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The ICFAI University,Dehradun

ICFAI Law School

Project topic:- Study of Merger Under Competition Commission of India and

Powers of Competition Commission of India in Regards to it.

Submitted to:- Submitted by:-

Ms.Ayushi Mittal Jasmeet singh sidhu

16FLICDDNO1032

BBA.LLB(Hons.)

Section-A
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Table of Content

1. List of Abbreviations……………………………………………… 3
2. Mergers and Acquisitions (combinations)……………………….. 4
3. Combination under Competition act,2002……………………….. 5
4. Merger under the Competition act, 2002………………………… 6
5. Kinds of Mergers…………………………………………………... 6
6. Reasons behind Mergers and Acquisitions………………………. 7
7. MRTP Act, 1969 Vis-à-vis Competiton Act……………………….8
8. Merger control in India…………………………………………… 8
9. Analysis of the role of Competition Commission of India……… 9
10. Duties of Competition Commission of India……………………. 9
11. Power of competition commission of India……………………… 10
12. Appeals…………………………………………………………… 11
13. Conclusion……………………………………………………….. 12
14. Bibliography……………………………………………………… 13
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List of abbreviations

1. MRTP- Mono Restrictive Trade Practices

2. CCI- Competition Commission of India.
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Mergers And Acquisitions (Combinations) Under The Competition Act,2002

In the last few decades the process of globalisation and liberalisation has rapidly changed. In the
quest of this globalisation, there was liberalisation of the Indian economy which took place in the
year 1991. The globalisation of the economy resulted in increasing the competition within and
outside the Indian market. There has been rapid increase in cross- border merger and acquisitions
activities of the Indian companies. The situation became so alarming that the immediate need was
felt to prevent activities which was detrimental to the competition and which caused appreciable
adverse effect in the market. The competition Act, 2002 was enacted with an objective for
promoting competition and protecting the interest of the consumer. The competition act, 2002
mainly deals with three kinds of agreements like anti-competitive agreement, abuse of dominance
and regulation of combination.1

Before discussing about combination, it is necessary to throw some light on the two important
provisions contained under the competition act which is related to anti-competitive agreement and
abuse of dominance. Section 3 of the competition act prohibits from entering into any kind of
arrangement pertaining to production, supply, distribution, storage, acquisition or control of goods
or provision of services, which causes or are likely to cause an ‘appreciable adverse effect on
competition’’ in India.

Section 4 of the act contains provision pertaining to abuse of dominant position by an enterprise.
Under the monopolies act, a threshold of 25% was constituted as apposition of strength in the
market. But this threshold limit does not find any place under the competition act. Competition act
for the purpose of determining the abuse of dominant position is mainly concerned with the
relevant geographic market and the relevant product market.

Section 6 is considered to be a vital provision pertaining to combination. This section provides

provision for the regulation of combination. Under this section the competitions act restrains from

1 DEVANSH PANDEY,Mergers and Acquistions(combinations)Under the Competiton act, 2002.

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entering into any agreement that cause or are likely to cause an appreciable adverse effect on
competition within the relevant market in India.

Combination Under Competition Act

Section: 5 of the Act provide the definition of the term combinations. It states that:

The acquisition of one or more enterprises by one or more persons or merger or amalgamation of
enterprises shall be a combination of such enterprises and persons or enterprises, if-

1. If the parties to the acquisition acquire control over the voting rights, or control the shares or
assets of the enterprise and the value of the asset is more than rupees one thousand crores or the
turnover is more than rupees three thousand crores or where the value of the asset in or outside
India is more than five hundred million US dollars.

2. Combinations also takes place when any group acquires an enterprise and control the shares,
voting rights and assets of the enterprise in India where the value of the asset is more than four
thousand crores or the turnover is more than twelve thousand crores, or when the aggregate value
of the asset is two billion US dollar in or outside India.2

3. Combination also takes place when a person acquires control over an enterprise and directly or
indirectly exercises control over another enterprises engaged in production, distribution, or trading
of a similar or identical or substitutable services.

