Open Access Research Article
UNDERSTANDING THE COMBINATION AND ITS THRESHOLD LIMIT: A CONCEPTUAL APPROACH
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UNDERSTANDING THE COMBINATION AND ITS
THRESHOLD LIMIT: A CONCEPTUAL APPROACH
Authored By- Sanjucta Kabasi &
Shubhankar Kabasi
ABSTRACT
Combination under the Competition
Act, 2002 means acquisition of control, shares, voting rights or assets,
acquisition of control by a person over an enterprise where such person has
direct or indirect control over another enterprise engaged in competing businesses,
and mergers and amalgamations between or amongst enterprises when the combining
parties exceed the thresholds set in the Act. The thresholds are specified in
the Act in terms of assets or turnover in India and abroad. The threshold is
subject to change by government notification. Entering into a combination which
causes or is likely to cause an appreciable adverse effect on competition
within relevant market in India is prohibited and such combination shall be
void. To ascertain whether the combination has appreciable adverse effect on
competition or not, it is necessary to understand the concept of combination
and how the threshold is calculated by Competition Commission of India to
control the merger and amalgamation. The paper endeavours on these basics and further
discusses the exemptions and recently inserted Green Channel Route for entering
into combination in India. The paper also mentions the latest proposed
amendments in 2022 Bill and with that explores the recent mergers like Etihad
Airways-Jet Airways, Sun Pharma-Ranbaxy, and Walmart-Flipkart combinations.
I. INTRODUCTION
Combination refers to merger or
amalgamation amongst enterprises, or acquisition of control, shares, voting
rights or assets of an enterprise by another person, provided (i) the financial
threshold specified in the Section 5[1] of
the Act are satisfied; and (ii) merger, amalgamation and acquisition are not
covered under any of exemption notification. Any person or enterprise, which
proposes to enter into a combination, is required to give notice to the
Commission under Section 6(2)[2] of
the Act any time prior to consummation of the same. However, categories of
combinations mentioned in Schedule I of Combination Regulation are ordinarily
not likely to cause an appreciable adverse effect on competition in India,
therefore notice under sub-section (2) of section 6 of the Act need not
normally be filed, in respect thereof.[3] If
a combination causes or is likely to cause an appreciable adverse effect on
competition within the relevant market in India, it can be modified/prohibited
by the Commission.[4]
In exercise of its power to frame
delegated legislation under the Competition Act, 2002, the commission enacted a
set of regulations known as the Competition Commission of India (Procedure in
regard to the transaction of business relating to combinations) Regulations,
2011 which became operational on June 1, 2011 along with certain other
substantive provisions of the Act relating to combinations.[5]
The Combination Regulations mandate parties to a ‘combination’ for the purposes
of the Act. A combination can be of three types as per the Act: (a) acquisitions
of control, voting rights, shares and assets, (b) acquisition of control over an
enterprise that is engaged in similar or identical services as that of the
acquirer and (c) mergers and amalgamations.[6]
These regulations were introduced in an effort to fine-tune the process of
regulating combinations in India, a process that began in 2002 underwent
changes in 2008[7] and 2009[8]
and took final shape only in 2011. The Commission has been mindful of the
concerns raised by various stakeholders[9],
both national and international, and incorporated suggestions proposed by them
as a response to a draft version of the Combination Regulations[10].
Whether it has entirely succeeded in allaying apprehensions about the
effectiveness of the Combination Regulations is a debatable issue but the
commission is actively engaging in ‘simplifying the process of notification.
With this aim, the commission introduced six set of amendments to the
Combination Regulations in 2012, 2013, 2014, 2015, 2016[11]
and recently in 2018[12]
which has been notified on 09th October, 2018 is the subject matter
of discussion here. The recent amendment has also been done twice in 2019[13], once
in 2020[14],
and newly in 2022[15].
However, apart from amendment related to increasing fees for filing forms and
various other disclosures nothing much is important for the sake of the article.
The framework of combination control
guidelines can be mainly divided into three principal segments: general
exemptions from notification, triggering of notification requirements based on
threshold limits and scrutiny of notice by the commission. The provisions have
clearly laid down the time period available for certain categories of institutionalised
transactions which can be filed post the acquisition and all other transaction
requiring mandatory notification which have to be intimated to the commission prior
to the actual combination. The amended regulations further prescribe the manner
in which notices of combinations shall be filed and provide three kinds of
forms for the same. The difference in the Forms is with respect to the nature
of information that is to be furnished under each of them. Undoubtedly, the
amended regulations have given parties ample scope for flexibility in filing
procedures, but have placed the onus on the parties to notify and do so in a
responsible manner to avoid necessary delay in getting clearances from the
commission.
The paper has two objectives: first
to breakdown the concept of combination and second the applicability of
threshold limit to enterprises. The aim of the article is to clear the doubts
regarding the ambiguities in threshold application which most research articles
fail to describe. The article fulfils its objective with the depiction of
pictorial diagrams and theoretical explanation to make it simpler to understand
for students, academicians, researchers and professionals.
II. HISTORICAL BACKGROUND
Competition laws in India are aimed
to imbibe the social and economic philosophy enshrined in the Directive
Principles of State Policy contained in the Constitution. [16]The
mandate to draw up a policy that prevents the concentration of wealth and means
of production to the common detriment can not only be located in the
Constitution but also in the Act which aims to prevent anti-competitive
practices.[17] Amongst
the principal kinds of anti-competitive behaviour [18]the
Act prohibits combinations resulting in an appreciable adverse effect on
competition (‘AAEC’) within the relevant market in India.
In order to fully comprehend the
rationale behind the incorporation of the combination control guidelines and
the subsequent changes in the amended regulations, I shall look at two main
elements: the background events prompting the legislative efforts to regulate combinations
in India and the key changes brought about by the amendments as a response to
these background events.
A. MRTP ACT
The Monopolies and Restrictive Trade
Practices Act, 1969 (‘MRTP Act’) was India’s first antitrust legislation which
established a quasi-judicial body for investigating cases of unfair and
restrictive trade practices named the Monopolies and Restrictive Trade
Practices Commission (‘MRTP Commission’) which was also the precursor to the
Commission.
