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Subject- Corporate Law-II

Topic: “The Effect of Competition Law on Mergers and Acquisitions”

Submitted To- Submitted By-

Dr. Manish Singh Sanjana Mathur

Ms. Kirti Singh Roll No- 110
Department of legal studies Section B


I would like to extend my sincere thanks to my teachers and

Mentors, Dr Manish Singh and Ms Kirti Singh for their able guidance and advice;

and Dean(Academics), Prof. C.M Jariwala for his encouragement and


My seniors for sharing their valuable tips;

And my classmates for their constant support.


Page no.

1. Research Methodology................................…...………………………….……..4

2. Introduction..........................................……………...…………………………..5

3. Evolution of Competition Law in India................................................................7

4. A Brief Analysis of Competition Act, 2002.........................................................9

5. Regulation of Combinations.................................................................................11

6. Inquiry into Combinations by CCI.......................................................................13

7. The Loopholes......................................................................................................15

8. Conclusion............................................................................................................17

9. Bibliography …………………………………………………..….…………….18


The project aims to:

 Understand the evolution of Competition Law in India.

 Analyze the Competition Act, 2002.
 Understand the regulation and inquiries of combinations formed.
 Identify the loopholes in the Competition Act regarding the related provisions.


The researcher believes that the Competition Act, 2002 provides for provisions which can
control the anti-competitive behavior in mergers and acquisitions.


 Are there any provisions under the Competition Act to prevent anti competitive
behavior in mergers and acquisitions?
 How does the Act control this behavior?
 Are there any loopholes in the Act through which the companies can get away with
their anti-competitive behavior?
 How should these loopholes be fixed?


A doctrinal and analytical approach has been adopted by the researcher in the project.


The project uses both primary and secondary sources.


The scope of this project is the Competition Act prevalent in India.


Mergers and acquisitions (abbreviated M&A) are both aspects of corporate strategy,
corporate finance and management dealing with the buying, selling, dividing and combining
of different companies and similar entities that can help an enterprise grow rapidly in its
sector or location of origin, or a new field or new location, without creating a subsidiary,
other child entity or using a joint venture. Mergers and acquisitions activity can be defined as
a type of restructuring in that they result in some entity reorganization with the aim to provide
growth or positive value.

Mergers & Acquisitions mean any situation in which the ownership of two or more
enterprises is joined together. In business world joining of ownership may take many
different forms, and may be either amicable and consensual, or unwelcome and hostile. In
India Mergers are regulated under the Companies Act and also under the SEBI Act. With the
enactment of the Competition Act in 2002, mergers also come within the ambit of this
legislation. For the purposes of this paper, the discussion with regard to Mergers and
Acquisitions would be restricted to only Competition Act, 20021.

When two companies are merged or combined, they must have some objectives behind this
merger. One motive is of merger may be to realize economies of scale, improving operative
performance or expanding the business in order to gain more assets. However, on the other
the motive may be to create anti-competitive effects like to reduce the numbers of
competitors or to create dominance in the market. These mergers may reduce competition in
a market, usually by creating or strengthening a dominant player. This is likely to harm
consumers through higher prices, reduced choice or less innovation.

Increased competition within the Indian market and globalization are among the factors
which make it attractive for companies to join forces. Such reorganizations are welcome to
the extent that they do not impede competition and hence are capable of increasing the
competitiveness of Indian industry, improving the conditions of growth and raising the
standard of living in India.

Under this Act, Mergers and Acquisitions are covered under the term ‘Combinations’, which
means acquisition of one or more enterprises by one or more persons, or mergers or

Agarwal, Manish and Bhattacharjea, Aditya, Mergers in India: A Response to Regulatory Shocks. Emerging
Markets Finance and Trade, Vol. 42, No. 3, pp. 46-65, May-June 2006. Available at:

amalgamations of enterprises, if they meet the thresholds based on assets and turnover, the
limits of which are prescribed under section 5 of The Competition Act, 2002.

