This article is written by Afif Khan who is pursuing an Executive Certificate Course in Competition Law, Practice and Enforcement from Lawsikho.

Introduction

The Competition Act, 2002 (“The Act”) was enacted keeping up with the economic developments, for the preservation and promotion of competition in the Indian market by preventing practices that may cause or are likely to cause an appreciable adverse effect on competition in India. The Act, apart from prohibiting agreements that are anti-competitive in nature and abuse of any position of dominance by enterprises, also regulates mergers, amalgamations, and acquisition transactions, also referred to as combinations. 

These combinations are an everyday part of a growing economy like India. We have seen in the recent past, major deals like Vodafone – Idea and Reliance Jio – Facebook, among others. To make sure that the market remains competitive, the Act envisages the regulation of such deals. 

For the purpose of the regulation of combinations, the Act has three principal sections. Additionally, the Commission is also empowered to regulate its own procedure. To that end, The Competition Commission of India (General) Regulations (“General Regulations”), 2009 and The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”) are enacted to regulate the Commission’s own procedure with respect to general affairs and combinations respectively. The General Regulations provide a regulatory framework for the overall working of the Commission while the Combination Regulations provide a framework in cases involving combinations. 

Now, let us look into the three principal sections that regulate combinations. 

Three sections in brief

As mentioned before, there are three sections that are used to regulate combinations, viz. Section 5, Section 6 and Section 20. Section 5 defines what would constitute a combination under the Act by providing for certain situations involving, an acquisition, a merger or an amalgamation among others. It also imposes certain monetary thresholds, which, if crossed, make the transaction a combination. Once, a transaction falls under the narrowly worded section 5 and becomes a combination, then it is regulated by section 6 of the Act. Section 6(1) declares that “no enterprise or person shall enter into any combination which either causes or is likely to cause an appreciable adverse effect on competition(“AAEC”) within the relevant market in India” and makes such combinations void. To assess which combinations cause AAEC within the relevant market, section 6(2) makes them notifiable to the Commission. The Commission, on the basis of factors laid down under section 20(4), either on its own motion or due to the notification caused by section 6(2), inquires into whether a combination causes AAEC. 

For this article, we will first look at the applicable sections that are used to regulate combinations in detail and then we will look at the regulations. 

Sections  

Section 5 – Combinations

This is the principal section that defines what a combination is. It gives a situation in which an ordinary transaction, if falling within any of the subsections, becomes and qualifies as a combination.
Accordingly, it includes two categories of transactions. They are:
1. Acquisition of one or more enterprises that is done by one or more persons or a group; Or

2. A merger or amalgamation of enterprises

It further declares that such acquisition or merger or amalgamation will become a combination if either of the following conditions are met: 

• Section 5(a) – In this subsection it is necessary that the acquisition pertains to either control, shares, voting rights or assets and it does not matter whether they are being acquired or have been acquired.
  (i). If the acquisition pertains to the above, then the parties to the acquisition, that is, the acquirer and the enterprise must have the following –
  

Place of Asset/Turnover	Asset Value	Turnover Value
India	INR 1000 Crores	INR 3000 Crores
Aggregate either in India or outside India	USD 500 Million, with at least INR 500 Crores in India	USD1500Million, with at least INR 1500 Crores in India.

This was the first condition in which the parties are simply acquiring and are not making it part of any group.

(ii) If the acquisition pertains to the above, but the party is the group to which the enterprise after the acquisition would belong, then they must jointly have or should have in the future after the acquisition, the following –

Place of Asset/Turnover	Asset Value	Turnover Value
India	INR 4000 Crores	INR 12000 Crores
Aggregate either in India or outside India	USD 2 Billion, including at least INR 500 Crores in India	USD 6 Billion, including at least INR 1500 Crores in India

• Section 5(b) – According to this subsection the acquisition must be of control either by a person or a group, in case, such person or group already possess direct or indirect control over another enterprise that is engaged in production, distribution or trading of similar or identical or substitutable goods or services.
  
