ROLE OF COMPETITION LAW IN REGULATING MERGERS AND ACQUISITIONS by -APOORV MISHRA
Customers are guaranteed the widest possible selection of services at the most affordable costs through competition, which is widely accepted. Entrepreneurs can expand their businesses in two ways: internally or externally. With internal expansion, a company’s growth may be seen over time as it acquires assets, upgrades outdated machinery and sets up new product lines. However, with external expansion, a company purchases a running business and grows rapidly through corporate mergers and acquisitions. There have been a number of ways in which corporations have restructured in the past decade, including mergers, acquisitions, amalgamation and takeover transactions. They’ve played a key role in the global expansion of a number of major corporations. Competition, a free flow of capital across countries as well as the globalisation of businesses have all contributed to their rise in popularity. Indian industries have also started restructuring around their core business activities through acquisitions and takeovers because of the increased exposure to competition both domestically and internationally.
For the most part, the goal of competition policy and law is to ensure that resources are allocated in an economy in a more effective manner. Competition Act, 2002 and the Competition Commission of India were established in January 2003 and October 2003, respectively, to control CCI’s merger and acquisition orders in India.
Competition is a process based on self-interest and profit maximisation, but it should also be beneficial to society as a whole. It improves the efficiency of the market system while simultaneously increasing economic development. It is a condition in the marketplace in which suppliers struggle to achieve an adequate business aim on their own, without the assistance of purchasers. The primary goal of the “Monopolies and Restrictive Trade Practices Act”, hereinafter “the MRTP Act”, was to outlaw unfair and restricted trade practises of a restrictive character. 2 This kind of unfair commercial practise includes behaviours such as deceptive advertising and misrepresenting fraudulently in order to acquire revenues from a firm. This Act was regarded as competition legislation in India since it dealt with commercial practises that had the effect of inhibiting the development of competitive markets. Nonetheless, as time went on and evidenced by comparisons with the competition laws of other countries, it became clear that the MRTP Act was playing a weaker role in preserving fair competition in Indian markets than the competition laws of other countries do. As a result of this realisation, the Competition Act, 2002 was enacted, which shifted India’s trade policies away from command and control and toward globalisation.
III. COMPETITION ACT, 2002
The Competition Act of 2002 (hereinafter “the Act”) superseded the previous MRTP Act of 1969 since the latter was found to be insufficient in terms of giving better opportunities for the development of our economy. On the 10th of September, 2007, the new statute was enacted. This Act intended to encourage competition in the marketplace. It also assures that the participants in the marketplace have the ability to trade freely. It aims to prohibit behaviours that have a negative impact on competition from taking place. This Act also protects the rights and interests of customers, as well as their property. The primary motivation and goal of the legislation is to allow for the formation of a commission. This is done in the interest of the country’s economic progress.
Under Section 3 of the Act, it is unlawful to engage into any sort of agreement about the manufacture of a product or the supply, distribution, or provision of a service that has an unfavourable impact on competition in India. The CCI ruled in the matter of “Builders Associations of India v. Cement Manufacturers Association”3 that proof of anti-competitive agreements might be deduced by evaluating the evidence. Despite the fact that there were no agreements in this instance, circumstantial evidence indicated that the parties were involved in the acquisition and control of production, the supply of goods, and investments.4
B. Abuse of one’s position of power
Several clauses in Section 4 of the Act are concerned with the misuse of a dominating position in the marketplace. When a group of individuals engage in activity that results in the elimination of a rival, this is referred to as “abuse of a dominating position”. When establishing whether a dominant position has been abused, the Act is primarily concerned with the geographical location of the marketplace as well as the value of the product in the marketplace. As part of the growth of the sector, this organisation is also responsible for ensuring compliance with the Act.
