competition. Anti-competitive association can provide information relating to anti-
agreements include, but are not limited to:- competitive agreements and abuse of dominant position.
• A person includes an individual, Hindu undivided family
• Agreement to limit production and/or supply; (HUF), company, firm, association of persons (AOP),
• Agreement to allocate markets; body of individuals (BOI), statutory corporation statutory
• Agreement to fix price; authority, artificial judicial person, local authority and
• Bid rigging or collusive bidding; body incorporated outside India.
• Conditional purchase/sale (tie-in-arrangement); • A consumer is a person who buys products (goods and
• Exclusive supply/distribution arrangement; services) for personal use or for other purposes.
• Resale price maintenance; and • Intermediate customers can also provide information.
• Refusal to deal.
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
• After the inquiry, the Commission may direct a FILING WITH COMMISSIONN BY COMPANIES
delinquent enterprise to discontinue and not to re-enter
anti-competitive agreement or abuse its dominant An entity proposing to enter into a combination, shall notify
position (cease and desist order). The Commission may the Commission in the specified form disclosing the details
also direct modification of such agreement. of the proposed combination within 30 days of the approval
• The Commission may direct division of enterprise in of such proposal by the Board of Directors or execution of
case it enjoys dominant position. any agreement or other document.
Broadly, combination includes acquisition of control, shares, The Commission now provides for a post-filing review period
voting rights or assets, acquisition of control by a person of 210 days, during which the merger cannot be
over an enterprise where such person has control over consummated and within which the Competition Commission
another enterprise engaged in similar businesses, or is required to pass its order with respect to the notice
mergers and amalgamations between or amongst received. If the commission fails to pass an order within the
enterprises where the total assets or turnover of the time limit, the proposed combination will be deemed to be
combined entity exceed the thresholds specified in the Act in approved. The 210-day period applies in case of cross-
terms of assets or turnover. If a combination causes or is border transactions outside India where one of the
likely to cause an appreciable adverse effect on competition contracting parties has a substantial presence in India.
within the relevant market in India, it is prohibited and can be Regardless of the size of the transaction, notification is
scrutinized by the Commission. required where the combined asset value or turnover in India
exceeds a certain value. This means that it is mandatory for
a foreign company with assets of more than $500 million that
APPLICABILITY ON INDIAN & FOREIGN ENTITIES has a subsidiary or joint venture in India with a substantial
investment (above $125 million) to notify the Competition
The Indian and foreign companies will fall under the Act only Commission before acquiring a company outside India.
ASSETS TURNOVER
FILING FEES TO COMMISSION
No Group INR 1000 Cr. INR 3000 Cr.
In
India The notice must be accompanied by a fee of approximately
Group INR 4000 Cr. INR 12,000 Cr.
$50,000, which may increase to $100,000 in certain cases.
ASSETS TURNOVER
Further, the Competition Commission will issue a show-
In Total India Total India
India cause notice if it is of a prima facie opinion that the
and combination is likely to cause an appreciable adverse effect
USD INR USD USD
Outsi No Group
500 mn 500 Cr. 1500 mn 1500 Cr.
de on competition in India. A fee of $40,000 is to be filed along
USD INR USD USD with the response to the show-cause notice. In addition, the
Group
2000 mn 500 Cr. 6000 mn 1500 Cr.
Competition Commission has the power to compel parties to
1 Cr = 10 million (mn) publish the details of a proposed combination to enable any
person from the public to raise objections to such
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
combination. Such publication burdens parties with an amalgamation falling within the ambit of the thresholds
additional sum of $40,000. constitutes a combination.
