Chapter 5 NATIONS GLATION OF COMBI RESECTION 5 AND SECTION 6) ee lobalization of trade and commerce has been OF ee Seal aes giving rise to global corporations. So, Praca arises, why multinational compersons prefer EES 4 ‘A merger is sought to be effected for a variety of Se It is ms inexpensive way of entering into anew activity or anew mar! et; ty ie the opportunity to use the spare capacity in the acquiring company with the assets of the other company; where the companies are under the control of the same group, a merger may be seen as a means of effecting economies in making a company just an another unit of another company. A merger may also help rationalization of operations or advance synergies in management; and provide ameans for tax saving in that the losses of the transferor company may be set off against the profits of the remaining company. Another advantage of a merger would be saving in stamp duty on the sale of large assets by one company to another.' | ens Mergers are Considered to by activity whi ployment and most of the times ISN coe there is Ho collusive activity there is yee Ro harm on the a investment, Tf Scanned wth CamSeanner52 Competition Lay Before the dawn of liberalization of economy in India, there was on for a merger policy, particularly one with a view to Protect COMPetition, However, in the wake of liberalization and a need to re-organize the enterpri it was deemed necessary to make provisions for merger control towarg, avoiding its anti-competitive effects and provide for an appropriate Competition policy for the country. This was sought to be achieved through enacting the Competition Act, 2002 and one such reorganization are the Merger regulations contained in the Act. Merger control is one aspect of the law relating to the protection of competition. The Act contains adequate provisions for the tegulation of mergers, amalgamations and acquisitions. The Act uses composite expression—combination—to cover these modes, viz, Merger, acquisition of shares, assets, acquiring control of an enterprise. Section 5 of; the Act deals with combination of enterprises and persons. It makes provision for what would amount to a combination that would require regulation under the provisions of section 6 of the Act. The provisions of the Act Telating to regulation of combinations have been enforc: ed with effect from Ist June, 20112 The Act contains adequate amalgamations and acquisitions. The Act uses a ci have been enforced with effect from Ist June, 20113 The entities that want to enter into combinations shall noti fy the Commission inthe specified form disclosing the detail er ascot within 30 days of approval of the dessin by the board wfdpe och as period applies in case of cross border: transactions. It ig mean: as company with assets of more than $500 million that has ae i with a substantial investment to notify the Commission pea company outside India. aati tion 5)" mbination [Sect , 5 Co ction 5 of the Act defines ‘combination’ to mean Acquisition of one of Se terprises by one oF more persons or merger or amalgamation of more en “Competition Law in India’, Serial Publications, p. 62. 2, Burhan Majid, mment notifications 8.0: 478(E) dated 4th March, 201. 35am Cte poco oT ae cane e a Q.1, Descri lysing the combina ormining appreciable adverse attests on while analyS" ‘Act, 2002 for tl LL.B,, 2017] the Competition Ch ae Scanned wth CamSeanner53 (Section 5 and Section 0 Wlation of Combiner” includes aca ontrol by @ : abi i enterprises, Broadly; © ition of © P Seana i sit rise engaged in competing voting rights or assets I over another enterP! gi where such person has © ations between or amongst enterprises is i i ets OF businesses, and mergers Ids specified in the Act in terms of ese a where these exceed the h ikely to cause an apprecial lez ° tumover. Ifa combination India, it is prohibited an esos arket in t mar! * effect on competition within the sae ‘The Act provides for thresholds in can be scrutinized by the Commissi9™ cation of combination to the terms of assets/turnover for mandatory Commission. Fae i ich a merger, acquisition Thus, Section 5 specifies a threshold ea ger, acd or acquiring of control is not regarded as 2 COMMIS” a eins In simple language, Section 5 states that combination ae ke Sai threshold limits specified in the Act in terms of assets Or 5 a causes or is likely to cause an appreciable adverse impact on competi within the relevant market in India, can be scrutinized by the CCI. The threshold limits are specified in terms of assets or turnover. The threshold limits are different according to whether the combination involves an enterprise ora group, and also whether the combination has assets or turnover only in India or worldwide. In order to estimate whether a particular transaction is “Combination” and falls under the provisions of Competition Act, 2002, first it is important fo understand the following: (a) The nature of Transaction (b) The values involved in Transaction (Threshold Limits) (A) NATURE OF TRANSACTION ‘Combinations” under Section 5 of the Act includes the following three ‘Ypes of transactions:— 1. Acquisition 2. Acquiring of Control by a person over an. Enterprise >. Merger or Amalgamation sition of control, shares, person over an enterprise 1 Acquisition ; sy ton has bean defined under Secon 24) fe AL ERIE lon’ means ‘acq ring oF cartes a? di or indirectly, of: shares, voting rights, or assets of an enterprise; OF } p Control over management; or A) control over the assets of an enterprise. Scanned wth CamSeanner5.4 Thu: iti He the definition of ‘acquisition’ includes all forms whether direct or indirect. 2. Acquiring of Control by a person over an Enterprise The Act further covers any acquisition of “Control” PY an “Enterprise” where: (@_ such person has direct or i (ji) the any other enterprise fs also in pr’ of: (a) similar goods or services; OF (b) identical goods or services; OF (c) substitutable goods or services, " peing acquired. as that of the Enterprise whose control is or body corporate i son” Over 3 “Pe enterprise and, ndirect control on AY OF i n oe production jgtribution OF trading Here a ‘person’ includes an individual defined unde the Act. 3. Merger or Amalgamation The term merger or Amalgamation has not the Act, though the meanings of the same may of the Income tax ‘Act, 1961 to mean the merger ©) with another company OF the merger of two or more company in such a manner that: + All properties of the amalgamating ©’ the amalgamation become the prop company; Allliabilities of the amalgamating companies immediately before tt amalgamation become the liabilities of the amalgamated company Shareholders holding not Jess than three-fourths in value of the sto in the amalgamating companies (other than share already. peldthe immediately before the amalgamation by or bya nominee 1% amalgamated arehotders fe been defined specifically under be drawn from Section 2(1B) ff one or more companies ‘companies to form one mpanies immediately befor erties of the amalgamt company or its subsidiary) become $ amalgamated company. TYPES OF MERGERS e world ‘mergers’ are of following three types’ In thr corporat qa) Horizontal Mergers (2) Vertical Mergers Conglomerate Mergers @) ‘Scanned wih CamScanner(1) Horizontal Mergers The most common i . These types of mergers are Horizontal Mergers. as mergers have effect on market concentration and use of market powers these mergers result in: (a) Reduction in numbers of Market Players (b) Increase the market share of merged entity Example of Horizontal Merger: Entity X Limited } Han Manuicturing