Competition Act – CS Professional Study Material

Chapter 9 Competition Act – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.

Competition Act – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material

Question 1.
In the modem economic era, it is a well known fact that neither the government nor the consumers allow the companies to insulate themselves through cartels for an infinite period in order to restrict competition. So what options are left to the companies with surplus capacities to mitigate the competition from its rival firm(s), as the excess capacity increases competition, erodes profits and reduces further growth. Write your answer with brief example. (Dec 2012, 5 marks)
Answer:
Corporate restructuring activities such as merger, acquisitions, takeovers, demergers, hive off etc. enables an enterprise to achieve economies of scale, global competitiveness, right size, and a host of other benefit including reduction of cost of operations and administration.

A merger or amalgamation is capable of offering various financial synergies and benefits such as eliminating financial constraints .deployment of surplus cash, enhancing debt capacity and lowering the cost of financing.

Brief Example:
Ranbaxy Laboratories Limited., India’s largest pharmaceutical company is an integrated, research based, international pharmaceutical company producing a wide range of quality, affordable generic medicines, trusted by healthcare professionals and patients across geographies and serving in over 125 countries.

Daiichi Sankyo Company was established in 2005 through the merger of two leading Japanese pharma companies.

Ranbaxy entered into a binding Share Purchase and Share Subscription Agreement with Daiichi Sankyo

Daiichi Sankyo to acquire the entire shareholding nf the Sellers in Ranbaxy and further seek to acquire the majority of the voting capital of Ranbaxy at a price of ? 737 per share with the total transaction value expected to be between US$ 3.4 bn to US$ 4.6 bn. On the post-dosing basis, the transaction would value Ranbaxy at US$ 8.5 bn.

Benefits of the merger were as below –

• A complementary business combination that provides sustainable growth by diversification,
• An expanded global reach that enables leading market positions in both mature and emerging markets with proprietary and non-proprietary products
• Strong growth potential by effectively managing opportunities across the full pharmaceutical life cycle, cost competitiveness by optimizing usage of R&D and manufacturing facilities of both companies, especially in India
• Both Daiichi Sankyo and Ranbaxy possess significant competitive advantages, and have profound strength in striking lucrative alliances with other pharmaceutical companies.

Question 2.
For a merger, it is the shareholders who decide whether the company will merge with another company or not. There is no hostile process/method to force merger by the other company. However, the Companies Act, 2013 empowers someone who can force amalgamation of more than one company in public interest. You are required to answer the following:
(i) Which authority can force the merger?
(ii) What is the underlying situation for that?
(iii) What is the remedy in the hands of the affected persons?
(iv) How is it implemented?
(v) What are the pre-conditions in case of amalgamation of banks? (Dec 2013, 1 mark each)
Answer:
(i) Central Government has special powers under section 237 of the Companies Act, 2C13 to order amalgamation of two or more Companies into a single company, if the government is satisfied that it is essential in the public interest that two or more companies should amalgamate.

(ii) Central Government may pass such an order in the notified Official Gazette, only where the Government is satisfied that it is essential in the public interest that two or more companies should amalgamate.

(iii) As per Sec. 237(4), any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may, within thirty days from the date of publication of such assessment in the Official Gazette, prefer an appeal to the tribunal and thereupon the assessment of the compensation shall be made by the tribunal.

(iv)

• Central Government may pass such an order only where the government is satisfied that it is essential in the public interest that two or more companies should amalgamate;
• The order passed by Central Government must be published in the Official Gazette;
• A copy of the proposed order to be provided in draft to each of the companies concerned;
• The time for preferring the appeal under sub-section (4) has expired, or where any such appeal has been preferred, the appeal has been finally disposed of;
• The Central Government shall consider and make such modifications, if any, in the draft order as may seem to it desirable in the light of any suggestions and objections which may be received by it from any such company within such stipulated period as the Central Government may fix.