If the Commission is of the opinion that a combination is territorial nexus with India. Under the originally enacted
likely to cause or has caused adverse effect on competition, Competition Act 2002, the reporting of a combination was
it shall issue a show cause notice to the parties as to why optional. However, the act now mandates notification within
investigation in respect of such combination should not be 30 days of the decision of the parties' boards of directors or
conducted. On receipt of the response, if Commission is of of execution of any agreement or other document for
the prima facie opinion that the combination has or is likely effecting the combination. The general industry perception is
to have appreciable adverse effect on competition, it may that a memorandum of understanding or a letter of intent will
direct publication of details, inviting objections from the qualify as an 'agreement'. However, these are generally
public and hear them, if considered appropriate. It may invite executed to spell out a basic understanding among the
any person, likely to be affected by the combination, to file transacting parties and to enable the acquirer to conduct due
his objections. The Commission may also inquire whether diligence, based on which further negotiations are carried
the disclosure made in the notice is correct and combination out. Going forward, execution of such a document shall
is likely to have an adverse effect on competition. trigger merger filings. This will increase compliance costs at
a premature stage when it is uncertain whether the
transaction will close. It will also add to the bulk of
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
effect on competition in the relevant market in India Law regime in India a host of issues need to be looked into
then- as far as cross border merger regulation is concerned and
recognize the need to find a purposive solution to the
(a) it shall issue a show cause notice to the parties to possible conflicts and grey areas.
such combination to respond within 30 days as to
why investigation shall not take place against them;
(b) it shall direct the parties to such combination within UNITED STATES ANTI-TRUST LAWS
seven working days after receiving response from
the parties as to publish details of such combination Antitrust law was enacted in the U.S. in 1890 primarily to
to the knowledge of the affected persons; control the concentration of economic and industrial power.
(c) it shall direct for suitable modifications in such However, Section 7 of the Clayton Act is the primary
combination if such adverse effect can be legislation in the U.S. governing mergers and acquisitions,
eliminated; but limits itself to the territory of the United States. The
(d) it shall direct that the combination shall not take Clayton Act applies to both mergers with immediate
effect. anticompetitive effects and those that have a future
probability of substantially reducing competition. In addition,
the principal legislation Sherman Act broadly states that
EXTRA-TERRITORIAL JURISDICTION every contract, combination, or conspiracy that restrains
trade or commerce among the states, or with foreign nations,
The Competition Act explicitly allows the Competition is illegal and that every person who monopolizes, or
Commission to examine a combination already in effect attempts to monopolize is guilty of a felony.
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 EU COMPETITION LAWS
Commission to extend its jurisdiction beyond the Indian
shores and declare any qualifying foreign merger or European competition law is governed primarily by Articles
acquisition as void. An 'appreciable adverse effect' on 85 and 86 of the Treaty Establishing the European
competition means anything that reduces or diminishes Community. Article 85 is designed primarily to achieve the
competition in the market. Unlike sector specific regulatory same goal as the Sherman Act in U.S. legislation insofar as
authorities, the Commission combines the twin powers of it prohibits all agreements and concerted practices that affect
private enforcement and the ability to pursue claims for trade among E.U. members and which have as their main
damages. objective the prevention, restriction or distortion of
competition. Article 86 is designed to meet the policy
The COMPETITION ACT enables the Commission to objectives of the Clayton Act in that it prohibits the abuse of
smoothen and accelerate the exercise of its power by way of a dominant market position through unfair trading conditions,
entering into arrangements and memorandum of pricing, limiting production, tying, and dumping. The
understandings with the regulatory bodies of other countries European Court of Justice (E.C.J.) has also adopted a
in order to facilitate the entire process. Cross border merger similar approach to extraterritorial enforcement of
regulation in India has only been partly taken care under the competition laws than that of U.S. courts.
regulatory landscape of Securities and Exchange Board of
India (SEBI). With the emergence of the new Competition
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
1
Article 4 of the Merger Regulation of European Commission
states that merger shall be notified to the Commission prior
1
COUNCIL REGULATION (EC) No 139/2004 of 20 January 2004 2 Implementing Council Regulation (EC) No 139/2004 on the control
on the control of concentrations between undertakings (the EC of concentrations between undertakings
Merger Regulation)
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Impact of competition laws
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Competition laws in India – Analysis & Comparison M&A, takeovers, JVs & like alliances
CONCLUSION
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