Indian law has all essential ingredients of anti-competitive practice provisions. Anti-
competitive agreements and abuse of dominance are intended to be prohibited by orders of
the Commission; whereas, combinations (mergers etc.) are to be regulated by orders. This
distinction in law indicates the intentions of the legislators. Combinations ensure economic
growth, more economic opportunities for businesses to compete with their overseas
counterparts and consumer welfare ultimately. On the other hand, anti-competitive
combinations harm markets and subvert the interests of the consumers.

Therefore the focus of study in this paper would be the Regulatory Power of Competition
Commission of India with respect to merger, the various factors which affect Mergers and
Acquisitions under Competition Act, such as Appreciable Adverse Effect on Competition
(AAEC), and effect in the relevant market, and the effectiveness of these measures.


While the term 'Renaissance' originally referred to a cultural movement that characterized the
period from around the 14th to 17th centuries, it has also come to refer to an historic era
affecting other aspects of daily life, including that of trade and competition. During this
Renaissance period, particularly from the 16th century onward, international trade started
booming. While much of this trade and the resultant wealth were illicit, authorities saw the
need to regulate trade to engender a spirit of fairness and free competition.2

Since attaining Independence in 1947, India, for the better part of half a century thereafter,
adopted and followed policies comprising what are known as Command-and-Control laws,
rules, regulations and executive orders. The competition law of India, namely, the
Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was one such.3

It was in 1991 that widespread economic reforms were undertaken and consequently the
march from Command-and-Control economy to an economy based more on free market
principles commenced its stride. As is true of many countries, economic liberalisation has
taken root in India and the need for an effective competition regime has also been recognised.

Competition Law for India was triggered by Articles 38 and 394 of the Constitution of India.
These Articles are a part of the Directive Principles of State Policy. Pegging on the Directive
Principles, the first Indian competition law was enacted in 1969 and was christened the
Monopolies and Restrictive Trade Practices, 1969 (MRTP Act). Articles 38 and 39 of the
Constitution of India mandate, inter alia, that the State shall strive to promote the welfare of
the people by securing and protecting as effectively, as it may, a social order in which justice
social, economic and political shall inform all the institutions of the national life, and the
State shall, in particular, direct its policy towards securing-

Available at
Pradeep S. Mehta, ―Competition & Regulation in India‖, available at http://www.cuts-ccier.org/pdf/pdf-
Akash Choubey and Saurabh Mishra, Competition Law: Glancing Back, Looking Ahead, (2004) PL WebJour
17, available at: http://www.ebc-india.com/lawyer/articles/733.htm

1. That the ownership and control of material resources of the community are so
distributed as best to subserve the common good; and
2. That the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment.5

In October 1999, the Government of India appointed a High Level Committee on

Competition Policy and Competition Law to advise a modern competition law for the country
in line with international developments and to suggest a legislative framework, which may
entail a new law or appropriate amendments to the MRTP Act. The Committee presented its

Competition Policy report to the Government in May 2000. The draft competition law was
drafted and presented to the Government in November 2000.

After some refinements, following extensive consultations and discussions with all interested
parties, the Parliament passed in December 2002 the new law, namely, the Competition Act,

Dr. S Chakravarthy- why India adopted a new competition law? Available at http://www.cuts-
Available at http://www.legalserviceindia.com/articles/compet.htm.


The various provisions of the Act deal with the establishment, powers and functions as well
as discharge of adjudicatory functions by the Competition Commission. Under the scheme of
the Act, this Commission is vested with inquisitorial, investigative, regulatory, and
adjudicatory and to a limited extent even advisory jurisdiction. Keeping in view the nature of
the controversies arising under the provisions of the Act and larger public interest, the matters
should be dealt with and taken to the logical end of pronouncement of final orders without
any undue delay.

In the event of delay, the very purpose and object of the Act is likely to be frustrated and the
possibility of great damage to the open market and resultantly, country's economy cannot be
ruled out. Primarily, there are three main elements which are intended to be controlled by
implementation of the provisions of the Act, which have been specifically dealt with under
Sections 3, 4 and 6 read with Sections 19 and 26 to 29 of the Act. They are anti- competitive
agreements, abuse of dominant position and regulation of combinations which are likely to
have an appreciable adverse effect on competition.