  (i) If the above condition is met, then the enterprise whose control is being acquired or has been acquired along with the enterprise over which the acquirer already holds direct or indirect control must have the following, jointly.
  

Place of Asset/Turnover	Asset Value	Turnover Value
India	INR 1000 Crores	INR 3000 Crores
Aggregate either in India or outside India	USD 500 Million, including at least INR 500 Crores in India	USD 1500 Million, including INR 1500 Crores in India

(ii) If the above condition is met, that is the condition of acquiring control and after the acquisition, it is a group to which the enterprise would belong then they should jointly have or should have after the combination, the following –

Place of Asset/Turnover	Asset Value	Turnover Value
India	INR 4000 Crores	INR 12000 Crores
Aggregate either in India or outside India	USD 2 Billion, including at least INR 500 Crores in India	USD 6 Billion, including INR 1500 Crores in India

It is pertinent at this point to differentiate this transaction from point number 1 above, here, the acquisition pertains to “control” while, in the above scenario, the acquisition was about assets, shares or voting rights.

• Section 5(c) – This subsection pertains to either a merger or an amalgamation.
  (i) If after the merger or amalgamation, the enterprise either remains or gets created respectively, then it should have the following-
  

Place of Asset/Turnover	Asset Value	Turnover Value
India	INR 1000 Crores	INR 3000 Crores
Aggregate either in India or outside India	USD 500 Million, including at least INR 500 Crores in India	USD 1500 Million, including INR 1500 Crores in India

(ii) if after the merger or amalgamation, the enterprise either remains or gets created respectively and it belongs to a group then in such a case, the group should have the following –

Place of Asset/Turnover	Asset Value	Turnover Value
India	INR 4000 Crores	INR 12000 Crores
Aggregate either in India or outside India	USD 2 Billion, including at least INR 500 Crores in India	USD 6 Billion, including INR 1500 Crores in India

Again, the second scenario here talks about belonging to a group after the combination becomes successful while the first talks about a simple merger or amalgamation. 

Overall, we can see that Section 5 defines the combination by way of examining what is being acquired (in the first two cases) and what is being created (in the last case). Further, whether, after a combination, the entity would belong to a group or will belong to an enterprise or a person is also taken into consideration. Finally, there are monetary thresholds that need to be triggered for a simple transaction to become a merger. This is done because a transaction which involves a smaller amount is presumed to be competitive as it is not ‘big’ enough to have any anti-competitive effect. Additionally, these monetary thresholds get revised by the Central Government based on the wholesale price index or fluctuations in exchange rate of rupee or foreign currency. Therefore, the latest values need to be looked at everytime one is examining whether they fall under the definition of combination or not.

Section 6 – As has been mentioned previously, section 6 regulates these combinations. 

Section 6(1) declares that any combination that causes or is likely to cause AAEC on competition within the relevant market in India shall be void. Further, section 6(2) declares that the parties entering into a combination will have to inform the Commission by giving a notice. This notice has to be given in a form, with fees, which is governed by the Combination Regulations mentioned above. Additionally, this notice has to be given to the Commission for clearance within 14 days of either approval by the Board of Directors, in case of mergers or amalgamation or execution of any agreement or document which has the effect of transferring control, shares, voting rights, or assets that may make it eligible under Section 5(c) or Sections 5(a) & (b) respectively. 

The Act also has a standstill clause under Section 6(2)(A). It says that no combination will take effect 210 days from the date of giving notice to the Commission until the Commission passes an order on the Combination. This clause ensures that the parties in consideration don’t stop competing in the market because if the Commission finds the combination anti-competitive then the damage their cooperation would have done in the meantime can’t be reversed. 