4. Combination is also considered to take place when the value of the asset of the enterprise after
amalgamation or merger is more than rupees one thousand crores, or when the aggregate value of
the asset within or outside India is more than five hundred million US dollars.

2MR.M.GOVINDARAJAN,REGULATION OF COMBINATION UNDER COMPETITION ACT, AVAILABLE AT

https://www.taxmanagementindia.com
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5. Where the group after merger or amalgamation would belong to the enterprise and it would have
the assets of the value of more than rupees four thousand crores or the aggregate value of the assets
is more than two billion US dollar within or outside India. 3

Mergers Under The Competition Act

The term Merger has been used broadly in the competition act as to include amalgamation and
acquisition of shares and control over the assets and the voting rights of an enterprise. Merger is a
kind of event which brings tremendous change in the management of the affairs of one enterprise
by another enterprise. Through merger one enterprise is entitled to exercise control over the
significant part of the assets and the decision making power of the other enterprise. Merger is an
ordinary activity which takes place between the business entities in order to expand their business.
Merger is considered to be a significant activity for the enterprise as it provides the enterprises to
run their business on a large scale.

But there are certain mergers which are considered detrimental and adversely affect the
competition. The most negative impact of merger is that it leads to the reduction of competition in
the market by reducing the number of entities in the market. Merger between entities also leads to
the increase in price of the goods and services which prejudicially affects the interest of consumers
as the merged enterprises exercises full control over the market and restrain the entry of new
players in the market which confers on them the advantage of limiting the output and restricting
market access.

Kinds of Merger

Ø Horizontal merger –This type of merger takes place between the enterprises that are engaged in
the trading of similar goods and services. It mainly takes place to improve the market share and to
carry out the operations of the enterprises on a large scale. This kind of merger has an adverse

3 H.K.SAHARAY COMPETTION LAW,(Universal Law Publication Co.Pvt. Ltd., New Delhi,2012).

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affect on the competition as it creates collaboration between the enterprises pertaining to pricing
of the good and limiting the output.4

Ø Vertical Merger -Vertical merger is a kind of merger in which enterprises are engaged in
different stages or levels of production chain in different markets, in respect of production, supply,
distribution, storage, sale or price of, or trade in goods or provision of services.

Ø Conglomerate Merger - Conglomerate merger is a kind of merger where two enterprises that
merge together are involved in different kind of business. The significance of conglomerate merger
is that it helps the merging companies to enhance their activities and strengthen their financial
position. There are two kinds of conglomerate merger, the first one is known as pure conglomerate
merger which basically takes place between the companies who are doing business which is not
related to each other. The other kind of conglomerate merger is known as mixed merger which is
a kind of merger in which the main object of the enterprises are to expand their business and to
gain market access and to increase the range of their products.

Reason Behind Mergers And Acquisitions

In the recent years mergers between the enterprises has rapidly increased. The point listed below
discusses the main reason behind increased mergers taking place:

i) Market share- Companies amalgamate to reduce competition and to gain dominant position in
the market. The increase in the market share helps the enterprises in exercising their will and
limiting the production and increasing the prices.

ii) Large economy- One of the most important significance of merger is that the scales of the
business entities are enlarged and they carry operations on a large scale which in turn leads to the
generation of huge amount of revenue.

4 HORIZONTAL MERGERS. AVAILABLE AT http://www.lexuniverse.com

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iii) Diversification- Diversification leads to the increase in the trust of the consumers as
diversification yields fruitful earnings for the companies.

iv) Tax consequences- Companies amalgamate to evade tax. So it is one of the major factors which
are considered while granting the order to merge as tax evasion creates loss of revenue to the
government and prejudicially affects the economic development of the country.