The objectives of the Act are sought to be achieved through the instrumentality of the
Competition Commission of India which has been established by Central Government. Hence
the commission is required to take care of such situation so that there could not be created
market failure thereby causing harm to market. To achieve its objectives, CCI endeavours to
do the following7:

1. Make the markets work for the benefit and welfare of consumers.
2. Ensure fair and healthy competition in economic activities in the country for faster
and inclusive growth and development of economy.
3. Implement competition policies with an aim to effectuate the most efficient utilization
of economic resources.
4. Develop and nurture effective relations and interactions with sectoral regulators to
ensure smooth alignment of sectoral regulatory laws in tandem with the competition


5. Effectively carry out competition advocacy and spread the information on benefits of
competition among all stakeholders to establish and nurture competition culture in
Indian economy.

The Act covers essentially four areas of competition contained in its substantive provisions

 Anti Competitive Agreements – Section 3

 Abuse of Dominance – Section 4
 Regulation of Combinations – Section 5 and 6
 Competitive Advocacy – Section 49


Abandoned in 1991 under the MRTP regime, the revival of merger control has been the most
controversial feature of the Competition Act8. In terms of section 5 of the competition Act
“combination” includes:9

1. Acquisition of one or more enterprises by one or more persons,

2. Merger of enterprises;
3. Amalgamation of enterprises.

The basic principle of this section is that a combination would result, subject to the other
prescriptions of the section, such as the monetary thresholds of assets or turnover of the
enterprises specified therein, on: (a) acquisition of control, shares, voting rights or assets of
one or more enterprises one or more persons; (b) acquiring of control by a person over an
enterprise when such person has already direct or indirect control over another enterprise
engaged in production, distribution or trading of a similar or identical or substitutable goods,
or provision of a similar or identical or substitutable service; (c) any merger or amalgamation.

To first understand combinations, the monetary thresholds of assets and turnover need to be
analysed. Section 5(a) provides that: any acquisition where—

1. The parties to the acquisition, being the acquirer and the enterprise, whose control, shares,
voting rights or assets have been acquired or are being acquired jointly have,—

• Either, in India, the assets of the value of more than rupees one thousand
crores or turnover more than rupees three thousand crores; or
• In India or outside India, in aggregate, the assets of the value of more than five
hundred million US dollars, including at least rupees five hundred crores in
India, or turnover more than fifteen hundred million US dollars, including at
least rupees fifteen hundred crores in India; or

2. The group, to which the enterprise whose control, shares, assets or voting rights have been
acquired or are being acquired, would belong after the acquisition, jointly have or would
jointly have,—

Aditya Bhattacharjea, India’s New Competition Law: A Comparative Analysis, Journal of Competition Law &
Economics, 4(3), 609–638, available at: http://ieg.ignou.ac.in/wiki/images/1/11/Acquisitiions_in_banks.pdf
Ravi Kumar, Analysis of terms “Assets” & “Turnover” for determination of threshold limits under
Competition Act, available at: http://cci.gov.in/images/media/ResearchReports/RaviIntern030311.pdf

• Either in India, the assets of the value of more than rupees four thousand
crores or turnover more than rupees twelve thousand crores; or
• In India or outside India, in aggregate, the assets of the value of more than two
billion US dollars, including at least rupees five hundred crores in India, or
turnover more than six billion US dollars, including at least rupees fifteen
hundred crores in India.

Combinations involving parties below these thresholds are among those that will be regarded
as “not likely to cause an appreciable adverse effect on competition in India”.10 Threshold
limits have been based upon the monetary value of assets and turnovers, therefore, it is
necessary that these terms be understood. Value of turnover shall include amount of sale of
goods and services11.

Horizontal combinations are those that are between rivals and are most likely to cause
appreciable adverse effect on competition. Vertical combinations are those that are between
enterprises that are at different stages of the production chain and are less likely to cause
appreciable adverse effect on competition. Conglomerate combinations are those that are
between enterprises not in the same line of business or in the same relevant market and are
least likely to cause appreciable adverse effect on competition.