In the matter of “Shri Shamsher Kataria v. Honda Siel Cars India Ltd & Ors”5, the CCI received information about a possible breach of Sections 3(4) and 4 of the Act and initiated an investigation. In other words, these agreements were anti-competitive agreements and a misuse of dominance in the marketplace. Individual repairers were unable to get technical knowledge about the software programmes since the OEM (“Original Equipment Manufacturer”) did not provide it. As a result, independent repairers were subjected to an unfair and discriminatory condition, which resulted in them being denied entrance to the marketplace. According to the DG study, there are three distinct markets in this situation:
- Primary market;
- The service of maintenance provided after the
The issue in question was whether or not there had been any misuse of dominant position in the spare parts industry. OESs were granted permission to sell spare parts goods in the marketplace after the commission levied a fee of 2% of the total sales on 14 vehicles and ordered them to submit a report within 180 days of the date of the fine.
IV.RESPONSIBILITIES OF THE CCI
It was the CCI that was responsible for the creation of the Act. The Commission strives to avoid harmful impacts on competition in the country’s markets. Section 18 of the Act establishes the primary responsibilities of the Commission, which include the following:6
- Putting an end to business activities that have a negative impact on the competition;
- Promoting the free flow of commerce in the nation and eliminating any restrictions from the market,
- Maintaining competition in the market (primarily for the purpose of protecting the wants and interests of customers by eradicating any and all practises that are detrimental to the consumer’s interest);
- Raise or expand public understanding about the importance of
V. POWERS OF CCI REGARDING “COMBINATIONS”
Section 6 contains the laws that deal with the regulation of “mergers and acquisitions” (also termed as “combinations”). A “combination” is the combining of two or more businesses or companies into a single legal entity. According to the law of the country, a person may not engage into a combination that causes injury or has a detrimental impact on competition in the relevant market in India. If any individual engages into any such combination, it will be deemed null and invalid by the court.
- Requirement of Notice7
A merger is an arrangement that unites two or more businesses into a single new corporation. If the merger results in the formation of a combination, the Committee must be notified of this fact. This should be reported to the Commission within 30 days of the discovery.
- 210-days waiting period8
The Act states that no combination may take effect until 210 days have passed after the date of receipt of the notice, or the date of passage, whichever comes earlier.
- Relevance of Market9
The “relevant market” is the market that has been identified by the Commission in relation to the relevant market product and the relevant market geographic region. This implies that the products may be used in place of the commodities. When we speak about a relevant product market, we are referring to a market that contains all items that are replaceable by consumers.
VI.RULES & REGULATIONS OF COMBINATIONS
Among the most essential forms of corporate restructuring, “mergers and acquisitions” are the most sought-after ways for transforming a company’s operations. A “merger” is the process of combining two businesses to form a single new entity. “Acquisition”, on the other hand, occurs when a firm is bought out by another corporation and becomes their property. An acquisition might be friendly or hostile depending on the circumstances. A merger may open the door to more competition for regulating opportunities in the market complex. Mergers should only be contested if there is a risk of damage, or if there is a negative result or an undesirable consequence from the merger.
In general, “mergers and acquisitions” are a means of expanding business activities in order to enter new markets while reducing the risks associated with expansion. As a result of these advantages, these activities are not subject to the provisions of anti-competitive agreements because they do not violate those provisions. Mergers were nevertheless necessary to be controlled since, in addition to these benefits, an amalgamation might result in an organisation gaining a dominating position, which can be detrimental to a market. Section 6 of the Act expressly controls and forbids those business combinations that have an unfavourable impact on the market, and such business combinations are deemed unlawful by the courts. Companies are required to submit a notification with the CCI within 30 days after receiving permission from the Board or signing of an acquisition agreement in the event of a merger or acquisition agreement, whichever is earlier.
As a result, the CCI has the authority to prohibit the formation of a combination that may pose a danger to competition in the country. Additionally to unfavourable market impact, there are many additional considerations that the Commission must take into account every time he conducts an inquiry for combinations10, which are as follows:
- The likelihood that the combination will be able to considerably raise the prices in the market as a result of its dominant
- The extent to which impediments to entrance into the market
- The extent to which an idea is implemented.
- Market vertical integration and its nature.