The concept of combination control
was not explicitly recognized in the MRTP Act, nor was it expanded upon. This
can be contrasted with the inclusion of section 5 and 6 in the Competition Act,
2002, which is solely dedicated to combination control. This is a remarkable
transition in the competition regulatory framework of India. While the
lawmakers in 1969 did not feel the need to even include the term ‘combination’
in the MRTP Act, the lawmakers in the new decade not only incorporated
combination control in the Act but buttressed it with additional provisions. Even though the MRTP Act did not explicitly
include the term ‘combination’ in the body of the code, it contained provisions
which implicitly dealt with combinations at an elementary level. In Part A of
Chapter III of the MRTP Act, 1969, section 20 to 26 dealt with Mergers and
Acquisitions. [19]But
these sections were subsequently deleted by the MRTP (Amendment) Act, 1991.
Prior to the Amendment, section 23 of
the Act was the most significant provision with respect to mergers,
amalgamations and takeovers.[20]
It laid down a rudimentary form of combination control by imposing stringent
conditions on the formation of combinations. It also mandated that no such
combination can take place without the sanction and express approval of the
Central Government.[21]
These sections gave the central government significant power to prevent
combinations which would lead to concentration of economic power. Section 24 of
the erstwhile MRTP Act provided that if the Central Government felt, upon
examination of the facts, that there has been a violation of Section 23, then
it may consult with the MRTP Commission and direct the owner of the company to
not contravene the provisions by carrying on with the merger or amalgamation.[22]
The jurisdiction of the Central Government over combinations was overriding on
the jurisdiction of the MRTP Commission. These provisions were in force till
liberalization in the early nineties, after which the MRTP Act was amended and
the sections 20 to 26 were deleted.[23]
Eventually, the Ministry of Corporate
Affairs vide its Notification dated August 28, 2009 repealed the MRTP Act
during the enforcement of The Competition Act, 2002 [24].
There were primarily two reasons behind the repeal of the MRTP Act and its
subsequent replacement by the Act. Firstly, with the growing complexity of
industrial structure, it was felt that the interference of the Government
through the MRTP Act in the investment decisions of large companies had a
deleterious effect on Indian industrial growth. [25]Secondly,
antitrust policy was evolving from an anti-monopoly to pro-competition approach
worldwide and Indian competition policy needed to mirror this changed dynamic.
But the introduction of a new legislation regulating competition law witnessed
some preliminary hurdles. Since the Act was brought into force in a phased
manner, an oddity in implementation occurred. There was a period of time
between 2002 and 2009 when both the MRTP Act, 1969 and the Act of 2002 had
concurrent jurisdiction over competition law matters.[26]
This ambiguity, especially relating to combination review, was resolved in 2011
with the enforcement of Sections 5 and 6 and certain other provisions of the
Act. [27]What
is relevant for the present discussion is to understand that the mandate of the
present Act is to do away with the rigid structural control of the MRTP Act.
The Act in conjunction with the Combination Regulations divests the power to
review the combinations to the commission as opposed to the central government,
thereby introducing more flexibility and autonomy in combination control.
B. COMBINATION REGULATIONS, 2011
The combination regulations were
considered to be a marked improvement on the earlier Draft Regulations
primarily due to the public debate it generated. The inclusive pre-legislation
consultation exposed the Draft Regulations to their share of criticism, mostly
because of some instances of faulty drafting and structural inadequacies. The
Commission was also fairly responsive in incorporating the views of various
stakeholders on the Draft Regulations, however, continued to be, by and large,
a blueprint for the Combination Regulations. Thus, the Commission notified the
Combination Regulations on a positive note. But as is the case with most new
legislation, the Combination Regulations were also ridden with flaws. What is
pertinent for us is that with this notification, India joined a club of 100
other countries that have a merger control regime. [28]
III. MAJOR CHANGES BROUGHT ABOUT
BY THE REGULATIONS
A. THE COMBINATION REGULATIONS, 2011
a. The regulations expressly included
what are commonly referred to as ‘transitional provisions’. These provisions
state that aforesaid regulations will only apply to combinations where binding
documents are executed on or after June 1, 2011.[29]
Therefore, all the pending transactions and unsigned transactions prior to the
stipulated date are not notifiable, reducing ‘uncertainty’ and ‘compliance
burden’ of the parties and stalling the flow of notifications before the commission.
b. The impact of the enactment of the
combination regulations was immense. Section 32 of the Act confers
extra-territorial jurisdiction on the commission to accomplish its task of
terminating practices having an AAEC and the combination regulations are a mode
of exercising these powers.
c. Another notable change is with
regard to the time frame for completing the process of review. The Act mandates
the Commission to pass a final order within 210 days from the date of filing. [30]If
an order is not passed by the commission within the stipulated time frame, the
combination would be deemed to have been approved. According to the provisions
of the Combination Regulations, however, the stipulated time period for review
has been modified. The Combination Regulations impose a mandatory duty on the
Commission to ‘endeavour’ to pass a final order within 180 days from the date
of filing.[31] Given
that the language used in the Combination Regulations is not strictly binding
and that a subsidiary regulation cannot override the provisions of the parent
Act, the statutory time limit still continues to remain 210 days.
B. THE SEBI (SUBSTANTIAL ACQUISITION
OF SHARES AND TAKEOVERS) REGULATIONS, 2011 (‘TAKEOVER CODE’)
The Securities and Exchange Board of
India was in the process of reviewing the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997[32]
for quite some time. In 2009, a Takeover Regulations Advisory Committee was
constituted for the purpose. The Takeover Code finally became effective in
October, 2011. In one of the major changes introduced by the Takeover Code, the
threshold for triggering open offer was substantially increased from the
initial limit of 15% shareholding of the company[33].
Presently, a public offer under the Takeover Code is necessary when 25% voting
rights or shares of the target company is acquired.[34]
Similarly, the Combination
Regulations generally exempted those acquisitions from notification which do
not result in exceeding 10% voting rights or interests in the company being
acquired.[35] Since
an acquisition of interests in a target company can lead to multiple
obligations, as under the securities and competition legislation, a need for
harmonization between assumes relevance. In light of such concerns, the
Commission stepped in to make the Combination Regulations consistent with the
Takeover Code and exempted combinations resulting in direct or indirect
acquisition of less than 25% of voting rights or shares in the target company not
leading to acquisition of control of the enterprise whose shares or voting
rights are being acquired[36]
IV.