Finally, this section exempts certain transactions from the purview of Section 6 under Section 6(4). Accordingly, any acquisition of control, acquired by way of a share subscription or a financing facility by a public financial institution or a foreign institutional investor or a bank or a venture capital fund that is done pursuant to a loan or an investment agreement is exempt. For these categories of investment, section 6(5) mandates that they submit the details of such investment with the Commission within 7 days from the date of such acquisition. Again, these have to be submitted in a form and fees that are given under the Combination Regulations. 

Section 20 – As had been mentioned earlier, section 20 lays down the parameters on which the Commission assesses whether a combination is anti-competitive or not. Accordingly, section 20(1) read with section 20(2) gives the Commission the power to enquire into a combination either on its own motion or on the basis of a notice given under Section 6(2). Then, once it has initiated the enquiry. It assesses the combination on the basis of the following:

(a) market share of the enterprise;  

(b) size and resources of the enterprise;  

(c) size and importance of the competitors;

(d) economic power of the enterprise including commercial advantages over competitors; 

(e) vertical integration of the enterprises or sale or service network of such enterprises; 

(f) dependence of consumers on the enterprise; 

(g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being a Government company or a public sector undertaking or otherwise;  

(h) entry barriers including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers; 

(i) countervailing buying power; 

(j) market structure and size of market;

(k) social obligations and social costs; 

(I) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition; 

(m) any other factor which the Commission may consider relevant for the inquiry.

It is important to remember that all of these factors are “either/or” factors, therefore, the Commission can look into either a single one of them or a couple of them simultaneously. There is no obligation on the part of the Commission to look at each and every one of these factors. Additionally, all of these factors are related. For example, for an assessment of market share, size and importance of competitors will always be looked at. Therefore, these factors are usually taken together, considered, and then the end result is seen on the basis of these. 

What happens once the Commission completes its assessment? 

Once the Commission completes its assessment, it either approves the combination in toto or approves it with certain modifications or directs the combination to not take place. 

Finally, the combination proceedings are time bound. This means that if the Commission does not give any order on any combination within 210 days of the day of notice then the combination is deemed to be approved. 

Now, let us look at the second part of this article, that pertains to the Combination Regulations and the General Regulations. 

Combination Regulations and General Regulations

The General Regulations are the overall regulations that govern the conduct of the Commission. They are used everywhere except when a specific regulation is there for the Commission to follow. Even in cases, where the specific regulation is silent, the general regulations govern the process. In the part of the article, I will be dealing with the Combination Regulations with specific references to General Regulations where needed. 

Now, Combination Regulations are enacted by the Commission to deal with the cases relating to the Combinations. 