- Substitutes that are now available or that are expected to become available on the
The commission provides permission under Section 31(1) of the Act when it is certain that the combination would not be damaging to the market and after taking into account the evaluation considerations listed above. The method of providing advance notification to the CCI by combinations has been made necessary under the Act, which was absent from the previous one and was originally considered voluntary.
One thing to keep in mind in the event of unlawful combinations is that not only is the immediate impact important, but so is the influence on future competitive circumstances. As a consequence, in order to assess if the combination will have any impact on competition, it is required to determine whether the combination has gained market strength as a result of which the competition in that particular market would be negatively affected. The CCI is informed of tiny transactions when the financial threshold is met only by interconnected transactions, or by a series of interdependent transactions, that finally result in a combination, but only by a single notice that covers all of the transactions in question. There was an amendment to the “Combinations Regulations” in 2014 that made such transaction filings more straightforward and relaxed by requiring companies to notify the CCI about the structure and substance of a combination transaction and avoiding notice in respect of the whole or a part of the said transaction11.
In addition, in order to facilitate business activities, the Government of India introduced certain Combination Amendments in 2019 to establish a “green channel route”, under which the parties who meet the specified criteria and are involved in these transactions do not have to wait for the approval of the CCI before proceeding with the notified transaction.However, this “green route channel” is only available to those group entities, direct or indirect investors, and combination parties that meet the following requirements:12
- They should not be engaged in the production of similar products or services.
- They should not be engaged in any aspect of the company activity at any stage or
- They should not be involved in any degree of business operations that are supplementary to their current
It is assumed that the transaction has been accepted when these have been qualified and the acknowledgment of the form submitted under the “green route channel” is received. In the event of an acquisition, the acquirer is required to submit a positive statement to CCI declaring that the combination meets the green channel requirements; if the acquirer fails to do so, both the form and the presumed approval are null and void.
There hasn’t been a single merger in India that has been rejected or entirely banned by the CCI. However, there are other examples of this happening throughout the globe, such as the “Lonrho & Gencor merger”13, which was prohibited by the European Commission because the combination of the two would have established a dominating position in the platinum sector.
Following receipt of a notice of combination, CCI follows the procedure outlined below:
- As established in Section 20 of the Act, the CCI begins the investigation process. This investigation is initiated after receiving information from the commission or after receiving a notification from the person who is intending to engage into a combination.
- Section 29 of the Act clearly explains the whole inquiry method to be followed by the commission if it believes that the merger has the potential to have a negative impact on the
- Three days after receiving a relevant notice of show cause, the Commission may elect to request a report from the Director
- Once having conducted a thorough investigation, the commission may come to the decision that either the combination does not hurt the market or that revisions to the combination are required to remove specific components that may cause harm to the
- According to Regulation 27 of the “Competition Commission of India (Procedure in Regard to Transaction of Business Relating to Combinations) Regulations, 2011”, the commission may also appoint agencies to oversee a combination that requires modification.
- The statute gives the commission the authority to impose a penalty on combinations that have not been reported to the CCI in accordance with the An appeal against the commission’s ruling may also be made with the “Competition Appellate Tribunal” within 60 days of the order being issued.14
VII. MERGERS THAT ARE WITHIN THE PURVIEW OF THE COMPETITION
According to the Act, mergers have been extensively employed for a variety of purposes, such as the purchase of shares and the exercise of control over voting rights as well as the assets of the firm. After a merger, the management fields of one firm are transferred to that of another enterprise. One business is entitled to control over the relevant portion of the assets, as well as the ability to make decisions in this regard. A merger is a common action that occurs between commercial organisations in order for them to develop their respective enterprises. However, there are certain mergers that have a negative impact on the competitive environment as a result. The negative effects of mergers result in a lessening of competition in the market place, which is accomplished by reducing the number of organisations in the market. Mergers have the ability to prevent new competitors from entering the market, which results in advantages for them since they limit the amount of production produced. Mergers also result in a rise in the cost of products and services, which is detrimental to the interests of customers. It is possible to assert that mergers have complete control over the market.There are three different types of mergers:
- Horizontal fusion:15
This merger occurs between businesses that are engaged in the trade of products and services that are similar in nature. It strives to increase the value of its market share while also conducting activities on a broad scale. It has a negative impact on the competitiveness in the market or has the potential to do so.