The scrutiny of a combination under the Act is usually expected to take place before it comes
into effect with an idea of preventing a possible anti-competitive behaviour which may
adversely affect the consumers. Combinations likely to have an anti-competitive effect can be
permitted after such effects are removed by modifications.12

Section 2(y) of the Competition Act 2002.
Available at http://www.cci.gov.in/index.php?option=com_content&task=view&id=34.


Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a
combination which causes or is likely to cause an appreciable adverse effect on competition
within the relevant market in India and such a combination shall be void. It further provides
that any person proposing to enter into a combination shall give notice to the CCI and the
combination in respect of which notice has been given to the CCI shall not take effect for a
period of 210 days from the date of notification unless approved by the CCI earlier.13 Sub-
section (11) of Section 31 provides that where the CCI has not passed any order in respect of
a notice within a period of 210 days, then the combination shall be deemed to be approved.

Upon receiving a notice, the CCI proceeds to assess the combination’s likelihood of
Appreciable Adverse Effect on Competition (AAEC) in India. For the assessment of AAEC,
the CCI considers all or any of the following factors14:

(a) Actual and potential level of competition through imports in the market;

(b) Extent of barriers to entry into the market;

(c) Level of combination 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;

Section 31(1) of the Competition Act, 2002.
Sub-section(4) of Section 20 of the Competition Act, 2002.

(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.

Upon assessment of a combination based on the factors stated above, the CCI may: (a)
approve the combination; (b) block the combination; or (c) approve the combination subject
to certain conditions which are generally referred to as modifications.15 The modifications are
merger remedies that are intended to remedy the potential anti-competitive outcome of the
proposed merger. In general, remedies are imposed when the same is practical, capable of
being monitored and sufficient enough to address anti-competitive outcome of the merger.

Section 30 (1) of the Competition Act, 2002.


The provisions related to Combination Regulations in Section 5 & 6 of the Act are ex-ante in
nature, whereas provisions related to anti-competitive agreement & abuse of dominance
position as provided in Section 3 & 4 of the Act respectively are ex post facto in nature. The
term ex-ante is a phrase meaning "before the event" whereas ex post facto means "from after
the action" or "after the fact". Thus in case of combination it is required to check in advance
whether in future the parties to combination will not come in such position where they can
attain dominance and thus resulting in abuse of dominance. The rationale is derived from old
saying that ―prevention is better than cure.

An analysis of the orders passed by CCI shows that till date the CCI has cleared all (or 100%)
merger notifications filed to it16. None of them were referred for detail investigation. It means
that all notifications were cleared within 30 days time frame which was a self imposed
mandate by CCI. Although there have been slight delay in filing notice to CCI in some cases,
hence attracting penalty under the provisions of Section 43A of the Act, but the CCI has
taken liberal view and has not penalized the defaulting parties in any case(s).

The following are some of the issues which can be currently reviewed by the commission in
the merger review process as provided under the Act or the Combination Regulations17:

1) Acquisition in case of a hostile takeover:

A takeover is considered "hostile" if the target company's board rejects the offer, but the
acquirer (along with person acting in concert) continues to pursue it. In India, takeover of
listed companies is regulated by the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011 [SEBI Takeover Code]. In acquisition cases both SEBI Takeover Code &
Competition Act, 2002 are likely to be triggered, and therefore, in such cases the prior
approval of the Competition Commission of India would be required. In the case of hostile
takeover the 30 days time period of approval of the CCI could become additional hurdle
before the raider. During this 30 day time frame the target company could consolidate its
shareholding by Intra group restructuring activity, as the same is exempt under Para 8 & 8A
of schedule I of Combination Regulations.