FILING OF COMBINATION NOTICE
This sub-topic is the
soul of the article where we will learn step up step about the applicability of
threshold limit in India and outside India, the de minimis exemption and
the exemptions which need not be notified.
A. COMBINATION
As per Section 5 of the
Competition Act, acquisition of one or more enterprises or merger or amalgamation
of enterprises, which exceeds the threshold prescribed therein shall be a
‘Combination’ for the purposes of the Act.
B. FILING
RESPONSIBILITY
Regulation 9 of the
Combination Regulations states that it is the responsibility of the acquirer to
notify an acquisition or a hostile takeover. In case of a merger or an
amalgamation, a joint notice is to be filed by the merging or amalgamating
parties.[37] In case
of a joint venture, the responsibility to file a notice would lie with all the
parties forming the joint venture.[38]
C. THRESHOLDS FOR
COMBINATIONS
Section 5 of the
Competition Act sets out thresholds for enterprises and groups, in terms of
assets and turnover, which if exceeded triggers a requirement to notify to the
CCI. The current thresholds are as follows[39]:
Threshold Limit Figure 1.1
Let us understand the threshold
diagram in the simplest theoretical expression. Section 5(a) of the Competition
Act, 2002 deals with Acquisition and Section 5(c) deals with Merger or
Amalgamation. Any acquisition or merger or amalgamation by or between Acquirer
Company and Target Company or Amalgamated Company or the group to which the
acquirer company or amalgamated company would belong after the acquisition or
amalgamation. This combination is further classified into two categories (1)
Enterprise Level and (2) Group Level. In other references, also referred to as
individual or group level. The threshold limit is calculated based on assets
and turnover an enterprise and group level have in India and Outside India.
At enterprise level, the notice of
the proposed combination is mandatory if the parties to the combination jointly
hold more than the following limits[40]:
(1) Have in India assets of more than Rs. 2,000 crore or turnover of more than
Rs. 6,000 crore or (2) Have in India and/or Outside India assets of more than 1
billion dollars out of which assets of minimum Rs. 1,000 crore is in India or
turnover of more than 3 billion dollars out of which the turnover of minimum
Rs. 3,000 crore is in India.
At Group Level, the notice of the
proposed combination is mandatory if the group to which the acquirer company or
amalgamated company would belong after the merger/acquisition jointly hold more
than the following limits[41]:
(1) Have in India assets of more than Rs. 8,000 crore or Turnover of more than
Rs. 24,000 crore or (2) Have in India and/or outside India assets of more than
4 billion dollars out of which assets of minimum Rs. 1,000 crore is in India or
Turnover of more than Rs. 12 billion dollars out of which the turnover of
minimum Rs. 3,000 crore is in India. Let
us further understand with a set of calculations for deriving in which threshold
of combinations approval is required and in threshold of which combinations
approval is not required.
Enterprise Combination figure 1.1
|
Enterprise
|
Assets
|
Turnover
|
|
A Ltd.
|
1000 cr.
|
3000 cr.
|
|
B Ltd.
|
800 cr.
|
2,000 cr.
|
|
Combined Value
|
1800 cr.
|
500 cr.
|
|
|
(-)
|
(-)
|
|
CCI Threshold u/s 5
|
2000 cr.
|
6000 cr.
|
In this Combination approval is not
required as the transaction is not breaching the minimum threshold limit given
in Threshold Limit figure 1.1 above.
Enterprise Combination figure 1.2
|
Enterprise
|
Assets
|
Turnover
|
|
ABC Ltd.
|
1000 cr.
|
3000 cr.
|
|
XYZ Ltd.
|
1800 cr.
|
4,000 cr.
|
|
Combined Value
|
2800 cr.
|
7000 cr.
|
|
|
(+)
|
(+)
|
|
CCI Threshold u/s 5
|
2000 cr.
|
6000 cr.
|
In this Combination approval is
required as the transaction has breached the minimum threshold limit figure
given in Threshold Limit figure 1.1.
Enterprise & Group Combination
figure 1.1
|
Enterprise
|
Assets
|
Turnover
|
|
ABC group of enterprises
|
4000 cr.
|
16,000 cr.
|
|
X Ltd.
|
1000 cr.
|
3,000 cr.
|
|
Combined Value
|
5000 cr.
|
19000 cr.
|
|
|
(-)
|
(-)
|
|
CCI Threshold u/s 5
|
8000 cr.
|
24,000 cr.
|
It is to be noted that when there is
a combination between a group and an enterprise, the threshold limit of group
is applicable. In this case, approval is not required as the transaction amount
is not crossing the threshold limit given in Threshold Limit figure 1.1.
Enterprise & Group Combination
figure 1.2
|
Enterprise
|
Assets
|
Turnover
|
|
ABC group of enterprises
|
9000 cr.
|
25,000 cr.
|
|
X Ltd.
|
300 cr.
|
1,200 cr.
|
|
Combined Value
|
9300 cr.
|
26200 cr.
|
|
|
(-)
|
(-)
|
|
CCI Threshold u/s 5
|
8000 cr.
|
24,000 cr.
|
Now, we will discuss a new concept
which is known as de minimis exemption. Before delving into the answer
as to whether the proposed transaction in above figure will require approval or
not, let us first understand the conceptual background of the exemption.
a. De Minimis Exemption
On 27th March, 2017, the
Central Government issued a notification [42]exempting
any acquisition, merger or amalgamation, if the enterprise being acquired,
taken control of, merged or amalgamated has (i) assets less than INR 350 crore,
or (ii) turnover less than INR 1000 crore. This exemption is valid for a period
of 5 years from the date of publication of its notification in the official
gazette. The de minimis has been extended by Central Government for a further 5-year
period vide notification dated 16th March 2022[43].