- Mergers on a vertical scale16
The firms in this area are active in a variety of product tiers across a variety of market segments. It may be used for a number of purposes, including the supply of commodities, the manufacture and storage of products, the trading of goods etc.
- Conglomerate mergers and acquisitions17
In this case, two separate forms of mergers take place in two different types of businesses. This merger allows the merging organisations to improve the quality of their work while also attempting to retain financial stability by consolidating their operations. There are two kinds of conglomerate mergers: (a) A “pure conglomerate merger” occurs when two businesses that are independent of one another yet are tied to one another unite. (b) The “mixed conglomerate merger”is the one where the primary goal of the firm in this case is to expand their business and enhance earnings by gaining access to new markets, as well as to increase the variety of goods available.
VIII. FACTORS CONTRIBUTING TO THE GROWTH IN MERGERS AND ACQUISITIONS BETWEEN BUSINESSES
- Companies benefit from an increase in their market share since it allows them to reduce production while simultaneously raising their
- As a result of the combination of company growth scales and the activities that they carry out, the quantity of money generated
- It promotes client confidence and loyalty to the performances, resulting in increased profits for the firms
- Companies attempt to merge in order to avoid paying
IX. PRIVATE EQUITY
Private equity is a kind of investment that involves the use of money to make a profit.A thorough understanding of competition law is required for every possible investment by private equity. The mergers attempt to exert influence over the transitions, which are made up of private equity companies. Although private equity is a complicated field, they are still attempting to establish themselves in the sector. They have complete control over investments in specialised industries, as well as a huge number of enterprises in general.Because of the high turnover, private equity transactions involving private equity companies are subject to the requirements of merger control. In this situation, it has the potential to surpass the applicable criteria. Private equity firms get individual control over a target by purchasing the following:18
- The whole available
- A majority stake in a
- A minority stake in the
X. GREEN CHANNEL ROUTE
The Combination Regulation was changed by the CCI in order to allow for the development of a “green channel.”The CLRC (Competition Law Review Committee) report was written in order to improve the efficiency with which the combination legislation is implemented in the year 2019. The Green Channel was created in order to strengthen the merger laws and regulations in the United States. It achieved a balance between the functions and the enforcement of the law. It also contributes to the country’s economic development. The CCI introduced the ‘green channel route’ in order to expedite the approval process for mergers and acquisitions clearances. If the filing notice is received with the CCI, the transaction is approved on the same day it is submitted. As a result of this treatment, the waiting duration is significantly decreased.
Any denial or refusal to inform the CCI would be punishable under Section 43A of the Act, which provides for civil and criminal penalties in certain circumstances. The CCI also has the authority to purchase combinations either on its own initiative or in response to a receipt demonstrating that the combination regulation has an unfavourable impact on or produces an adverse effect in the market.
XII.TRANSNATIONAL ASPECTS OF COMPETITION LAW & MERGERS AND ACQUISITIONS: A COMPARATIVE ANALYSIS OF THE EUROPEAN
UNION AND THE UNITED STATES
Due to the increasing number of American companies expanding their operations overseas, even the most routine merger or acquisition appears to have a transnational component that neces- sitates the analysis and, in some cases, the filing of a premerger notification under an increasing number of foreign “competition laws” (or what we call antitrust laws). Understanding of those competition regulations has become a requirement for attorneys in the United States of America. While the United States has by far the widest and most actively
enforced antitrust laws in the world, the European Union is currently running a close second, and other nations are starting to follow the lead of the United States in this regard. Any company that is engaged in international operations — whether through exports or through the activities of foreign subsidiaries or other affiliated companies — or that is contemplating the acquisition of a company engaged in international operations should include a review of relevant foreign merger control laws in its pre-merger analysis.