Product A__Mereed to Form Entity Z Limited X Limited Any adverse effect on Market by Horizontal Merger may be majorly in case of non-coordinated or unilateral actions by players to mergers. This means that when as result of merger, the number of players get reduced and their powers increase, and they are in position to increase profit margins orable to reduce outputs, quality or variety. Factors which may be relevant to determine whether coordinated or unilateral effect occur due to any Allyay merger may be as following: tong (a) High market concentration ia (b) Restricted consumer choice t (c) Weak competitive constraints from other market players (d) Buyer power ly be fad (e) Elimination of potential competitive new entrants etc. (2) Vertical Mergers (bel! Vertical mergers occurs when two entities which operate at different cotl# | but complementary levels of production chain. Vertical Mergers can further fie be segregated as: wa (@) Backward Integration st (&) Forward Integration dl ye, Examples of Vertical Merger @) Merger between raw material supplier and manufacturer of Final Product is an example of Backward integration 6 ® Merger between manufacturer and retailer is an example of Forward Integration. ty ' ! Al bs NY adverse Potent ese etlect of vertical merger can happen in case where there “ential for “Foreclosure of the Market Players”. There can be two 5) 8: Scanned wth CamSeanner5.6 Competition a (a) Input Foreclosure (b) Customer Foreclosure Input foreclosure may occur when the Merged entity have Potengi, to likely restrict the product or services in the downstream marker : other market players and thereby increasing cost of production, leading 4 higher cost for consumers, Customer foreclosure may occur where the supplier is likely 4. integrate with the customer base in the market thereby depriving the Other players in the market to access the customers. (3) Conglomerate Merger The third type of merger is conglomerate merger, which generally refers to mergers between entities, which are not linked. The types of transaction may further be classified as: (a) Pure Conglomerate: These are mergers where the merging entities have no functional link, (b) Product Extension Merger: These are mergers wherein the product of the acquiring entity is complementary to that of the acquired entity, (c) Market Extension Merger: These are mergers were the merging entities seek to enter into a new market. Conglomerate mergers though have minimal adverse effect on Releyant Markets, though they may pose certain threats to competition like: (a) Market extension mergers are similar to horizontal mergers and thereby may have similar impacts, (b) Conglomerate mergers may lead to overall industrial concentration, ite. domination over various portfolios of products in the market, (c) Conglomerate mergers may also enhance coordinateg or mutual forbearance behaviour which may harms consumers. transactions, as in the nature of Acquisitio iri Connotenee or Amalgamation shall fall under ne ns gi Competition Act 2002.. ; : id criteria as a ‘ ee be taken into consideration. “sufficient but g huge in countries attracting Te dia ( mergers taking place in Scanned wth CamScannerjons (Section 5 and Section 6) pinations of Com 57 lation 2 an F jan entities) are enormous and it is not feasible for the Cc} utside Indian ©" ion. Hence presuming that small size t i tS) ulate of petition in the market, certain high threshold limits roe oo ot effect Conre require mandatory notification to the CCl. re fates eee produced herein below: its so pes = Situation Criteria Assets Turnover Overseas assets/ turnover terprises enterprise have enterprise have More than USD feeding merger assetsmorethan turnoverofmore 500 million amalgamation 1000 crore than 3000 crore, including atleast turnover. Rs. 500 crores in India, Turnover USD 1500 million with minimum 1500 crores in India Acquisition by the Assets in Indiaof Turnover in India Assets of value group to which —_value of more of more than more than USD 2 the enterprise than 4000 crores. 12000 crores. billion, belongs Turnover USD 6 billion including atleast 1500 crores in India and assets ‘of 500 crores in India. Acquisition of If it results in If It results in Aggregate assets Sontrol when assets value of turnover ofmore _ in and outside Sthperson has more than 1000 than 3000 crore India of more than theady direct or crore jointly. jointly. USD 500 million contro} including atieast Yer another Rs, 500 crores in a India at in same ’ or or ee goods Turnover more ees than USD 1500 million and atleast 1500 crores in aera These threshold limits are subject to revision every two years By io nt, in consultation with the Commission through notification. Vid Vemme Scanned wth CamScanner5.8 Competition fatification S.0. 675 (E) dated 4th March, 2016, the Value of asset tumover has been enhanced by 100% for notification of combination to ca! Thresholds for Filing Notice Assets Turnover “SI Enterprise India >2000 INR crore > 6000 INR crore Level Worldwide © >USD Ibn or />USD3 bn with India leg with at least with at least > 1000 INR crore > 3000 INR crore in India in India or = G India > 8000 INR crore > 24000 INR crore Troup Level Worldwide © >USD 4bn > USD 12 bn with India leg with at least with at least > 1000 INR crore > 3000 INR crore in India in India $$ ——— Explanation to Section 5 of the Act clarifies that for the Purposes of determining asset value, the book value of such assets as shown in the audited books of the accounts of the enterprise in he financial year immediately preceding the financial year of the combination must be taken. However no such express clarification has been provided relating to the calculation of turnover. In this context, it is worth mentioning that the Competition (Amendment Bill 2012 proposes to insert section 5A, by virtue of which, the Central Government has been empowered to specify different value of assels and turnover for any class or classes of enterprises under the proposed Section SA read with Section 54 and 20(3) of the Act. While Section $4 empowers the Central Government to exempt any class of enterprises “from the application of the Act if such exemption is necessary in the interest of security of the State or public interest; or an enterprise engaged in performance of Sovereign functions or engaged in any practice or agreement arising out of and in accordance with any obligation assumed by India under any treaty; agreement or convention with any other country or countries, Section 20 (3) of the Act lays down that notwithstanding anything contained in section >, the Central Government can, every two years, enhance or reduce the value of assets or the value of tumover on the basis of the wholesale price index 0° fluctuation in exchange rate of rupee or foreign currencies, only for the purposes of Section 5 of the Act. Exemptions Vide Notification S.0 674(E) dated 4th March, 2016, the Central Government has exempted an enterprise, whose control, shares. voting Scanned wth CamScanner‘Combinations (Section 5 and Section 6) Sets are being acquired if it has either assets of the value of not noe 5: 350 crore in India or turnover of not more than Rs. 1000 crore in BD Hom the provisions of ‘Combinations’ (section 5) of the Act for a period five years from the date of publication of the notification in the official gazette. The expression ‘@BAWBP” has been defined by way of an(Bxplanationito) (“Section So f the Competition Act as under: ntrol includes Controlling the affairs or management by — (i) One or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, or