Through its notification, the MCA has substituted the period of “five years” in
the De Minimis Exemption, with “ten years”, thereby extending the exemption
benefit for a further period of 5 years, i.e., till 28 March 2027. The validity
of the target-based exemption was due to expire on 28th March, 2022.[44]
De Minimis Exemption Figure 1.2
Now coming to the answer of whether
the transaction in Enterprise & Group Combination figure 1.2 will require
approval or not, it is stated that no the transaction does not require the
approval as the same is covered under De minimis exemption for not crossing the
given threshold limit.
Group Combination 1.1
|
Enterprise
|
Assets
|
Turnover
|
|
Foreign Group of Companies
|
5 billion
Indian Asset 200 cr.
|
35 billion
Indian Turnover 800 cr.
|
|
Indian Enterprise
|
600 cr.
|
2,200cr
|
|
Global Value
|
5 billion
|
35 billion
|
|
Indian Value
|
800 cr.
|
3000 cr.
|
|
CCI Threshold u/s 5 (Have in
outside India)
|
4 billion
|
12 billion
|
|
Out of which in India the group
must have
|
1000 cr.
|
3000 cr.
|
|
|
(-ve)
|
(+ve)
|
Here
is a situation, in which the assets of the proposed combination are not
crossing the threshold but the turnover is crossing the threshold. This is a proposed merger involving
group of companies situated outside India. In such cases we shall remind
ourselves the word “or”. When either assets or turnover cross the threshold
limit, approval shall be sought by the enterprises.
V. COMBINATIONS ORDINARILY NOT
NOTIFIABLE (SCHEDULE I)
Regulation 4 of the Competition
Commission of India (Procedure in regard to the transaction of Business
relating to Combinations) Regulations, 2011 (“Combination Regulations”) states
that certain transactions, listed in Schedule I of the Combination Regulations
are unlikely to have any AAEC and therefore, are not ordinarily notifiable.
These transactions, listed below, do not enjoy absolute exemption and have to
be assessed on a case-to-case basis.
1. An acquisition of less than 25% of
shares or voting rights of an enterprise solely as an investment or in the
ordinary course of business, not amounting to control
a. In 2016, an amendment to the
Combination Regulations clarified ‘solely as an investment’ to mean any
acquisition of less than 10% of the total shares or voting rights of an
enterprise[45],
provided the acquirer has (i) rights as that of ordinary shareholders, and (ii)
neither has representation on the board of directors nor any intention to
participate in the affairs or management of the enterprise being acquired. Clause
(1A)- An acquisition of additional shares or voting rights by an enterprise
having at least 25% and less than 50% of shares and voting rights in another
enterprise, provided such an acquisition does not result in change of control.[46]
2. An acquisition of shares or voting
rights of an enterprise by an acquirer which already holds at least 50% shares
or voting rights, unless the acquisition results in any change of control.
3. An acquisition of assets (i) not
directly related to the business activity of the acquirer, (ii) undertaken
solely as an investment or in ordinary course of business, and (iii) does not
result in acquisition of control, except where the assets being acquired
represent substantial business operations in a particular location or for a
particular product or service of the enterprise being acquired, irrespective of
whether such assets are organized as a separate legal entity or not.
4. An amended or renewed tender offer
made in a combination where a notice has already been filed with the CCI by the
party making the offer, prior to making the amended or renewed offer.
5. An acquisition of stock in trade,
raw materials, stores and spares, and other similar current assets in ordinary
course of business.
6. An acquisition of shares or voting
rights pursuant to a bonus issue or stock split or consolidation of face value
of shares or buy back of shares or subscription to rights issue of shares, not
leading to acquisition of control.
7. An acquisition of shares or voting
rights by a person acting as a securities underwriter or a registered broker of
a stock exchange, on behalf of clients, in the ordinary course of business.
8. An acquisition of shares or voting
rights or assets by a person/enterprise of another person/enterprise within the
same group (intra-group acquisition), except where the acquired enterprise is
jointly controlled by enterprises that are not part of the same group.
9. A merger or an amalgamation of two
enterprises where (i) one enterprise has more than 50% shares or voting rights
in the other, and/or (ii) 50% or more shares or voting rights in both the
enterprises are held by enterprise(s) belonging to the same group, provided there
is no change from joint control to sole control.
10. An acquisition of shares,
control, voting rights or assets by purchaser approved by the CCI in accordance
with Section 31 [47]of the
Competition Act.
VI. GOVERNMENT NOTIFICATIONS: (SECTOR
SPECIFIC EXEMPTIONS)
A. AMALGAMATION OF REGIONAL RURAL BANKS
On 10 August 2017, the Central
Government granted exemption to amalgamation of ‘Regional Rural Banks’ as per
section 23A(1) [48]of the
Regional Rural Banks Act, 1976[49],
from the application of section 5 and 6 of the Competition Act, for a period of
5 years from the date of notification in official gazette.
B. RECONSTITUTION,
TRANSFER AND
AMALGAMATION OF NATIONALISED BANKS:
On 30 August 2017, the Central
Government granted exemption to all cases of reconstitution, transfer and
amalgamation of nationalized banks, under the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970 and the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1980, from the application of section 5 and
6 of the Competition Act, for a period of 10 years from the date of
notification in the official gazette.[50]
C. BANKING COMPANY IN RESPECT OF
WHICH THE CENTRAL GOVERNMENT HAS ISSUED A NOTIFICATION UNDER SECTION 45 OF THE
BANKING REGULATION ACT, 1949
A notification dated 11 March 2020 [51]issued
by the Central Government exempts a ‘banking company’ whose business has been
suspended under section 45 of the Banking Regulation Act, 1949,[52]
from the application of sections 5 and 6 of the Competition Act, for a period
of 5 years from the date of notification in official gazette.