The European Union’s merger policy, similar to the Hart-Scott-Rodino Act in the United States, requires parties to deals over a specific size threshold to inform the regulator prior to finalising the merger or acquisition.19 In the United States, the merging parties are required to postpone closure until the conclusion of a 30-day holding period. According to European law, however, a notifiable “concentration” (i.e., a merger, acquisition, or other consolidation) of two or more “undertakings” (i.e., companies or other organisations) may not be executed unless it has been approved by the European Commission. The Commission, on the other hand, must make a decision within one month on whether to authorise (or clear) the transaction or whether to challenge it. A “second request” for information from the government in the United States will result in an extension of the waiting period for an indeterminate period of time, whereas in the European Union, a “second-stage investigation” by the Commission will result in an extension of the waiting period for an additional four months. Both the United States and the European Union’s enforcement agencies have created implementing laws to make the premerger notification procedure more efficient. 20 The European Union’s merger strategy is outlined in a comprehensive merger control rule that was first implemented in 1989 and considerably updated in 1997, respectively.21
A notification to the Commission must be made in advance for any mergers or acquisitions of community dimension and for those joint ventures of community dimension that meet specified quantitative requirements as prescribed by Regulation. Generally, a combined global revenue in excess of 5 billion Euros (approximately US$5.5 billion) and an individual turnover in excess of 250 million Euros (approximately US$275 million) for at least two of the parties to the merger or joint venture is required for notification purposes. If each party generates more than two-thirds of its total community-wide turnover in a single member state, the Merger Regulation does not need notice to the European Union. If the transaction is within the scope of the Merger Regulation, the Commission has exclusive jurisdiction, which implies that the merger will not be subject to concurrent procedures under national competition laws if it falls within the scope of the Merger Regulation. The different merger control laws of Member States apply to transactions that fall below the Regulation’s thresholds and are subject to scrutiny under their respective merger control legislation.22
The Merger Regulation was modified by the European Union in 1997, and it became effective on March 1, 1998. Multiple notification of the same transaction increases legal uncertainty, effort, and cost for companies while also leading to conflicting assessments. It was also recognised that expanding the scope of Community merger control to concentrations with a significant impact in several Member States would ensure that a “one-stop shop” system would apply. The change decreased the bar for mergers subject to Commission jurisdiction that impacted at least three Member States and were approved by the European Parliament and Council. The notification to the European Union must be filed no later than one week after the agreement is signed, the public bid is announced, or the acquisition of a controlling interest.’ Failure to submit notice of a merger with a Community dimension (or to give appropriate information in such a filing) may result in hefty penalties, much as it does in the United States.’ As long as the merger or acquisition does not result in the creation or strengthening of a dominating position that would materially restrict effective competition in the European Union, it will be considered compatible with the Common Market. An inquiry by the Commission is only launched if the Commission has “substantial concerns” that the proposed combination constitutes a concentration that is permissible under the Merger Regulation. The Commission may then approve or disapprove the transaction, either unconditionally or conditionally, or it may ban the transaction altogether. In the vast majority of situations, the Commission grants approval for the merger.23
Aiming to drive economic development while also improving business operations, mergers and acquisitions are intended to assist and benefit consumers in a variety of ways. The amendment to the MRTP Act that resulted in the Competition Act had a greater impact on society and resulted in a slew of reforms. The CCI was made responsible for mergers and acquisitions around the year 2007 when the Competition Act was amended. The CCI is granted a wide range of authority under this statute. Consumer protection is primarily focused with decreasing the negative impacts that are damaging to them as customers.
The most important factor in successfully complying with the antitrust laws of the United States and with the competition laws of foreign countries is to understand how the various aspects of any particular international commercial transaction fit into the public policy designs of the countries in which they are conducted. It is critical to examine the relevant laws at both ends of an international transaction, i.e., at the U.S. end and at the foreign end, while conducting an international transaction. While there are numerous parallels in content and process throughout all of these systems, there are also major variances that may be result determinative in certain cases.
1 Student at ILS Law College, Pune
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