enterprise;? | The above definition of ‘control’ either jointly or singly, over another group acs in the Competition Act, 2002 is a purposive definition and applies for the specific purpose of combination of enterprises by way of inter alia, acquisition of one or more enterprises or ‘control’ over an enterprise by one or more persons. Thus, the term ‘control’ includes both the control of the affairs and management over another enterprise or group. The control may be exercised ty one or more enterprises or groups. Thus, the controlling entities may be oe or more enterprises or groups and the controlled entities may another enterprise or group. The ordinary meaning of the word ‘control’ has reference to the power of directing, controlling, dominating, commanding and holding in check. A group may be held to be in possession of such power only if it acts in unison to ‘Stablish the authority to which the controlled entities submit themselves. ‘Control’ as a concept is also the key determinant of whether two or more “tis form part of the same ‘group’. fag term ‘group’ has been defined under Explanation (b) to Section 5 as i aa OP" means two or more enterprise which, directly or indirectly, are Sition to: ) exercise fifty per cent or more of the voting rights in the other _ §nterprise; or “) appoint more than fifty per cent, of the members of the board of directors in the other enterprise; MD) content at leetYAU Competition ty, | d tions set out ab | AS such, it is likely that thed The defini 1 the facts and ci Rae are broadly worded and subjective in naty, | ‘rmination of ‘control’ will depend entirely, . yon | ce ircumstances Surrounding a case under exami-nation. “7 ol i ‘ anne — either be Sole control’ is where an undertaking acquires 4 eens © voting rights of a company. In the absence of other elemen, ‘quisition which does not include a majority of the voting rights does no, normally confer control even if it i isiti jori 3 N if it involves the acquisition of a majority of; share capital. the Further, control may also exist by Joint control where two or more undertakings or persons have the possibility of exercising decisive influence | Over another undertaking. Decisive influence in this sense normally meang the power to block actions which determine the strategic commercial behaviour. of an undertaking. REGULATION OF COMBINATIONS? * [SECTION 6] Section 6 of the Act lays down the provisions dealing with regulation of combinations. if Section 6(1) reads: “No person or enterprise shall enter into a combination which causes or is likely to cause an appreciable adverse effect on competition within he relevant market in India and such a combination shall be void.” Section 6 stipulates a person or enterprise should not enter into a bination, which causes or is likely to cause an appreciable adverse effect competition within the relevant market in India. If entered into, such a bination is void. (Thus combination in itself is not prohibited. It will be Id void only if it adversely affects competition) ie limit for giving notice of combination to commission Section 6(2) makes it mandatory to the person or enterprise proposing !0 iter into a combination to give notice to the'CCI of such intention, providing tails of the combination within 30 days of: (@) Approval of the proposal relating to merger or amalgamation by the board of directors, (b) Execution of any agreement or other document for acquisition. 2. The Competition Commission of India received a notice from ‘ABC Ltd. relating to proposed combination with ‘MON Ltd.’ on 30th September 2011. ‘ABC Ltd.’ incorporated in 1973 in India focuses upon infrastructul operations in india. ‘MON Lt.’ is incorporated in 1980 in France as a Lif Insurance Company. Discuss the procedure for regulation of combination in the Competition Act. [D.U., LLB., 2015] Scanned wth CamScannerfon of Combinations (Section 5 and Section 6) SAL After receipt of notice, the Commission shall deal with such notice in accordance with the provisions contained in Sections 29, 30, 31. [Section 6(3)] The Commission may, after due deliberation, approve the combination, or direct that the combination shall not take effect, or propose modifications. Further, the Indian Act grants the Commission the power to investigate a combination only upto one year after “such combination has taken effect”. [Section 20(1)] Statutory Notice—Whether it is an Absolute Right to Claim The Supreme Court in CCI y. SAIL, (2010) 10 SCC 744 observed that cumulative reading of Regulations namely 17(2), 21(8), 22, 33(4) and 48 of the Competition Commission of India (General) Regulations, 2009 read with Section 26 of the Competition Act, 2002 and in conjunction with the scheme ofthe Act and the object sought to be achieved, suggests that it will not be in consonance with the settled rules of interpretation that a statutory notice or an absolute right to claim notice and hearing can be read into the provisions of section 26(1) of the Act. Discretion to invite, has been vested in the Commission, by virtue of the Regulations, which must be construed in their plain language and without giving it undue expansion. Penalty for failure to give notice on combinations Section 43A states that failure to file notice by the acquirer, an enterprise ora Group of Enterprises to CCI within 30 days of approval of merger proposal by Board of Directors of the enterprise of a reportable transaction, attracts penalty which may extend to one percent of the total turnover or the assets, whichever is higher of such a combination. Procedure for Investing of Combination [Section 29]°° After the monetary threshold limits have been crossed by a combination, tnder section 5(a) or (b) or (c), and a mandatory notice is filed with the ission regarding proposed combination, the Commission shall as per Combination Regulations, and section 29(1) shall act as follows:— |. Where the Commission is of the prima facie opinion that a Combination is likely to cause or has caused an appreciable adverse ge “S. The C1 received a notice from‘ABC Lid.’ rlating to proposed combination an MON Ltd." incorporated on 30 Sept. 2011. ‘ABC Ltd.’ incorporated in ‘ 773 in India focuses upon infrastructural operations in India. ‘MON Ltd. aCoorated in France in 1980 as a Life Insurance Company. Discuss Procedure for regulation of combination in the Competition Act. [D.U., LL.B., 2011] Scanned wth CamScannerCompetitio effe tg * m sea oe aes Within the relevant market in India, th respond withi OW calise notice to the parties to the combina; - ve Within thirty days of the receipt of notice as investigation should not be conducted. s After Teceipt of the response of the parties to the combinatio, Commission may call for a report from the Director General, ¢ Teport shall be submitted by the Director General within such ti - the Commission may direct. meay 2. Ifthe Commission is prima. facie of the opinion that the combingy, has or is likely to have an appreciable adverse effect on competiti it shall within seven working days from the receipt of the or the receipt of the report from Director General, whichever is later direct the parties to publish the details of the combination, The publication shall be made within ten working days of such direction This is for the purpose of bringing the combination to the Knowledge and information of the public and persons affected or likely to be affected by the combination. 3. The Commission may invite any person or member of the public, affected or likely to be affected to file his written objections. This shall be done within fifteen working days from the date of the publication of the details. 