D. COMBINATIONS INVOLVING CENTRAL
PUBLIC SECTOR ENTERPRISES IN THE OIL & GAS SECTORS:
On 22 November 2017, the Central
Government exempted all cases of combinations involving Central Public Sector
Enterprises including their wholly or partly owned subsidiaries, operating in
the Oil and Gas sectors, under the Petroleum Act, 1934 or under the Oilfields
(Regulation and Development) Act, 1948, and rules made under these two laws,
from the application of sections 5 and 6 of the Competition Act for a period of
5 years from the date of notification in the official gazette. [53]
VII. AMENDMENTS MADE BY COMBINATION
REGULATION, 2018
The amendments to the Combination
Regulations, notified on 9 October 2018 (Amendment Regulations)[54],
reiterate the CCI’s constant endeavour to bring greater clarity and
transparency to the merger control process. The notable changes introduced by
the Amendment Regulations are set out below[55]:
A. WITHDRAW AND REFILE
In a significant step forward, the
Amendment Regulations now provide notifying parties with the option to withdraw
and refile a merger notification, before the CCI issues a show cause notice
(hereinafter ‘SCN). In this regard CCI has also clarified that the filing fee
already paid shall be adjusted against the fee payable for the new
notification, provided the new notification is given within three months from
the date of withdrawal. While there have been instances in the last year where
parties have been able to “pull and refile” merger notifications, this
amendment formalizes the mechanism.
B. MODIFICATIONS TO COMBINATION
In a welcome move to expedite the
approval process, the Amendment Regulations also clarify that notifying parties
may now offer voluntary modifications, post the issuance of SCN under section
29 of the Competition Act, 2002[56].
Now, notifying parties can offer modifications even while providing their
response to the SCN and the CCI can, on the basis of such voluntary
modifications, approve the combination. By being provided the opportunity to
offer voluntarily modifications at the stage of SCN, notifying parties can
allay the CCI’s potential concerns, without having to undergo in-depth
scrutiny. Similar to the previous amendment, this is also an attempt to
explicitly include what the CCI was already following in practice.
C. CLARIFICATION REGARDING TIMELINE
The amendment regulations clarify
that certain time periods (such as the time taken by the parties to provide
additional information, remove defects from the filing, provide additional
details when an incomplete notification has been filed, the time taken by the
CCI to consider validity of the merger filing or voluntary modifications
offered by parties, etc.) shall be excluded from the 210-day timeline mentioned
under Section 6(2A) of the Act, which requires parties to wait until the expiry
of 210 days from the date of notification, before giving effect to notifiable
transactions/combinations. This amendment is merely clarificatory in nature
given that these time periods are already excluded from Section 31(11) of the
Act, which stipulates that if the CCI does not approve/block a transaction
within 210 days from the date of notification to the CCI, the combination will
be deemed as approved.
VIII. THE GREEN CHANNEL ROUTE
The unnecessary delay and piling up
of cases are amongst the predicament of the Indian Judicial System. And the
existence of this intricacy is not limited to the judiciary, it also stretches
to other regulatory aspects and administrative systems across our country. Even
specific tribunals and regulatory bodies are lagging behind in keeping pace
with the required settlement speed. Observing the exigency for providing a
smooth and hassle-free procedure in antitrust lawsuits pertaining to
combination filings, the Competition Law Review Committee under the
chairmanship of Mr. Injeti Srinivas submitted a recommendation dated July 26,
2019 [57]to
the Ministry of Corporate Affairs, Government of India seeking necessary
amendments in the Competition Act 2002.
Keeping in view the needs of the
market and the best practices in other jurisdictions, the Commission vide
notification dated August 13, 2019, amended Competition Commission of India
(Procedure in regard to the transaction of business relation to combinations) Regulations,
2011[58],
and introduced an automatic system of approval for combinations through a
‘Green Channel’ route.
A. GREEN CHANNEL ROUTE: THE
UNDERLYING CONCEPT
The Green Channel Route is an
automated approval scheme which acts as a filter for certain kind of merger
transaction or combination filings which do not possess any risk of harm to
competition regimes. It is an automated approval system for combinations which
will prove to be beneficial for parties falling into a certain category to avail
the benefit of this scheme instead of waiting for a 30-day working period[59].
This route provides a bypass from the regular legal proceedings to enable them
for speedy settlements and quicker administrative decisions. This also
eliminates a mandatory 210 day[60]s
period prescribed under the Act which CCI takes for an ex-ante investigation to
see whether the transaction is causing any appreciable adverse effect on
competition. For the sake of quicker disposal, parties are not required to
mention market size, market share, competitor details etc. Thus, they are
allowed for fewer disclosure requirements.
B. PROCEDURE AND ELIGIBILITY CRITERIA
The freshly inserted Schedule III[61]
of the amended combination regulations prescribes the methodology for parties
to self-assess the proposed transaction by considering relevant market
definitions in all cogent and reasonable ways and to determine whether the
proposed transaction would be considered fit for Green Channel Approval or not.
The self-assessing measure is stipulated so as to make entities understand the
standpoint of each other and the possible economic and financial effects as a
result of this transaction. For parties to be considered fit for Green Channel
approval, the below-mentioned points are to be fulfilled for proceeding
further-
a. That they do not manufacture similar or
identical or substitutable goods (horizontal overlaps)
b. That they are not involved in any
activity relating to production, supply, sale and distribution of goods that
belong to different levels of the production chain (vertical overlaps).
c. That they are not involved in any
activity relating to production, supply, sale and distribution of goods which
acts as complementary to each other (Complementary overlaps).
If all the above conditions are
satisfied, then the parties are required to fill and submit the amended Form I
(Form I which contains the Green Channel section) along with a declaration (as
prescribed in Schedule IV of amended regulations) that the resultant
combination will not cause any appreciable adverse effect on competition. The
declaration must substantiate that (a) the proposed combination will not cause
any horizontal, vertical or complementary overlaps. (b) there will not be any
appreciable adverse effect on competition as a result of the successful
execution of this transaction (c) the details provided in the application are
not false or misleading and are true to the best of the parties’ knowledge. The
filing fee of INR 20,00,000 has to be deposited while submitting an application
as prescribed in Regulation 11 of the Competition Commission of India
(Procedure in regard to the transaction of business relating to combinations)
Regulations, 2011. Afterwards, the CCI issues an acknowledgement paper
certifying the deemed approval if it considers the transaction to be fit for
processing through Green Channel. This approval is construed as an order by CCI
under section 31(1) of the Competition Act, 2002.