(v) In the case of amalgamation of two or more banking companies, the Central Government must consult the RBI before passing any order under section 237 of Companies Act, 2013.

Question 3.
Explain the following:
Thresholds of combinations under the Competition Act, 2002. (June 2014, 5 marks)
Answer:
Combination – Thresholds under the Competition Act, 2002

Thresholds For Combinations
		Assets	OR	Turnover
Enterprise Level	India	> 2000 INR Crore		> 6000 INR Crore
	World wide with India leg	> USD 1bn with atleast > 1000 INR Crore in India		>  USD 3bn with atleast >   3000 INR Crore in India

OR

Group	India	> 8000 INR Crore		> 24000 INR Crore
Level	World wide with India leg	> USD 4b nwith atleast >1000 INR Crore in India	OR	> USD 12bn with atleast > 3000 INR Crore in India

Combined assets of the enterprises value more than 1,000 crores or combined turnover is more than 3,000 crores. In case either both of the enterprises have assets/turnover outside India also, then the combined assets of the enterprises value more than US$ 1 billion, including at least 1000 crores in India or turnover is more than US$ 3 billion, including at least 3000 crores in India.

Combined assets of the group to which the acquired enterprise would belong being more than 8,000 crores or such group having a joint turnover more than 24,000 crores after acquisition or merger. In case such group has assetsAumover outside India, then the combined assets of the group value more than US$ 4 billion, including at least 1000 crores in India or turnover is more than US$ 12 billion including at least 3000 crores in India.

Two enterprises belong to a “group” if one is in position to exercises at least 26% voting rights or appoint at least 50% Of the directors or controls the management or affairs in the other. It may be pointed out that “control” for the purpose of this section includes controlling the affairs or management by:

1. one or more enterprises, either jointly or singly, over another enterprise or group;
2. one or more groups, either jointly or singly, over another group or enterprise.

The term “group” means two or more enterprises, which, directly or indirectly are in a position to:

1. exercise fifty per cent or more of voting rights in other enterprise; or
2. appoint more than fifty per cent of the members of the Board of Directors in other enterprise; or
3. control the management or affairs of the other enterprise.

Question 4.
Gtech International Ltd. and Agri International Ltd., two multinational companies, entered into an agreement in USA which is likely to have adverse effect on competition in Agri market in India. Domestic companies dealing in the market raised the issue before the Competition Commission. Offer your comments regarding the jurisdiction of Competition Commission in such matters under the Competition Act, 2002. (Dec 2014, 5 marks)
Answer:
Section 32 of the Competition Act, 2002 empowers Competition Commission of India to inquire and pass orders if any agreement or dominant position or combination is likely to have, an appreciable adverse effect on competition in relevant market in India, notwithstanding that:
(a) An agreement has been entered into outside India; or
(b) Any party to such agreement is outside India; or
(c) A combination has taken place outside India;
(d) any enterprise abusing the dominant position is outside India;
(e) any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.

So acts taking place outside India but having an effect on competition in India will be subject to the jurisdiction of Commission. The Competition Commission of India will have jurisdiction even if both the parties to an agreement are outside India but only if the agreement, dominant position or combination entered into by them has an appreciable adverse effect on competition in the relevant market of India.

Question 5.
There are a host of factors that drive the business world to opt for mergers and amalgamations for creation of sustainable competitive advantage. Discuss at least five such factors that prompt mergers and amalgamations. (Dec 2014, 5 marks)
Answer:
Market Leadership: The amalgamation can enhance value for shareholders of both companies through the amalgamated entity’s access to greater number of market resources. With the addition to market share, a company can afford to control the price in a better manner with a consequent increase in profitability. The bargaining power of the firm vis-a-vis labour, suppliers and buyers is also enhanced.

In the case of the amalgamation of Reliance Petroleum Limited with Reliance Industries Limited, the main consideration had been that the amalgamation will contribute towards strengthening Reliance’s existing market leadership in all its major products. It was foreseen that the amalgamated entity will be a major player in the energy and petrochemical sector, bringing together Reliance’s leading positions in different product categories.