4. The Commission may call for additional or other information from the parties to the combination. This shall be done within fifteen working days after the expiry of the aforesaid period of fifteen working days. 5. The additional or other information shall be furnished by the parties within fifteen days from the expiry of period mentioned in para 4. 6. After receipt of the information the Commission shall proceed 10 deal with the case within a period of forty-five working days from the expiry of the period mentioned in para 5. le CQ tion 10 Why Inquiry into Combinations The various steps involved in examining whether a combination has a1 adverse effect on competition involves the following process: G (i) Identification of the relevant market, consisting of relevant product market and relevant geographic market, (ii) Consideration whether the Combination has appreciable adverse effect on competition in the relevant market in India, iii) Approval, rejection, or approval with modification of the Combination. Scanned wth CamSeannerBulation of Combinations (Section § and Section 6 I. Identification of the relevant market ae The Competition Act in India prohibits m . : cause or are likely to cause an appreciable adverse spon cuiitons which »mbinati, the “Relevant Market” in India. Thus, the Act envisa: ct On competition in "General, git | effect on competition in the relevant market in inages SPPeClableadvene rin such 4 concept of relevant marker is clearly defined in the a the touchstone. The MS ag relevant product (including goods and Services) mae Tt consists of the geographic market. et and the relevant he combinay on com ration 5 The relevant market means “the market that may be d . of the aa Commission with reference to the relevant Product meee eye hichevesanae geographic market or with reference to both the markets”. The na Som mbination Me | the fuctors, any one or all of which shall be taken inte cae ission while defini some OY the Fsuchiee Se hile defining the relevant product/ Beographic market as the D the knowledge | or likely tobe Relevant prodaet market is defined in terms of Substitutability of ¢ products. It means “a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, ty reason of characteristics of the products or services, their prices and intended use.” Relevant geographic market is defined in the Act in terms of “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.” 1. Evaluation of ‘Appreciable Adverse Effect on Competition’ The Act envisages appreciable adverse effect on competition in the relevant market in India as the criterion for regulation of combinations, In order to evaluate appreciable adverse effect on competition, the Act mone the Commission to evaluate the effect of ' Combination on the basis a eleven factors mentioned in Section 20(4) of the Act, which are 2s follows: a ie a i e ©) actual and potential level of competition through imports in market; () extent of barriers to entry into the market; © level of concentration in the market; @) de ‘ ervaili in the market; ‘gree of | ling power in one countervailing p' result in the parties 10 the wtcthood that the combination | sustainably increase prices a market;5.14 Competition Lay (8) extent to which subs in the market; (h) market share, in the relevant market; of the persons or enterprise in g Combination, individually and as a combination; @ likelihood that the combination would result in the removal of a Vigorous and effective competitor or competitors in the market; @) nature and extent of vertical integration in the market; {k) possibility of a failing business; (1) nature and extent of innovation; (m) relative advantage, by way of the contribution to the economic development, by any combination having or likely to have appreciable adverse effect on competition; (nm) whether the benefits of the combination outweigh the adverse impact of the combination, if any. ttutes are available or are likely to be available III. Approval, Rejection or Approval with Modification of the ombination In its review of a proposed combination, the Competition Commission of iia will either: (a) clear the merger; (b) clear the merger subject to remedies. The strict wording of the Combination Regulations, 2011 (as amended by 2012 or 2013 amendment), provides that if the adverse effect of combinations can be eliminated by suitable modifications, the CCI will Propose those modifications to the parties, to be carried out within specified period. If the parties do not accept the CCI’s proposed modification, they can, within 30 working days, may submit amendments. If the CCI rejects the proposed amendments, the parties are allowed a further 30 working days to accept the CCI original Proposed modification. If the parties then fail to do so, the merger will be deemed to have an appreciable adverse effect on competition; or (c) Prohibit the merger ifthe CCI’s review Teveals an appreciable adverse effect that cannot be remedied by modifications that the parties are able or willing to offer.4 Order of Commission on Certain Combinations [Section 31] Section 31(1) provides that where the Commission is of the any combination does not, or is not likely to, have an appreci: ——— 4. Suzzane Rab, “Indian Competition Law: an Intemational p. 51-52. Scanned wth CamSeannerombinations (Section 5 and Section 6) 5.15 treat On Sompetition, it shall, by order, approve that combination including, < ination in respect of which anotice has been given under Section 6(2). iss ore 31(2) provides that where the Commission is of the opinion that competition 12,85; oF is likely to have, an appreciable adverse effect on Section gn! direct that the combination shall not take effect. ti ; ie conte 13) Provides that where the Commission is of the opinion that ei en or is likely to have, an appreciable adverse effect on adverse eff imi i ‘fiat to\such combinati fect can be eliminated by suitable modification ch c ‘on, it may propose appropriate modification to the combination, to the parties to such combination. Section 31(4) provides that the parties, who accept the modification proposed by the Commission under Section 31(3), shall carry out such modification within the period specified by the Commission. Section 31(5) provides that 4 , if the parties to the combination, who have accepted the modification under Section 31(4), fal to carry out the modification within the period specified by the Commission, such combination shall be deemed to have an appreciable adverse effect on competition and the Commission shall deal with such combination in accordance with the provisions of this Act. Section 31(6) provides that if the Parties to the combination do not accept themodification proposed by the Commission under section 31 (3), such parties may, within thirty working days of the modification proposed by the Commission, submit amendment to the modification proposed by the Commission under the sub-section. Section 31(7) provides that if the Commission agrees with the amendment bythe parties under section 31(6), it shall, by order, approve the combination. Section 31(8) provides that if the Commission does not accept the amendment submitted under section 31(6), then, the parties shall be allowed ‘further period of thirty working days within which such parties shall accept the modification proposed by the Commission under (3). Section 31(9) provides that if the parties fail to accept the modification 3 sed by the Commission within thirty working days referred to in section 6) 31 or within a further period of thirty working days referred to in section ; the combination shall be deemed to have an appreciable adverse effect Ag, Petition and be dealt with in accordance with the provisions of this Section 31(1 f ission has directed under i re the Commission une ein 31 (10) Provides that whe: Fie eH RaHON 1 “e ion under section ‘Scanned wih CamScannerCompeti 5.16 Pons i e IM] 31(9), then, without prejudice to any penalty ae a ot ay prosecution which may be initiated under this a ecquisitonteas y Ons that the following shall not be given effect to: oh See Ton 2 section 5(a) or (b) the acquiring of. control re! ae ce) OF () the merger or amalgamation referred to in Secti " . i The Commission may, however, if it conics appropriate, frame , scheme to implement its order under this sue ae ola i 1) provides that if the Commission the expiry of a er, i Be from the date of notice given ie the wit Ud section 6(2), pass an order or issue direction in acco ne ee of section 31(1) or 31(2) or 3 1(7), the combination shal e deemed to hays been approved by the Commission. Explanation: For purposes of determining the period of 210 i days the period of thirty working days specified in section 31(6) and a further period of thirty working days specified in section 31(8) shall be excluded. Section 31(12) provides that where any extension of time is sought by the parties to the combination, the period of ninety working days shall be reckoned after deducting the extended time granted at the request of the parties. Section 31(13) provides that where the Commission has ordered @ combination to be void, the acquisition or acquiring of control or merger or amalgamation referred to in section 5, shall be dealt with by the authorities under any other law for the time being in force as if such acquisition of acquiring of control or merger or amalgamation had not taken place and the Parties to the combination shall be dealt with accordingly. = eo 31(14) provides that nothing contained in this Chapter shall affect “nY Proceeding initiated or which may be initiated fortte coors ry under any other law P_alty for m; information ‘aking false statement or omission to furnish materi! ee ers of the provisions of Sectior C ation (a) makes a false Statement o} Pe false; or (0) omits to State any m; Party shall be liable toa n 44 of the Act, ifa party 108 fany material particular, laterial partic The Competit; Fi Petition C aes Modificatj Ommission er t decihons Sbination ig onde Pes po ve, ave lermore, the chee a Scanned wth CamSeanner‘egulation of Combinations (Section 5 and Section 6) 5.17 appoint ‘agencies’ to oversee’ the implementation of such modifications or remedies where it considers that they required supervision? Remedies can be either structural or behavioural. Although behavioural remedy is preferable, its implementation and monitoring is difficult. On the other hand, structural remedy would entail requiring the combining enterprises to make structural adjustment which could be in the form of sale of assets, divestment of a division or a unit or creation or strengthening of competitors through, for example, licensing of an Intellectual Property Right (IPR). Appeals The Central Government has notified to hear and dispose of appeals against any direction issued or decision made or order passed by the Commission under specified sections of the Act, such as orders relating to notification of combination, inquiry by the Commission and penalties. Anappeal has to be filed within 60 days of receipt of the order/ direction/ decision of the Commission. Time Limit for Commission’s Order [Section 6(2A)] Section 6(2A) provides that combination shall come into effect after two hundred and ten (210) days have been passed from the day on which the notice has been given to the commission or commission has passed the order under Section 31, whichever is earlier. EXCEPTIONS [SECTION 6(4) AND SECTION 6(5)} Section 6(4) and 6(5) provides for exemption from giving notice to the commission in cases of share subscription, or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant ofa loan agreement or lnvestment agreement, __ The institutions i.e. public financial institution; foreign institutional "Westor bank or venture capital fund referred to in sub-section (4) are required lie, within 7 days from the date of acquisition, with the Commission the ils of the acquisition including the details of control, the circumstances i * exercise of such control and the consequences of default arising out of Can agreement or investment agreement, as the case may be. mii exemption appears to have been provided in the Act to facilitate funds by an enterprise in the course of its normal business. Act vrocedures to be followed pursuant to section 6 of the Competition bination Regulation”). June 1, 2011 along Scanned wth5.18 Competition Law with the provisions of sections 5 and 6 of the Competition ts ne Provision, Pertaining to combination was amongst the most cone Orie otthe Competition Act. The difficulty in implementing this pro “a ea coul 4 bg gathered from the fact that the provision of Competition " onan combination was the last one to be brought into force ai at a detailed consultation with stake holders in the varied fields inclu me indus; associations, legal luminaries and economists, amon ee Combination Regulation was subsequently amended on i ruary a 12to provide clarity and simplification of procedures for notifying ae nations, However, the said amendment failed to address the concern o: industry for relaxation in notification requirement, especially in context with intra-group mergers and amalgamations. The Commission has further amended the Combination Regulations on April 4, 2013 with a view to simplify the filing requirements and bring about greater certainty in the application of the Act and the Regulations. In 2015, the Commission has further amended the Combination Regulations. CCI (Procedure in Regard to the Transaction of Business Relating to Combinations) Amendment Regulations, 2015 The Competition Commission of India (CCI) exercising power conferred under section 64 of the Competition Act, 2002 notified amendments to the Combination Regulations, 2011. Combination parties now are required to submit summary of the combination, not containing any confidential information, in not more than 500 words, comprising details regarding: (@) name of the parties to the combination; (b) the type of the combination; (c) the area of activity of the Parties to th i ¢ combination; and (d) the relevant market(s) to which the combination relates. The amendment to Regulation 14 Ee ives power to CCI to invalidate a combination notice it comes to the tee of the Commission that such notice is not complete and not in conformity with the combination Tegulations. Now, if approval of the les to the combination carrying out combination is conditional upon the parti a 3 A 0 scence of th coat Proceedings will terminate up0! Modification to the combination, the to cause or has ca the relevant: market in Indi, Request of confidential; Clearly stax he Te280ns, justificati an lity under Regulation 30, n and impli the parties Scanned wth CamScannerCommission of India (General) Regulations, 2009 stating that the conditions Prescribed in Regulation 35 of the Competition Commission of India (General) Regulations, 2009 are satisfied. Amendment added one entry to Schedule I, which clarifies that “acquisition of shares, control, voting rights or assets by a Purchaser approved by the Commission pursuant to and in accordance with its order under section 31 of the Act”, are ordinarily not likely to cause an appreciable adverse effect on competition in India, notice under sub-section (2) of section 6 of the Act need not normally be filed. LEADING CASE Etihad Airways and Jet Airways Combination Order dated November 12, 2013 Facts: The Government of India (Gol) liberalised its FDI Policy and set a 49% cap for foreign investments in Civil Aviation Sector in India. In 2013, Etihad, a company incorporated in the United Arab Emirates (UAE), anational airline of UAE, proposed to acquire 24% in Jet, a listed company incorporated in India. Etihad is wholly owned by the Government of Abu Dhabi and is primarily engaged in the business of international air passenger transportation services, commercial holiday services and cargo services. It isalso stated to hold 29.21 percent equity in Air Berlin; 40 percent equity in Air Seychelles; 10 percent equity in Virgin Australia and 2.9 percent equity in Aer Lingus. Jet on the similar lines, is primarily engaged in the business of providing low cost and full service scheduled air passenger transport service to/from India along with cargo, maintenance, repair & overhaul service and grounds handling services. The proposal got approved by the Security Exchange Board of India (SEBI), the Foreign Investment Promotion Board (FIPB) and Cabinet Committee of Economic Affairs (CCEA). Thereafter the Investment Agreement, Shareholders Agreement and a Commercial Cooperation Agreement between Jet and Etihad were submitted ‘CCI for its approval. Issue: Whether the proposed combination between Jet and Etihad has an ‘ciable Adverse Effect on Completion (AACE) in India. Decision/Order: ) The Competition Commission of India first considered the issue of ‘Relevant Market’ in India. According to CCI, a relevant market in this case is market of international passenger air transport based on the point of origin or point of destination (O&D). Thus, each such D constituted a different route, and hence each different route, I Scanned with Ca5.20 Competition Lay | constituted a different relevant market. To ascertain relevant marke, following points were considered: 3 lL ae ee Indirect flights between O&D being substitutable, 2. Indirect flights by competitor between O&D being substitutable, 3. Different classes of passengers, and inflight services rendereq to different classes, being substitutable. , i 4. Time and price sensitive passengers (Business/Holidays). 5. Etihad being not operating in domestic (Indian) aviation sector and India’s open skies policy in respect of international air cargo transportation. Thus, CCI concluded that the relevant market in the instant case would be pertaining to: 1. O&D from or ending in 9 cities in India to/from UAE. 2. O&D from or ending in India to/from international destinations on the overlapping routes of the parties to the combination. (ii) After defining the relevant market, the CCI ventured into ascertaining, whether or not there would be any AAEC pertaining to such routes. CCI stressed upon the relevancy of trans-boundary competition, as Toutes were international, while ascertaining AAEC through this Proposed combination. It was observed that there were 38 routes to/ from India to other destinations where Etihad and Jet fly and there was at least one competitor on each of such route. Except 7 destinations, where Jet and Etihad had a combined share of more than $0 percent, rest all destinations had less combined share. Also of these 7 destinations, on 3 Toutes, the share of one was more than 50 percent and of the other less than 5 i el Percent. Thi transaction change in the market share was obs: aaa competition dynamics. erved, not to marginally alter the ofror stronger. Hubs, inc interfaces that | i ©s that link markets, Co iti : . Competiti oe me pene rather than on pate i T «oe Market shares of Jet Indi in their ee tive hubs, do not jie ieuen o a ce by Majority observed that airline expanding Services ang thereby ii Bates, slots and other infrastructure (iti) improvi Scanned wth CamSeanner‘Combinations (Section 5 and Section 6 in that sector. It also postulated that the proposed Sa a Pave way for other similar combinations by other stake! ene thereby rising competition in the sector. CCI also considere t importance of the proposed equity infusion, as Jet has been facing Certain financial crisis, therefore such combination would allow Jet to continue to compete effectively in the relevant market in India and internationally, Therefore in the light of the abovementioned Teasoning and observations, CCI concluded that the proposed combination is not likely to have AAEC in India and therefore the combination was approved with a caution that the approval is based on the information/details as provided by the parties and in case of any modifications later on, fresh approval should be sought. Also, it Was incumbent upon the Parties to ensure that this ex-ante approval does not lead to x-post violation of the provision of the Act. While the minority held that there would be AAEC in the international alr Passenger transportation market, based on the following observation that: 1. Incorporation of frequent flyer participation (FFP) policy will tie down the consumers and thereby are likely to create entry/ expansion barriers, making it difficult for competitors/new entrants to shift the parties’ customers to their network. . The substitutability approach with reference to airports, that has been observed by CCI and asserted by the parties, is found on wrong principles. As air services to the different airports in India- UAE sector are not treated as substitutable products by the consumers, and even by the airlines themselves, 3. The presence of competitors has been on all routes, however, it is observed that Jet and Btihad are the only remaining competitors in the Delhi - Abu Dhabi direct route; and the proposed combination will eliminate the competition between Jet and Etihad as they are likely to effectively operate as one airline Pursuant to the proposed combination. Also, airlines providing one-stop Services can only be considered 48 remote competitors neither exerting nor likely to exert any Th Significant competitive constraint on the parties. ty ier C, it was concluded by minority order that, the Proposed Vithin = Is likely to cause an appregiable adverse effect on competition Na market of international air passenger transportation from and to NVestigation was necessary to be called upon. vn Scanned wth CamSeanner5.22 a) 7) Competition Ley, Sun Pharma and Ranbaxy Combination Order dated May 4, 2016 Sun Pharmaceutical Industries Ltd. on April 6, 2014 Teleased . Press statement announcing that they had entered into an agreement wis, Ranbaxy Laboratories Ltd. under which Sun Pharmacutical Industries Led Would acquire 100 percent of Ranbaxy Laboratories Ltd. The combined enti ; upon successful consummation of the Transaction, would be the fifthtarges, Specialty generics company in the world and the largest pharmaceutica| company in India. The scale of operations of the resulting entity would be Tnassive with operations spanning across 65 countries and 47 manufacturing facilities across 5 continents as well as a sizeable portfolio of specialty ang generic products sold across the world, including 629 abbreviated new drug applications, Facts: On 06.05.2014, the Competition Commission of India (CCI) received a Notice from Sun Pharmaceuticals Industries Limited and Ranbaxy Laboratories Limited in relation to the merger of Ranbaxy into Sun Pharma. On the basis of combined market share of