In case the CCI considers a
transaction to be unqualified for Green Channel purpose or if the details
provided in the application are proved to be false and misleading, then it may
declare the approval void ab initio and afterwards, the proposed
combination will be dealt with by the regular proceedings mentioned therein.
Another scenario is when parties execute the transaction before CCI’s approval,
such transactions would be held for Gun Jumping [62](It
refers to unlawful activities
by a company awaiting regulatory approval for a transaction) and will come
under the ambit of Section 44[63]
of the Competition Act 2002.
IX. 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 empowers the Commission to evaluate the effect of
Combination on the basis of factors mentioned in sub section (4) of section 20.
Factors to be considered by the
Commission while evaluating appreciable adverse effect of Combinations on
competition in the relevant market: (a) actual and potential level of
competition through imports in the market; (b) extent of barriers to entry into
the market; (c) level of concentration in the market ; (d) degree of
countervailing power in the market; (e) likelihood that the combination would
result in the parties to the combination being able to significantly and
sustainably increase prices or profit margins; (f) extent of effective
competition likely to sustain in a market; (g) extent to which substitutes are
available or are likely to be available in the market; (h) market share, in the
relevant market, of the persons or enterprise in a combination, individually
and as a combination; (i) likelihood that the combination would result in the
removal of a vigorous and effective competitor or competitors in the market;
(j) nature and extent of vertical integration in the market; (k) possibility of
a failing business; (l) 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;
(n) whether the benefits of the combination outweigh the adverse impact of the
combination, if any.
X. THE COMPETITION (AMENDMENT) BILL,
2022: MAJOR CHANGES
The Competition (Amendment) Bill, 2022 was introduced
in Lok Sabha on August 5, 2022. It seeks to amend the Competition Act,
2002. The Act establishes the Competition Commission of India (CCI) for
regulating market competition. Key features of the Bill regarding
regulation of combination include[64]:
1. Regulation of combinations based on
transaction value: The
Act prohibits any person or enterprise from entering into a combination which
may cause an appreciable adverse effect on competition. Combinations
imply mergers, acquisitions, or amalgamation of enterprises. The
prohibition applies to transactions where parties involved have: (i) cumulative
assets of more than Rs 1,000 crore, or (ii) cumulative turnover of more than Rs
3,000 crore, subject to certain other conditions. The Bill expands the
definition of combinations to include transactions with a value above Rs 2,000
crore.
2. Definition of control for classification of
combination: For
classification of combinations, the Act defines control as control over the
affairs or management by one or more enterprises over another enterprise or
group. The Bill modifies the definition of control as the ability to
exercise material influence over the management, affairs, or strategic
commercial decisions.
3. Time limit
for approval of combinations: The Act
specifies that any combination shall not come into effect until the CCI has
passed an order or 210 days have passed from the day when an application for
approval was filed, whichever is earlier. The Bill reduces the time limit
in the latter case to 150 days.
XI. RECENT CASE LAWS SUMMARY
A. ETIHAD AIRWAYS AND JET AIRWAYS
COMBINATION ORDER[65]
Facts:
In 2013, Etihad a company
incorporated in UAE, a national airline, proposed to acquire 24% in Jet
Airways, a listed company incorporated in India.
Issue:
Whether the proposed combination of
Jet and Etihad has an appreciable adverse effect on Competition in India
Decision:
According to CCI, a relevant market
in this case is market of international passenger air transport based on the
point of origin and destination constituted a different route and hence each
different route, constituted a different relevant market. CCI concluded that
the relevant market in the instant case would be pertaining to origin and
destination from or ending in 9 cities in India to/from UAE.
CCI observed that when considering the
network effects, the assessment must go beyond the origin and destination pairs
and consider the potential network effects of the proposed combinations.
Complementarity of routes makes the network effects stronger. Hubs, increased
access to gates, slot and other infrastructure interfaces that link markets.
Competition was observed to be
increasing, among systems rather than on point-to-point origin and destination
pairs. CCI by majority observed that airlines alliance results in improving and
expanding services and thereby inducing competition in that sector. Therefore,
CCI concluded that the proposed combination is not likely to have appreciable
adverse effect on competition in India and consequently approved the proposed
combination.
Dissenting Opinion:
In contrast, the dissenting opinion
has concluded that it was not possible to independently verify the details
submitted by the parties and consequently, the impact of the proposed
combination could not be satisfactorily examined. Further, the negative impact
of jet airways’ existing codeshare agreements on competition could not be
discounted. The dissenting opinion also notes that the origin and destination
pairs examined might not justify complete substitutability and consequently the
conclusion of majority ruling that there would be no impact on competition
might not be accurate. In view of the same, the dissenting opinion concludes
that possibility of AAEC cannot be ruled out.
B. SUN PHARMA AND RANBAXY COMBINATION
ORDER, CCI [66]
Facts:
There was a proposed merger of Sun
Pharma and Ranbaxy which would result the combined entity to be fifth largest
specially generics company in the world and the largest pharmaceutical company
in India. CCI in terms of Section 29(2) formed a prima facie opinion that the
combination is likely to have an appreciable adverse effect on Competition.
Issue:
Whether the proposed combination is
likely to have appreciable adverse effect on competition in India?
Decision:
CCI observed that both the parties
are engaged in the manufacture, sale and marketing of various pharmaceutical
products including medicines and active pharmaceutical ingredients which
constituted a separate relevant market. CCI observed that there are horizontal
overlaps between the parties in both the markets for formulation as well as
active pharmaceutical ingredients.
In order to examine the present
position, determine the effect of transaction, the combination (commission)
focused its investigation on 49 relevant product market for formulations where
the proposed combination was likely to have an AAEC in India based on:
a. The parties combined market share
b.The parties incremental market share
c. The market share of competition, and
d.The number of significant players in
the relevant market.
The commission focused its examined-on
SI molecules or relevant product markets for formulation which resulted in a
15% market share and found that in 7 formulations, the combined entity on
competition due to high market share post-merger.
CCI proposed the approval of the
merger subject to the modifications proposed as follows:
a. Ranbaxy to divest all products
containing 5 formulations and Sun Pharma to divest all products containing two
formulations.
b.CCI has asked the parties to give
full information regarding divestment products to potential purchase so as to
enable them to undertake reasonable due diligence.
