INTRODUCTION
The Competition Act 2002 is the fundamental constitution that administers mergers and acquisitions (combinations) in India. A merger is when two companies combine to form a new single establishment. On the other hand, an acquisition happens when an enterprise acquires another company. The Competition Commission of India is tasked with assessing and overlooking mergers and acquisitions in India. Even though competition in a market is beneficial, it also has certain disadvantages that the Competition Act tries to overcome.
THE COMPETITION ACT, 2002
The Competition Act, of 2002[1] Was established to promote the economic development of the nation. This act regulates and foresees anti-competitive practices, fosters and sustains market competition, secures consumers’ interests and guarantees liberty of commerce in markets, in India. It is also the principal legislation that governs mergers and acquisitions in India.
The Competition Act, of 2002 is concerned with the following three areas.[2]:
- Prevention of Anti-competitive agreements
- Prevention of misuse of dominant position
- Supervision of combinations, i.e., mergers and acquisitions
MERGERS UNDER THE COMPETITON ACT
The Competition Act has used the term merger to include acquisitions of shares and to have control over the voting rights and assets of an enterprise. Through mergers, an enterprise can bring significant changes to the affairs of another enterprise and can have a hand on assets and authority in the decision-making of the other enterprise. They can also hurt competition by restricting other people from entering into the market which, in turn, benefits them by limiting their output.
KINDS OF MERGER
There are 3 kinds of merger.[3]. These are:
- Horizontal merger- Under this type of merger similar kinds of goods and services are traded between enterprises. It can have the potential to negatively impact the competition in the market.
- Vertical merger- This involves enterprises committed to various stages of products in various market fields.
- Conglomerate merger- Under this, the two enterprises that are merged are engaged in various types of businesses. Under this, there further exist two types of mergers. The first one is referred to as a pure conglomerate merger. It occurs between companies that are not related to each other. The second one is a mixed merger where their main objective is to grow business and increase their range of products.
MERGERS AND ACQUISITIONS UNDER THE COMPETITION ACT
Sections 5 and 6 of the Competition Act deal with the regulation of mergers and acquisitions. The Competition Act, of 2002 describes the term combination under section 5[4]. It defines a combination as the acquisition of one or multiple enterprises by one or more individuals, merger or amalgamation of an enterprise if it meets the jurisdictional thresholds that have been set down by the Competition Commission of India. The CCI (Competition Commission of India) formulates the procedure for the execution of provisions under this act. Therefore, the conditions are as follows[5]:
- If in an acquisition, the parties gain power over the right to vote or over the assets of the venture and the asset value exceeds INR one thousand crores or the turnover is greater than rupees three thousand crores or greater than five hundred million USD outside India.
- Combination also comes into the scene when a group obtains an enterprise and its authority over shares, the voting rights, and where the net asset worth is greater than four thousand crores or the turnover is greater than twelve thousand crores and when the asset is valued at two billion USD within or outside the country.
- When a person takes control over an enterprise and exerts its power over other enterprises taking part in distribution, production or similar services.
- When after a merger, an enterprise an enterprise gains control over a group and its valuation is over rupees four thousand crores or the cumulative asset value exceeds two billion USD.
Mergers and Acquisitions are important strategies to expand business activities and enter new markets. Section 6[6] Under the Competition Act prohibits those combinations that are expected to cause adverse effects in the Indian market and such combinations shall be said to be void. Section 6(2)[7] Describes associations forming a combination should have to notify the commission with a form including fees, that is administered by the combination regulation. Further, the act says that the notice should be given for clearance to the commission within 14 days by the Board Of Directors in an instance of mergers or execution of any documents in the instance of acquisition.
Therefore, the Competition Commission of India can repress combinations that are likely to threaten competition in the country.
ANALYSING THE ROLE OF THE COMPETITION COMMISSION
The Competition Commission of India is in charge of the administration of the Competition Act, of 2002 and has a crucial role in preventing adverse effects of competition in India. The task of this commission is to prevent practices that could hurt competition. It is also required to give a viewpoint on issues based on competition referring from a statutory authority.[8].
The CCI has been assigned several tasks related to the regulation of combinations. One of the primary duties of the CCI is to avoid and eliminate practices having adverse effects on competition. In the case of Shri Surinder Singh Barmi v. Board of Control of Cricket in India (BCCI)[9], the IPL agreements of ownership were found to be discriminatory and unfair and thus a penalty was imposed by the CCI on BCCI. It was held that the BCCI had misused its dominant position.
Other primary functions of the CCI are to sustain competition in the market, encourage freedom of trade and also to do away with any limitations entering into the market. It also looks into the interests of consumers and eliminates practices that affect consumer’s interests.
In one of the recent cases, a question arose before the High Court regarding the court’s authority to step in the proceedings and investigations conducted by the Competition Commission of India (CCI) when there is a possible misuse of the law. It is in the case of Gmr Hyderabad International Airport Ltd. v. Competition Commission of India.[10] The High Court noted that a directive issued under Section 26(1) of the Competition Act, 2002, commanding an investigation by the Director General, is fundamentally an administrative order. The order is approved solely to ascertain whether the claims presented by the informant under Section 19(1), about potential breaches of competition law are accurate. Therefore, unless there is any abuse of process, High Courts cannot intervene with such investigation.
CONCLUSION
The Competition Act of 2002 was an initiative taken by the Government of India to keep up with developing economic growth and boost trade practices. Mergers and acquisitions became mandatory to the commission in the Competition Act around 2007. While the act imposes certain restrictions on the combination, these limitations do not hinder business growth and ensure that such growth does not disrupt consumer welfare and fair market practices. Further, the CCI is not just a mere regulatory body but also a vigilant umpire overseeing practices having adverse effects on the competition. From the above-mentioned case laws, it is evident that CCI does play an active role in preventing anti-competitive practices, however, it is also subject to judicial review as courts may intervene in cases where abuse of process is evident.
While its role in preventing anti-competitive practice is commendable, it is also important that businesses engage in legitimate growth without administrative hurdles.
Author(s) Name: Ektaa Chatterjee(Ramaiah College of Law, Bangalore)
References:
[1] The Competition Act, 2002
[2] Satyam Sharat, Mergers And Acquisitions Under The Competition Act, 2002 (Manupatra, 13 February 2002) <https://articles.manupatra.com/article-details/Mergers-Acquisitions-Under-the-Competition-Act-2002> accessed 6 December 2023
[3] Niharika Sharma, Merger Dominion: Impression On Competition On India (LiveLaw, 8 April 2023) <https://www.livelaw.in/lawschoolcolumn/merger-dominion-impression-on-competition-in-india-225826?infinitescroll=1> ,accessed 7 December 2023
[4] The Competition Act, 2002, s 5
[5] ibid
[6] The Competition Act, 2002 s 6
[7] The Competition Act, 2002 s 6(2)
[8] The Competition Act, 2002 s 18
[9] Surinder Singh Barmi v The Board of Control for Cricket (2017) AIR 2017 SC 61
[10] GMR Hyderabad lnternational Airport Ltd. v Competition Commission of India (2022) 144 taxmann.com 186 (Telangana)