Sr. No.	Regulation	Heading	Content
(i)	Regulations related to notice
1.	5	Form of notice	Subsection 1 of regulation 5 mandates the parties to the combination to file a notice with the commission Subsection 2 mandates such notice to be filed in Form – 1 as specified in Schedule – II. Subsection 3 requires the parties to file the notice in Form – 2 when the following conditions pertaining to the combination are met: (a) when the parties are engaged in production, supply, distribution, storage, sale or trade of similar or identical or substitutable goods or services where the combined market share of the two parties is more than 15% in the relevant market. This is in case of Horizontal Mergers. (b) when the parties are at different levels or stages in the production chain in different markets, in respect of production, supply, distribution, storage, sale or trade of similar or identical or substitutable goods or services where their individual or combined market share is more than 25% in the relevant market. This is in case of Vertical Mergers.  Subsection 7 defines the Board of Directors mentioned in Section 6(2)(a) to mean and include karta, individual, or a partner, among other things.  Subsection 8, similar to the above point, gives an expansive meaning to the words “other document” in Section 6(2)(b) to mean any binding document, the effect of which is acquisition of shares, control, voting rights, etc.
2.	6	Filing of details in case of exempted entities	Subsection 1 declares that the exempted entities [Please refer to discussion above under section 6(5)] need to file Form – 3 along with any loan agreement.
3.	7	Belated Notice	This section gives the Commission the power to admit any notice that is sent beyond the statutory time limit.
4.	8.	Failure to File Notice	This section talks about the Commission’s power to commence inquiry in case, the parties have not filed notice.
5.	9	Obligation to file notice	This section talks about the parties that need to sign the applicable forms that are to be submitted with the Commission. The persons that need to sign according to these regulations are given under Regulation 11 of the General Regulations.
6.	13	Procedure for filing notice	This section talks about the procedure for filing notice and declares that (a) the notice has to be delivered to the Commission’s address along with an e-copy of the same; (b) such notice needs to be accompanied by a 2000 words summary; and (c) a 500 words summary of the combination. It also gives an option of confidentiality to the parties that they can opt for.
7.	14	Scrutiny of notice	This regulation gives the powers of the secretary to scrutinise, accept, invalidate, or ask for other documents in case the secretary needs more details. Once the notice is received by the secretary, then he or she also provides a receipt of acknowledgement.
8.	16	Intimation of any change	This regulation talks about the powers of the parties to make any change in the information. This regulation also gives the secretary and the commission the power to accept such requests or not.
(ii)	Regulations related to fees
1.	10	Obligation to pay fees	This regulation mandates that fees have to be paid by the parties either jointly or severally in case of notice.
2.	11	Amount of Fees	In case of (a) Form 1 – Rs. 15,00,000 (Rupees Fifteen Lakhs Only) (b) Form 2 – Rs. 50,00,000 (Rupees Fifty Lakhs Only)
3.	12	Mode of Payment	This regulation defines the mode in which the fees have to be paid. It should be in either a demand draft or a banker’s cheque. Or it can be through Electronic Clearance Service by direct remittance.
(iii)	Commission’s actions once it receives the notice
1.	19	Prima Facie Opinion	On receipt of the notice, the Commission forms a prima facie opinion on whether the combination results in AAEC or not. At this stage the Commission can ask the parties or any other enterprise for any additional information that it may need to completely assess the transaction.
2.	20 and 21	Director General’s (DG)Report	The Commission once it receives a notice, can ask the DG to submit a report in the said matter to the Commission.
3.	22 and 23	Publication of details	If the Commission finds the combination to have caused AAEC or that it is likely to cause AAEC then it will ask the parties to the combination to publish the details of the combinations. These shall be done in Form IV of the Combination Regulations.Further, the parties will submit copies of the publication to the Commission within 15 days.
4.	25, 26 and 27	Powers related to Modification	The Commission can, if it is of the opinion, that the AAEC can be cured with a modification, order the parties to do such modification. It is important to note that the parties can submit their own modification, or amend the modification that the Commission proposed. Further, if the parties fail to accept the modifications then the Commission deems the combination to have an AAEC. The parties, once, they have complied with the modifications, need to submit such a report with the Secretary within 7 days of such completion. Additionally, it is well within the powers of the Commission to appoint an independent agency that can oversee such modification.
(iv)	Orders of the Commission –  This regulation mosty, gives the powers of the Commission with respect to any combination. These have been discussed above under the heading, “what happens after the Commission completes its assessment?”
(v)	Termination
1.	17	Termination	This regulation gives out instances when the proceedings under the Act can be terminated. These are (a) When the parties inform the Commission that the combination will not take effect. (b) When the Commission passes any order.
(vi)	Miscellaneous or Other Powers of the Commission
1.	24	Appearance of Parties	This regulation empowers the Commission to summon any party in case it feels that an opportunity of being heard should be given to the parties.
2.	30	Confidentiality	This regulation gives the party a right to request for confidentiality. It mandates that the parties follow the procedure laid down under the General Regulations, especifically with respect to filing of an affidavit under Regulation 42 and stating the conditions as required under Section 35 of the General Regulations.

Conclusion

In this article, I have explained the major sections under the Competition Act, 2002 that are applicable in case of combinations. Apart from these, I have touched upon the General Regulations wherever applicable as well as made an attempt to give a snapshot view of the Combination Regulations in the form of a table. 

---

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: