COMPETITION ACT 2002

PRESENTED BY

Amber Thakur Vatsal Chauhan Harit Kadam Jignesh Kalsaria

128050592001 128050592017 128050592044 128050592047

INTRODUCTION

India has for a very long period adopted policies of control. In the earlier days, the competition law of India was the monopolies and restrictive trade practices act, 1969(MRTP ACT).

Keeping in tune with the new economic policy, India enacted a new competition law called the competition act 2002. The new law was designed to repeal the extant MRTP act. The new law initiated the process of constituting the regulatory authority, namely, the competition commission of India.

The competition act 2002 is essentially divided in to four compartments:

Anti Competition Agreements Abuse of dominance Combinations regulations Competition advocacy

EXAMINE THE ACT DETAIL

Competition act 2002 replaces the MRTP act 1969. The competition Act has been enacted with the following objectives:

Preventing practices that have an adverse effect on competition. Promoting and sustaining competition in markets. Protecting the interest of consumers. Ensuring freedom of trade carried on by other markets participants in India

The act states that no person or enterprise shall enter into a combination, in the form of an acquisition, merger, or amalgamation that causes or is likely to adversely impact. The enterprise desiring to enter into a combination are required to give a notice to the commission to that effect, although it is voluntary. All combinations are not subject to scrutiny unless they exceed the threshold limits in terms of assets or turnover specified by the competition commission of india

COMBINATION UNDER COMPETITION ACT,2002

combination includes acquisition of control, shares voting rights, or assets or acquisition of control by a person over an enterprise. The person concerned controls another enterprise engaged in competing business, and mergers and amalgamation between the entities is made difficult by the thresholds specified in the act in term of assets or turnover

The following section discuss these provision

Section 3 The section governs anti-competitive agreements and prohibits agreements that are capable of generating an adverse effect on competition such as the following.

Production Supply Distribution Storage Acquisition or control of goods Provision of services

Section 4
This section prohibits the abuse of a dominant position by an enterprise. Under the monopolies act, a threshold of 25% constituted a position of strength. section 6 A combination is a merger of two enterprises of acquisition of control, shares, voting rights or assets of an enterprise. The section states that an enterprise that enter into combination that is likely to cause adverse effect on competition is avoid

The commission, while regulating a combination, considers the following factors existing in the market
Actual and potential competition on account of imports Extent of entry barriers Level of combination Degree of countervailing power Nature and extend of vertical integration Nature and extend of innovation Extent of effective competition likely

MERGER AND EFFECTS

A merger represents a transaction that aims at bringing about change in the control of different business entities enabling one business entity to control a significant part of the assets or decision making process of another.

While a merger may perceived as a normal activity within the economy and an effective tool competition.
Companies enter in to merger for they think it is a tool of achieving market power, which in affects competition negatively.

The aspects of mergers covered under the act include the following:

Acquisition of shares Voting rights Assets or acquisition of control an enterprise

Mergers are anti competitive because of the following factors:

Increase the market share of the merged entity. Enable the merged entity to exercise market power and impact prices restrict output, increase cost of rivals, increase entry barrier, etc.

THRE SHOLD LIMITS UNDER COMPETITION ACT, (2002) The entities merging together are required to give notices to the competition commission of India (CCI) subject to the following conditions:

within 30 days of the approval of the proposal relating to the merger by the board of directors of the companies, or execution of any agreement/document for acquisition no combination can come into effect unless 210 days have passed from serving such notice to the CCI or grant of grant approval by CCI, whichever is earlier

The threshold limit for entities merging in term of assets or turnover under the competition act,2002 is as follows:
In India the acquiring and the acquisition entities jointly have assets of more than Rs. 10 billion, or turnover of more than Rs.30 billion, or the group has assets of more than Rs.40 billion, or turnover of more than Rs.120 billion.

In India or outside India the acquiring and the acquired entities jointly have assets of more than $500 million (including> Rs. 5 billion in India),or turnover of more than $1500 million (including > Rs.15 billion in India) or the group has assets more than $2000 million (including > Rs.5 billion in India),or turnover of more than $6000 million (including > Rs.15 billion in India)

Conclusions

The Competition Act, 2002 contains a comprehensive Merger review process. It brings various new concepts under the provision of combinations like relevant market, assets/turnover outside India and the new test of appreciable adverse effect etc. Undoubtedly, the Competition Act will play a significant role in the development of the Indian economy. Indian markets cannot function in isolation; they need to align themselves with their investors in an increasingly flat world.

Case Study
JET SAHARA MERGER WITH AIR SAHARA On January 19, 2006 Jet Airways announced that it was to buy Air Sahara for $500 million in an all-cash deal. Everything, including Sahara's assets and infrastructure, would belong to Jet Airways. This deal would have been the biggest in India's aviation history and the resulting airline the country's largest, had it gone through.

Market Reaction Market reaction to the deal was mixed, with many analysts suggesting that Jet Airways was paying too much for Air Sahara. The deadline for the deal to be completed was June 21, 2006, but in the days before this, the chances of the takeover being completed began to look shakier. Jet Airways claimed that a final sticking point was the government's delay in approving Jet chairman Naresh Goyal's appointment to the Air Sahara board. Air Sahara countered that Jet Airways had engineered this impasse by delaying the request for such approval, as a way of extricating themselves from a deal they now regretted.

Jet was said to be willing to go ahead with the deal only if the originally agreed price was lowered by 20-25% on the basis of Air Sahara's mounting debts, an option which was firmly rejected by Air Sahara. Finally both sides confirmed that the deal was off. Following the failure of the deals, the companies have now filed lawsuits seeking damages from each other.