Operating Economies:
A combination of two or more firms may result in reduction of costs due to operating economies. A combined firm may avoid overlapping of function and facilities. Various functions may be consolidated and duplicate channels may be eliminated by implementing an integrated planning and control system. The merger of Sundaram Clayton Ltd. (SCL) with TVS Suzuki Ltd. (TSL) was motivated by operating economies and by virtue of this, TSL became the second largest producer of two wheelers.

TSL needed to increase its volume of production but also needed a large manufacturing base to reduce its production costs. Large amount of funds would have been required for creating additional production capacity. SCL was also required to upgrade its technology and increase its production. Both the firms’ plants were closely located offering various advantages, the most versatile being the capability to share common research and development facilities.

Diversifying the Portfolio:
Another reason for business growth and expansion due to merger is to diversify the company’s dependence on a number of segments of the economy. Diversification implies growth through the combination of firms in unrelated businesses. All businesses go through cycles and if the fortunes of a company were linked to only one or a few products then in the decline stage of their product life cycles, the company would find it difficult to sustain itself.

The company therefore looks for either related or unrelated diversifications and may decide to do so not interhaUy by setting up new projects, but externally by merging with companies of the desired product profile. Such diversification helps to widen the growth opportunities for the company and smoothen the ups and downs of their life cycles.

Financial Benefits:
A merger or amalgamation is capable of offering various financial synergies and benefits such as eliminating financial constraints, deployment of surplus cash, enhancing debt capacity and lowering the costs of financing. Mergers and amalgamations enable external growth by exchange of shares releasing thereby, the financial constraint. Also, sometimes cash rich companies may not have enough internal opportunities to invest surplus cash. Their wealth may increase through an increase in the market value of their shares if surplus cash is used to acquire another company.

A merger can bring stability of cash flows of the combined company, enhance the capacity of the new entity to service a larger amount of debt, allowing a higher interest tax shield thereby adding to the shareholders wealth. Also, in a merger since the probability of insolvency is reduced due to financial stability, the merged firm should be able to borrow at a lower rate of interest. Apart from this, a merged firm is able to realize economies of scale in floatation and transaction costs related to an issue of capital i.e. issue costs are saved when the merged firm makes a larger security issue.

Strategic integration:
Considering the complementary nature of the businesses of the concerned companies, in terms of their commercial strengths, geographic profiles and site integration, the amalgamated entity may be able to conduct operations in the most cost effective and efficient manner. The amalgamation can also enable optimal utilization of various infrastructural and manufacturing assets, including utilities and other site facilities.

Yes, there are a host of factors that drive the business world to opt for mergers and amalgamations for creation of sustainable competitive advantage, including the following:

1. Reduction in production, administration, selling legal and professional expenses,
2. Optimum use of capacities and factors of production,
3. Advantage of brand equity;
4. Revival of weak or sick company,
5. Accelerating companies market power and reducing the severity of competition.

Question 6.
Which of the activities are not covered under section 6 of the Competition Act, 2002 with regard to furnishing of a notice to the Commission disclosing details of the proposed combination? (Dec 2014, 3 marks)
Answer:
Section 6 prohibits any person or enterprise from entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.

Section 6(2) envisages that any person or enterprise, who or which proposes to enter into any combination, shall give a notice to the Commission disclosing details of the proposed combination.

Exemptions
The provisions of Section 6 do not apply to share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement.

This exemption appears to have been provided in the Act to facilitate raising of funds by an enterprise in the course of its normal business.