the parties, incremental market share as a result of the proposed combination, market share of the competitors, number of significant players in the relevant market etc., the CCI in terms of Section 29(2) of the Competition Act, 2002 formed a prima facie opinion that the combination is likely to have an appreciable adverse effect on competition and accordingly directed Sun Pharma and Ranbaxy to publish details of the combination within ten working days for bringing the combination to the lowledge or information of the public and Persons affected or likely to be iffected by such combination.” The Parties were then required to respond to objections to the CCI. Issue: Whether ‘Proposed combi effect on Competition in India? Decision/Order: ination is likely to have appreciable adverse @ The Competition Commission of India (CCI idering the Tesponse of both the parties to the { Siisiesseaueseae show cause notice issued by it ‘ ing of various ph; ‘cal products including formulations/medici S Pharmaceutical p i i n tcines and active pharmaceuti ingredients (APIs), which Constituted a separate nical market. Accordingly, CCI defined the relevant ‘Product market Scanned wth CamSeanner5.23 n of Combinations (Section 5 and Section 6) molecules, on the basis of substitutability, for each formulation. observed that there are horizontal overlaps between the parties both the markets for formulations as well as active pharmaceuticals gredients (APIs) as both the Parties are primarily generics manufacturers (i.e., producers of generic copies of originator drugs) with a small number of licensed molecules. (ii)_In order to determine the effect of transaction, the commission focused its investigation on 49 relevant product markets for formulations where the proposed combination was likely to have an appreciable adverse effect on competition in India based on: + the parties’ combined market share; * the parties’ incremental market share as a result of the proposed combination; * the market shares of competitors; and + the number of significant players in the relevant market. Inaddition to these 49 markets, the commission identified two relevant markets for formulations in which Sun Pharma was already marketing and selling its products and Ranbaxy had pipeline products which were to be launched in the near future. (iii) In relation to the horizontal overlap in the relevant product markets for APIs, the commission noted that both parties sold APIs to third parties and the horizontal overlap raised no substantial competition concerns. Similarly, the vertical integration post-merger for sale of APIs that were manufactured and sold by the parties was also found unlikely to result in vertical foreclosure, as Sun Pharma’s revenue from its API sales constituted only 5% of its total revenue and Ranbaxy’s revenue from its API sales constituted only 6% of its total revenue. Accordingly, the commission focused its examination on 51 molecules or relevant product markets for formulations which resulted in a 15% market share and found that in seven formulations, the combined entity would have an appreciable adverse effect on Competition due to high market share (more than 50%) post-merger. is examination was based on: * the market share of the merged entities; * the market shares of competitors; and * the number of significant players in the relevant market. Cer ‘therefore, proposed the approval of the merger subject to the | ™odifications ‘Scanned with ComScanner5.24 Competition Lay, Ranbaxy to divest all products containing five formulations and §,, pharma to divest all products containing two formulations. Howeye,, after considering the amendments suggested by the merging partie, to the proposed modifications, CCI directed Sun Pharma to diy. one formulation i.e. all products containing Tamsulosin + Tolteroding which are currently marketed and supplied under the Tamlet brang name, while, Ranbaxy was directed to divest, six formulations ie, all products containing:— + leuprorelin - marketed and supplied under the brand name Eligard; terlipresslin - marketed and supplied under the brand name Terlibax; rosuvastatin and ezetimibe - marketed and supplied under the brand name Rosuvas; olanzapine and fluoxetine - marketed and supplied under the brand name Olanex F; levosulpiride and esomeprazole - marketed and supplied under the brand name Raciper L; and olmesartan, amlodipine and hydroclorthiazide - marketed and supplied under the brand name Triolvance. (v) CCI has also asked the parties to give full information regarding divestment products to potential purchasers so as to enable them to undertake reasonable due diligence However divestment would not, inter alia, include:— manufacturing facilities owned by the two companies; IP rights which do not contribute to existing operations; domain name rights; books and records that must be retained Pursuant to statute, rules regulations or ordinances; and general books of account and books of original entry that contait the parties’ permanent accounting or tax records. CCI further ordered that both Sun and Ranbaxy dre required to appoit a senior management level employee (i.e., a hold separate manage The manager will be supervised by a monitoring agency and 8 ensure that the economic viability, marketability and competitive’ of the divestment products are maintained until the elosing date !° addition, for a five-year period following the closing date, the cannot acquire direct or indirect influence over any of the divest™ Products. Further, detailed directions (e.g, being independent Scanned wth i) aty of Combinations (Section 5 and Section 6) a hice ith the merging parties) for prospective buyers oe me essed The commission will been determined that they meet the Purchaser requirements prescribed in the order. If the parties ae Teach an agreement with a purchaser regarding the divestiture of a divestment product in the first divestiture period (ie, within six Months), the commission may direct the parties to divest the product in the second divestiture period (i.e., within four months) and appoint an independent agency to act as a divestiture agency in order to effect the divestiture as provided in the order. Further, the commission may appoint a monitoring agency to supervise the modification. In accordance with the monitoring agency agreement, the monitoring agency will supervise the due diligence Process — including the preparation of data room documentation — and submit a written report to the commission every month (within 10 days) with recommendations and comments regarding the suitability of the purchaser proposed by the parties. After divestiture, the parties must receive the commission’s approval for the terms and conditions of the sale and the party to which they are selling, as the objective of the sale is to ensure that effective competition exists in relation to the divested products. (vii) The merger will take effect after the divestment. A period of six months has been granted for the divestment to take place. If the process takes more than six months, a subsequent second divestment period of four months will be granted. The commission directs that the proposed merger must not take effect before the parties divested of the specified products. Comments The CCI’s maiden attempt to direct structural changes in a transaction is ble. Although it has been reported that the products directed to be divested Orstiute less than 1% of each parties total annual revenue and that such “ttre is unlikely to affect the parties in any major way. Further, this T shows that the CCI has