Hari Krishnan, A review of Mergers and Acquisitions in India, available at:

2) Calculation of threshold limits:

Currently, the Combination Regulations does not make clear how to calculate of turnover and
assets. The term ―turnover‖ i.e. in terms of ―gross turnover‖ or ―net turnover has not been
defined under The Competition Act, 2002. Therefore, it is could be ascertained from other
sources, like the Guidance notes on Terms Used in Financial Statements issued by The
Institute of Chartered Accountants of India. Since the terms ―Asset‖ and ―Turnover‖ have
not been adequately defined under The Competition Act, the parties concerned could dispute
the interpretation made by CCI. Therefore, it would be advisable to issue clarification in this
regard as it will bring uniformity in manner of calculation of values of asset and turnover.
The informal guidance provided by CCI could only be a temporary measure and it will not
help the corporate to make proper compliance of law.

3) Calculation of threshold limit in case of Slump sale:

Slump sale is sale of a business undertaking for a lump sum consideration on a going concern
basis without assigning individual value to each asset. The CCI in case of slump sale instead
of taking value of business undertaking being sold has adopted the approach of taking the
total asset value of vendor entity. Although it has broaden the scope of the Competition Act,
2002, but in absence of clear cut provisions it may lead to possible conflict in future with the
stakeholders/corporates. CCI by virtue of power provided under Section 36 of Competition
Act, 2002 regulates its own procedure. It would be desirable to notify the provision regarding
calculation of assets/turnover in case of sale/acquisition of business division of an enterprise
on a slum sale basis in the existing Combination Regulations for making it clear to the
corporate and reduce possibility of future conflicts of misinterpretation.


Competition Law is a complex mixture of a country's law, economics and administrative

action intended to favour competition in the economy. Since competition is seen as critical to
economic development, competition law seeks to protect this competitiveness in the
economy. The underlying theory behind competition law is the positive effect of competition
in an economy's market, acting as a safeguard against misuse of economic power.

The link between competition law and economic development emphasized over and over
again seems rather undeniable and the need for competition law seems like the order of the
day. The operation of competition law by prevention of anti-competitive agreements,
prohibiting abuse of dominant position by firms and regulation of combinations which might
adversely affect competition in the economy, thus seems crucial for India. Even though the
Indian competition law is modelled along the lines of EC law18, the Commission is in no way
bound to interpret similar provisions in the Indian law in the manner interpreted under the EC
law. The Commission on the other hand is bound by the Preamble of the Act to interpret it in
a fashion that promotes economic development of the country. This is because the conditions
that exist in India are remarkably different than those that exist in the EC and to come to the
level where there can be talk of similar interpretation of laws in the two jurisdictions, similar
development level would necessarily be a condition precedent.

Competition Law is a complex creation of law and the Government of India and Competition
Commission of India should take time to understand it in the light of special needs of the
Indian economy and understand it accordingly.

Akash Choubey and Saurabh Mishra, Competition Law: Glancing Back, Looking Ahead, (2004) PL WebJour
17 Available at: http://www.ebc-india.com/lawyer/articles/733.htm


1. Book resourses
 Dhall, Vinod, ‘Competition Law Today’, Oxford University Press, (New Delhi, 1st
Edn., 2007)
 Dugar, S.M. ‘Commentary on MRTP Act, Competition Law and Consumer Law and
Procedures: Law Practices and Procedures’, Wadhwa & Co. (New Delhi, 1st Edn.,
 Mittal, D.P., ‘Competition Law and Practices: As amended by Competition
Amendment Act, 2007 and 2008’, Taxmann Allied Services, (New Delhi, 1st Edn.,
 Mittal, D.P., ‘Taxmann’s Competition Law and Practice: A comprehensive
sectionwise law relating to Competition Act’, Taxmann Allied Services, (New Delhi,
3rd Edn., 2011)
 Singh, Avatar, ‘Competiton Law’, Eastern Book Co., (Lucknow, 1st Edn., 2012)

2. Web resources

 http://www.ebc-india.com/lawyer/articles/733.htm
 http://cci.gov.in/images/media/ResearchReports/3102012.pdf
 http://ieg.ignou.ac.in/wiki/images/1/11/Acquisitiions_in_banks.pdf
 http://www.cuts-ccier.org/pdf/Why_India_Adopted_a_new_Competition_Law.pdf.