Exceptions:
Section 6(4) and 6(5) provides for
exemption from giving notice to the CCI in order case of:
a. Share Subscription, or
b.Financial facility, or
c. Any acquisition by public financial
institution, foreign institutional investor, bank, or venture capital fund,
pursuant to any covenant of loan agreement or investment agreement.
These institutions are required to
file within 7 days from date of acquisition with the details of acquisition.
The exemption is provided in the act to facilitate raising of funds by an
enterprise in course of its normal business. The procedure to be followed
pursuant to section 6 of the Competition Act, 2002 are subject to regulation
issued by CCI.
C. WALMART AND FLIPKART COMBINATION
ORDER, CCI[67]
Facts:
CCI received a notice under section
6(2) of the Competition Act, 2002 given by Walmart International Holdings Inc.,
a subsidiary of Walmart Inc. for acquisition between 51% and 77% of the
outstanding shares of Flipkart Pvt Ltd. and matters incidental thereto.
Issue:
Whether proposed combination is
likely to have an appreciable adverse effect on competition in India
Decision:
CCI approved the 77% acquisition of
outstanding shares of Flipkart Pvt. Ltd. By Walmart International Holdings Inc.
and stated that it is not likely to have an appreciable adverse effect on
Competition in India. Since both the parties are engaged in Business-to-business
sales (hereinafter ‘B2B’) and the combination would facilitate the same for
Walmart, the CCI analysed the combination from both perspectives.
CCI observed that both the parties to
the combination have substantial foreign investments and therefore they are
governed by Foreign Direct Investment policy of India and extent of Walmart’s
market share in Business-to-Business sales in India is less than half a
percent. Walmart and Flipkart are not close competitor. Therefore, the CCI held
that, the proposed combination does not affect the current market structure.
Coming to the question of vertical
overlap, the CCI observed that the Foreign Direct Investment policy restricts
both the parties from engaging in B2B sales However, there is no restriction on
the parties to offer an online market place where they function merely as
intermediaries.
CCI observed that the proposed
combination would not result in elimination of any major player in the relevant
market. The proposed combination would enhance the quality of operations,
financial strength and would help them compete effectively in this dynamic
e-commerce markets. CCI held that the issues about common customer of Flipkart
are not directly or indirectly related to proposed combination and thus the
same is not likely to alter the competition dynamics as it exists today.
XII. CONCLUSION
Combination of enterprises is not per
se prohibited under Competition Act, 2002. The prohibition applies if the
combination or merger is having appreciable adverse effect on competition in
India. Whether the merger has any AAEC affect or not, the same has to be
ascertained through its dominance in the relevant market. Not all combination
shall be subject to approval by the commission, it is only those combinations
which are crossing the threshold limit as per latest notification of 2016 and
not falling under any exemptions, which we have discussed in detail above.
The concept of combination is
technical to understand and in my opinion the Act has not done justice to its
understanding and only created ambiguity and confusion to its applicability. It
is suggested that lawmakers shall amend the Act and infuse clarity in its
conceptual framework to make it easier for academicians and layman for the
better implementation of the Competition Act, 2002.
[1] Competition Act, 2002, s 5 -
Combinations
[2] Competition Act, 2002, s.6(2) – Regulation
of Combinations
[3] CCI (Procedure in regard to the
transaction of Business relating to Combinations) Regulations, 2011, reg 4 - Categories
of transactions not likely to have appreciable adverse effect on competition in
India
[4] Competition Act, 2002, s 31 - Orders
of Commission on certain combinations
[5] Ministry of Corporate Affairs, Notification S.O.
479(E), 4 March, 2011 (sections 5, 6, 20, 29, 30 & 31 of the Act came into
force through this notification)
[6] Competition Act, 2002, s 5 - Combinations
[7]The Competition (Amendment) Bill, 2007 <
http://164.100.24.219/billstexts/lsbilltexts/AsIntroduced/competition%202007.pdf>
accessed 21 September, 2022
[8]The Competition (Amendment) Bill, 2009,
accessed 21 September 2022
[9] Joint Comments of the American Bar Association
Section of Antitrust Law and Section of International Law on the Draft CCI
(Procedure in regard to the transaction of business relating to combination)
Regulations, (11 March 2011),
org/webupload/commupload/IC906787/relatedresources/aba-SAL-SIL-Comments-on-Indiadraft-
Combination-Regulations-final-w-apps.pdf-58k-2011-03-24> accessed 21
September 2022
[10] Draft Competition Commission of India (Procedure in
regard to the transaction of business relating to combination) Regulations, 2011
accessed 21
September 2022
[11]
Bharat Budhia, Aishwarya
Gopalakrishnan and Aishwarya Gupta, ‘India: Sixth Set Of
Amendments To The Combination Regulations’, (Mondaq, 16 November 2018),
accessed 21 September 2022
[12] The Competition Commission of
India (Procedure in regard to the transaction of business relating to combinations)
Amendment Regulations, 2018
accessed 21 September 2022
[13] CCI (Procedure in regard to the
transaction of business relating to combinations) Amendment Regulations, 2019,
August 13, 2019
accessed 21 September 2022; CCI (Procedure in regard to the transaction of
business relating to combinations) Amendment Regulations, 2019
accessed 21 September 2022
[14] CCI (Procedure in regard to the
transaction of business relating to combinations) Amendment Regulations, 2020,
accessed 21 September 2022
[15] CCI (Procedure in regard to the
transaction of business relating to combinations) Amendment Regulations, 2022,
accessed 21 September 2022
[16] The Constitution of India, 1950,
Art. 38
[17]The Competition Act, 2002, Statement of Objects &
Reasons,
accessed 21 September 2022
[18] The Competition Act, 2002, s 3 –
Anti-Competitive Agreements
[19] Kartik Bajpai, ‘History and Dynamics of the MRTP Act
and Competition Act in the Realms of Mergers and Acquisitions (Juris Online)
accessed 22 September 2022
[20] ibid
[21] ibid
[22] ibid
[23] ibid
[24] Competition Act, 2002, s 66 –
Repeal and Saving
[25] S. M. Dugar, ‘Guide To
Competition Law’, (6th edn, Lexis Nexis, 2010)
[26] Tanaya Sanyal and Sohini
Chatterjee, ‘Combination Control: Strengthening the Regulatory Framework of
Competition Law in India?’ (2012) 5 NUJS L. REV. < http://docs.manupatra.in/newsline/articles/Upload/931502F5-8DDB-4C22-AAE9-01890981BBF4.pdf>
accessed 22 September 2022
[27] Ministry of Corporate Affairs,
Notification S.O. 496(E), March 4, 2011
[28]‘CCI has today notified the final merger control
regulations’, (Bar and Bench News Network, 11 May 2011), accessed 22 September 2022
[29] The Combination Regulations, 2011,
reg 31 - Filing of notice under sub-section (2) of section 6 of the Act
[30]Competition Act, 2002, s 31(11) - If the Commission
does not, on the expiry of a period of two hundred and ten days from the date
of notice given to the Commission under sub-section (2) of section 6, pass an
order or issue direction in accordance with the provisions of sub-section (1)
or subsection (2) or sub-section (7), the combination shall be deemed to have
been approved by the Commission.
[31] Combination Regulations, 2011, reg. 28(6) - Having
due regard to the provisions contained in sub-section (11) of section 31 of the
Act, the Commission shall endeavour to pass an order or issue direction in
accordance with sub-section (1) or sub-section (2) or sub-section (7) of
section 31 of the Act within one hundred and eighty days of filing of the
notice under sub-section (2) of section 6 of the Act.
[32] Souvik Bhadra, ‘SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011- some key features’, (pxvlaw, 8
October 2011),
features/>accessed 22 September 2022
[33] SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997, reg. 10
[34] SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997, reg. 3(1)
[35] Combination Regulations, 2011,
Schedule 1 Clause 1 Explanation, Inserted by the Competition Commission of
India (Procedure in regard to the transaction of business relating to
combinations) Amendment Regulations, 2016, w.e.f. 7-1-2016
[36] Combination Regulations, 2011,
Schedule 1 Clause 1
[37] Combination Regulations, 2011, reg
9(2)
[38] Combination Regulations, 2011, reg
9(3)
[39] Ministry of Corporate Affairs,
Notification No. S.O. 675(E), 4 March, 2016
[40] ibid
[41] Ministry of Corporate Affairs (n
39)
[42] Ministry of Corporate Affairs, vide
S.O. 988(E), (27 March, 2017) accessed
22 September 2022
[43]Abhay
Joshi and others, ‘The Central Government has extended the validity of certain
exemptions available to enterprises keeping with its policy of ease of doing
business in India’(ELP, 21 March, 2022),
text=Now%20through%20its%20notification%20dated,.%2C%20till%2028%20March%202027>
accessed 22 September 2022
[44]ibid
[45] The Competition Commission of
India (Procedure in regard to the transaction of business relating to
combinations) Amendment Regulations, 2016
[46] The Competition Commission of
India (Procedure in Regard to the Transaction of Business Relating to
Combinations) Amendment Regulations, 2013
[47] The Competition Act, 2002, s. 31 –
Orders of Commission on Certain Combinations
[48] The Regional Rural Banks, s
23A(1)- Amalgamation of Regional Rural Banks
[49] ‘Filing of Combination Notice’ (CCI)
accessed 24 September 2022
[50] Joshi (n 43)
[51] ibid
[52] The Banking Regulation Act, 1949,
s 45 - Power
of Reserve Bank to apply to Central Government for suspension of business by a
banking company and to prepare scheme of reconstitution of amalgamation
[53] Filing of Combination Notice (n
43)
[54] The Competition Commission of
India (Procedure in regard to the transaction of business relating to
combinations) Amendment Regulations, 2018 accessed 24 September 2022
[55] Aishwarya Gupta & CAM
Competition Team, ‘Sixth set of Amendments to the Combination Regulations’, (Cyril
Amarchand Mangaldas, 25 October, 2018) <
https://competition.cyrilamarchandblogs.com/2018/10/sixth-amendments-combination-regulations-competition-law/
> accessed 24 September 2022
[56] The Competition Act, 2002, s 29 –
Procedure for investigation of Combinations
[57] Ministry of Corporate Affairs, Report
of the Competition Law Review Committee, (2019)
accessed 24 September 2022
[58] CCI (Procedure in regard to the
transaction of business relating to combinations) Amendment Regulations, 2019, <
https://www.cci.gov.in/combination/legal-framwork/regulations/details/8/0 >
accessed 24 September 2022
[59] The Competition (Amendment) Act,
2007, s 6(2)
[60] The Competition (Amendment) Act,
2007, s 6(2A)
[61] CCI (Procedure in regard to the
transaction of business relating to combinations) Amendment Regulations, 2019, accessed 24 September 2022
[62] Apurv Umredkar, ‘Green Channel
Route: Resolving the Impediment and Procedural Infirmities’, (Kluwer
Competition Law Blog, 18 June 2021) <
http://competitionlawblog.kluwercompetitionlaw.com/2021/06/28/green-channel-route-resolving-the-impediment-and-procedural-infirmities/#:~:text=Green%20Channel%20Route%3A%20The%20Underlying,of%20harm%20to%20competition%20regimes.>
accessed 24 September 2022
[63] The Competition Act, 2002, s 44 - Penalty for
making false statement or omission to furnish material information
[64]The Competition Amendment Bill
accessed 24 September 2022
[65]Etihad Airways and Jet Airways [2013], Combination Registration
No. C-2013/05/122
accessed on 24 September 2022
[66] Sun Pharma and Ranbaxy Combination
Order [2014] accessed 24 September 2022
[67] Walmart And Flipkart
Combination [2016], Combination Registration No. C-2018/05/571
accessed 24 September 2022
Article Information
UNDERSTANDING THE COMBINATION AND ITS THRESHOLD LIMIT: A CONCEPTUAL APPROACH
Authors: Sanjucta Kabasi, Shubhankar Kabasi
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/02/24
- Volume 2
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
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