MRTP Act, 1969 Vis-À-Vis Competition Act (Combinations Provisions)

In the MRTP act, 1969 there was a requirement to obtain assent from the central government before
entering into any merger or amalgamation between the enterprises. Howsoever this provision was
deleted in the MRTP (amendment) Act, 1991. But the competition act, 2002 has made it obligatory
for every enterprise to give a notice of such merger between the enterprises. Under MRTP Act,
power was vested in the central government whereas in the competition act the power for
regulation of the combination is vested in the commission constituted under the act and is known
as the competition commission. The concept of asset or turnover outside India is a new concept
and is implicit in the competition act but it had no place under the MRTP act. The concept of cross
border merger was also introduced for the first time in the competition act, 2002.

Merger Control In India

Though the competition act came into force in the year 2003 but the provisions pertaining to anti-
competitive agreements, abuse of dominant position came into effect in the year 2009. In the year
2011 proposal for the amendment to the provisions to the merger control was made by cci after
consulting law firms, business entities and the stake holders.

In India Merger as a part of the combinations has been defined in section 5 of the competition act
and the provisions relating to the regulation of the combination is defined in section 6 of the Act.
Merger is an ordinary practice in the business world. It has several advantages like increasing
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efficiency and economy but there are several detrimental effects of merger. The effects are so
severe that there was need felt to control merger. Any merger is considered to be prejudicial if it
causes “Appreciable Adverse Effect” on competition. The term appreciable adverse effect has not
been defined in the Competition act but any kind of merger having this effect is prohibited under
the competition act. Section 20(4) of the Competition Act, 2002 provides the substantive test
whether the combination has or is likely to have ―appreciable adverse effect on combination.

The substantive test encompasses examination of certain factors incorporated in the above section.

Some of the factors are:

a) Restraining entry of new players in the market

b) Advantage of the combination to the economy of the country

c) Extent of elimination of competition from the market.

d) The availability of substitutes in the market.

e) Whether the benefits of combination outweighs the adverse effect on competition.

Analysis of The Role of Competition Commission

Competition commission of India is a significant body of the Government of India. It is

accountable for the enforcement of the competition act, 2002. Competition Commission plays an
imperative role in preventing adverse effect on competition in India. Competition commission acts
as a market regulator of all the sectors and primarily draws focus on curbing the anti-competitive
practices which is detrimental to the competition. Competition Commission of India is empowered
to take cognizance of the anti-competitive practices prevailing in the Indian market. The
Competition commission was established on 14 October and came into effect on May 2009.

Duties of Competition Commission

Competition commission has been entrusted with several duties under the competition act 2002.
The primary duties of the competition commission are:

• To eliminate practices having appreciable adverse affect on competition

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• To maintain competition in the market.

• To promote freedom of trade and eliminate any constraints in the entry in the market.

• To protect the interest of the consumers and to eliminate all the practices prejudicially affecting
the interest of the consumers.

Section 18 of the competition act deals with the duties of the competition commission of India.

Power of the competition commission

There are several Powers conferred on the competition commission:

• It has the power to regulate its own procedure

• The commission has the power to call upon and take assistance from experts from various fields
like field of economics accountancy and commerce etc. in the conduct of any inquiry it undertakes.

• In the discharge of its functions competition commission is required to follow the principle of
natural justice and should comply with the provisions of the competition act 2002.

Power of Competition Commission In Regard To Combination Under The

Competition Act

There are certain powers conferred on the competition commission for regulating
combination.section-6 of the competition act deals with the provision pertaining to regulation of
combination. It states that no person should enter into any combination which is likely to cause
appreciable adverse effect on competition within the relevant market in India and such a
combination shall be void.5

1. Mandatory Notice- It is obligatory for any enterprises entering into any combination to notify
the competition commission about the merger if the value of the aggregate assets and turnover
exceeds the threshold limit provided under section 5 of the act. The required notice should be
forwarded to the commission within a period of 30 days.

5 Amitabh Kumar, Regulating Mergers& Acquisitions, Economic Times (December, 2007).

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2. 210-Days Waiting Period- under the competition act it is provided that no combination will
come into effect until 210 days have elapsed since the date of receiving the notice pertaining to
combination by the commission or the date of passing of the order whichever is earlier.

3. Relevant Market- Relevant market means ‘the market which may be determined by the
Commission with reference to the relevant product market or the relevant geographic market or
with reference to both the markets’. Relevant geographic market means ‘a market comprising the
area in which the conditions of competition for supply of goods or provision of services or demand
of goods or services are distinctly homogenous and may be distinguished from the conditions
prevailing in the neighboring areas. Relevant product market means ‘a market comprising all those
products or services which are regarded as interchangeable or substitutable by the consumer, by
reason of characteristics of the products or services, their prices and intended use.

1) Form Filing And Cost- There are certain forms which are prescribed by the competition
commission to be filed with notice of the combinations. The competition commission is also
empowered to issue show cause notice to the parties of combinations if the commission is of the
opinion that such combination if allowed will cause appreciable adverse effect on the competition.

2) Extra-Territorial Jurisdiction- Section 32 of the competition act confers an imperative power on

the commission to inquire into any act pertaining to any agreement, abuse of dominant position or
combination taking place outside India but adversely affecting the competition in India. In the
Indian Competition Act, 2002 has the extra territorial jurisdiction.

Power To Impose Penalty

The competition commission is also empowered under the act after conducting inquiry into the
matter pertaining to combination to impose a fine that can be extended to one percent of the total
turnover or the assets of the combination, whichever is higher, for failure to give notice to the
commission of the combination.

Appeals
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The central government is empowered under the act to constitute Competition Commission
Appellate Tribunal to hear any appeal or any direction issued or decision made by the competition
commission under any provision of the act including any order related to combination. An appeal
before the competition commission appellate tribunal is required to be filed within a period of 60
days after the passing of order or decision by the competition commission.

Conclusions

Combinations are the practices common to the business entities and the purpose of the combination
is to accelerate economic growth and enhance trade practices which in turns benefit the consumers.
Combinations are not always beneficial and might cause socio-economic implications on the
competition as today’s competition may be tomorrow’s dominance. Before the enactment of the
Competition Act, the Companies Act, 1956, MRTP Act, 1969 were the statutes mainly concerned
with the regulation of merger. MRTP before its amendment which took place in the year 1991 had
power to control restrictive trade practices (RTP) and monopolistic trade practices (MRTP) and
was empowered to take action against any merger that has appreciable adverse effect on the
competition. But after the amendment of MRTP Act which took place in the year 1991 for the
liberalisation of trade resulted in the incompetence of the MRTP Act to control the unfair mergers.
For the purpose of promoting fair trade practices and prohibiting any kind of practices which are
detrimental to the competition, the competition act, 2002 was enacted. Competition laws of India
underwent two amendments which took place in the year 2007 and 2012. These amendments had
an imperative impact on the provisions of the merger under the competition act. By 2007
amendment the notification in regard to the combinations i.e. (Mergers, Acquisitions &
Amalgamations) to the commission was made compulsory under the act. There was an increase in
the combination limit by the 2012 amendment of the competition act which was a kind of relief
for several kinds of merger.

The competition commission of India enjoys enormous power under the act. The main duty of the
commission is to eliminate any adverse practices which are detrimental to the interest of the
consumers. It is also empowered to conduct investigation if he forms a prima facie opinion that
the combination is or are likely to cause appreciable adverse effect on the competition. It may also
pass several orders for different mergers after considering several factors. It is also empowered to
impose penalty which can exceed 1% of the total turnover or assets of the combination.
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Henceforth it can be concluded that Merger has both positive and negative effect. In order to
ascertain the true nature of merger it is necessary to study the objectives behind merger.

Bibliography

1. http://www.cci.gov.in
2. http://www.legalservicesindia.com
3. https://www.taxmanagementindia.com
4. https://www.investwords.com