come of age and will not shy away from pee steps to minimize potential anticompetitive effects caused by a aCtion, having no connectio Of the divestment bi approve buyers once it has PVR and DT Cinemas Combination Fy Order, CCI Order dated 4 May, 2016 Ug St ON B® July, 2015, the Competition Commission of India received fom p Limited relating to acquisition by PVR Limited (PVR) of Scanned wth CamSeannerS26 Competition Lay DT Cinemas, which is the film exhibition business of DLF Utilities Limitey Comprising 39 screens (29 existing and 10 upcoming) in Delhi, Gurgaon NOIDA and Chandigarh. In terms of Section 29(2) of the Competition Act, 2002 the Commission is of the prima facie opinion that the combination i, likely to have an appreciable adverse effect on competition and accordingly CCI directed PVR to publish details of the combination for bringing the combination to the knowledge or information of the public and persons affecteq or likely to be affected by such combination. Issue: Whether proposed combination is likely to have appreciable adverse effect on Competition in India? Decision/Order: (i) The Competition Commission of India (CCI) after considering the response of both the parties to the show cause notice issued by CC] and the comments received from the members of the public. The CCI first defined Relevant Product Market. The CCI noted that multiplexes and single screen theatres do not compete with each other as the multiplexes have the advantage of offering greater choice of films to the consumer. Multiplexes also cater to higher paying customers, and offer additional facilities such as shopping area, fast food centers and recreational facilities. However, high-end single screen theatres like PVR Rivoli, PVR Plaza, Delite Cinemas, M Cinemas, and DT Savitri offer some facilities of multiplexes and at comparable price to multiplex theatres. As such, they provide some competition to multiplex theatres. Thus, for the purposes of the said combination the relevant product market was considered as the “market for multiplex theatres and high-end single screen theatres’. (ii) As regards the Relevant geographic market, the CCI observed that the consumer prefer to view films in nearby areas and would choos? among the available nearby theatres, Thus, the Delhi NCR marke! can be divided into the following distinct geographic markets viz South Delhi, North, West and Central Delhi, East Delhi, Gurg#" Ghaziabad, Faridabad, NOIDA and Greater NOIDA. Gili) For assessing the appreciable adverse effect on Competition (ABO) the CCI referred the relevant geographic market and observed as follo¥™ + Chandigarh: The CCI noted that in Chandigarh, the P! combination market share would be 36.7% with an increment of 6 ‘ts When upcoming market entries are taken into account, the inerem® market share is only 5.2% which is not significant. Further, there s® anumber of competitors with significant market share in Chansies® Scanned wth CamScannermbinations (Section 5 and Section 6) 5.27 Price the proposed combination is not likely to have AEC in the market of Chandigarh. + North, West and Central Delhi: The CCI noted that in North, West and Central Delhi, the post combination market share would be 53.3% with an increment of 6.6%. Hence the proposed combination ae sly to have AAEC in the market of North, West and Central elhi. + NOIDA: The CCI noted that in NOIDA, the post combination market would be 53.6% with an increment of 10.1%, which is significant. Further, the next biggest competitors have a market share of 14.5% and 13%, respectively, and hence may not constitute adequate competitive constraint. Further, any efficiencies being claimed through the combination are not because of the combination. There is a likelihood that the combination would result in sustained/ significant increase in competitive prices in the absence of effective competition. The CCI was of the view that the proposed combination is likely to have AAEC in this relevant market. PVR submitted a commitment that it shall terminate its agreement with International Recreation Parks Pyt. Ltd. For the development of a multiplex with 15 screens in Garden Galleria Mall, NOIDA which is scheduled to be completed by 2017. PVR shall also not acquire any direct or indirect influence/ownership over Garden Galleria fora period of five years from the date of termination of notice as above. PVR shall not open any new screens for a period of 3 years from the date of completion of the proposed combination in the market of NOIDA. Following the commitments, the CCI was of the opinion that the competition concerns in the relevant market would be adequately alleviated. * Gurgaon: The CCI noted that in Gurgaon, the post combination market share would be 63.2% with an increment of 21.1%, which is significant. Further, the next biggest competitors have a market share of 16.4% and 14.8%, respectively, and hence may not constitute adequate competitive constraint. Further, any efficiencies being i inati bination. claimed through the combination are not because of the combinat There is a likelihood that the combination would result in sustained! significant increase in competitive prices in the absence of effective Competition. The CCI was of the view that the proposed combination is likely to have AAEC in this relevant market. Scanned wth CamSeanner5.28 Competition Lay PVR submitted a commitment that it shall terminate its agreement with Reach Promoters Pvt. Ltd. for the development of a multiplex with 7 screens in Airia Mall, Gurgaon which is scheduled to be completed by 2017. PVR shall also not acquire any direct or indirect influence/ownership over a Airia Mall, Gurgaon for a period of five years from the date of termination of notice as above. PVR shall not open any new screens for a period of 3 years from the date of completion of the proposed combination in the market of Gurgaon, Following the commitments, the CCI was of the opinion that the competition concemsin the relevantmarket would be adequately alleviated. * South Delhi: The CCI noted that in South Delhi, the post combination market share would be 79.4%% with an increment of 41.2%., which is significant. Further, the next biggest competitor shall have a market share of 12.5%, respectively, and hence may not constitute adequate competitive constraint. Further, any efficiencies being claimed through the combination are not because of the combination. There is likelihood that the combination would result in sustained/significant increase in competitive prices in the absence of effective competition. The CCI was of the view that the proposed combination is likely to have AAEC in this relevant market. PVR submitted behavioral commitments such cap on ticket prices, cap on food and beverage prices, quality commitments, expansion freeze and commitment with distributors. However, the CCI by its majority opinion held that the behavioral commitments offered would not adequate to alleviate Competition concerns from this relevant market. Further, such behavioral commitments would be difficult to formulate, implement and monitor ete market distortions, The majority opinion of it the competition concerns would only be alleviated if PVR is asked to divest the screens bel 3 PYR submitted a commitment. longing to DT. Thereafter The commitments were accepted b the CCT i Mi Sy DT Savitri and DT Saket assets ae ea CI include divestiture of es Hat competition Concerns in the relevant market would ics ‘eviated. Thus, the proposed combination is ved 'ubject to the commitments as offered above. nee a Scanned wth CamSeanner