The Central Government in the public interest exempts all cases of combinations under section 5 of the Act involving the Central Public Sector Enterprises (CPSEs) operating in the Oil and Gas Sectors under the Petroleum Act, 1934 (30 of 1934) and the rules made thereunder or under the Oilfields (Regulation and Development) Act, 1948 (53 of 1948) and the rules made thereunder, along with their wholly or partly owned subsidiaries operating in the Oil and Gas Sectors, from the application of the provisions of sections 5 and 6 of the act, for a period of five years from the date of publication of the notification in the Official Gazette (22nd November 2017)

The Central Government in the public interest exempts, all cases of reconstitution, transfer of the whole or any part thereof and amalgamation of nationalized banks, under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), from the application of provisions of Section 5 and 6 of the Competition Act, 2002 for a period of ten years from the date of publication of the notification in the Official Gazette. (30/08/2017)

The Central Government, in public interest, hereby exempts the Regional Rural Banks in respect of which the Central Government has issued a notif ication under sub-section (1) of section 23A of the Regional Rural Banks Act, 1976 (21 of 1976), from the application of provisions of sections 5 and 6 of the Competition Act, 2002 for a period of five years from the date of publication of this notification in the Official Gazette (10/08/2017)

The Central Government through notification dated 29th June, 2017, exempted every person or enterprise who is a party to a combination as referred to in section 5 of the Act from giving notice within thirty days mentioned in sub-section (2) of section 6 of the Act, subject to the provisions of sub-section (2A) of section 6 and section 43A of the Act, for a period of five years.

Question 7.
(a) While combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India is prohibited under section 6 of the Competition Act, 2002, certain transactions are exempted and are, therefore, not prohibited.

List out the transactions or dealings which are not hit by section 6 of the Competition Act, 2002. (June 2015) (5 marks)

(b) The draftsmen of the Competition Act, 2002 had demonstrated utmost concern and care in identifying questionable combinations and prohibiting such combinations. In order to achieve this object, extra territorial jurisdiction is conferred on the Competition Commission of India (CCI) to inquire and pass orders even if both the parties to an agreement are outside India.

List out the circumstances where the CCI can pass orders consequent to extra territorial jurisdiction conferred on it. (5 marks)
Answer:
Section 32 extends the jurisdiction of Competition Commission of India to inquire and pass orders in accordance with the provisions of the Act into an agreement or dominant position or combination, which is likely to have, an appreciable adverse effect on competition in relevant market in India, notwithstanding that,

(a) an agreement referred to in Section 3 has been entered into outside India; or
(b) any party to such agreement is outside India; or
(c) any enterprise abusing the dominant position is outside India; or
(d) a combination has taken place outside India; or
(e) any party to combination is outside India; or
(f) any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.

The above clearly demonstrate that acts taking place outside India but having an effect on competition in India will be subject to the jurisdiction of Commission.

The Competition Commission of India will have jurisdiction even if both the parties to an agreement are outside India but only if the agreement, dominant position or combination entered into by them has an appreciable adverse effect on competition in the relevant market of India.

Question 8.
The Competition Commission of India has power to initiate investigation for any combination and there is set procedure for the same under section 29 of the Competition Act, 2002. Mention important milostones of the procedure for the investigation of a combination. (Dec 2015, 5 marks)
Answer:
The procedure for investigation by the Commission has been stipulated under section 29 of the Act. It involves the following stages:
The Commission first has to form a prima facie opinion that a combination is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India.

Commission shall issue a notice to the parties.

After receipt of the response of the parties to the combination, the Commission may call for the report of the Director General.

When pursuant to response of parties or on receipt of report of the Director General under section 29 (1A) whichever is later, the Commission is, prima facie, of the opinion that the combination is likely to cause an appreciable adverse effect on competition in relevant market, it shall, within seven days’, direct the parties to the combination to publish within ten working days, the details of the combination, in such mariner as it thinks appropriate so as to bring to the information of public and persons likely to be affected by such combination.

The Commission may invite any person affected or likely to be affected by the said combination, to file his written objections within fifteen working days of the publishing of the public notice, with the Commission for its consideration.

The Commission may, within fifteen working days of the.filing of written objections, call for such additional or other information as it deem fit from the parties to the said combination.

After receipt of all the information and within 45 days from expiry of period for filing further information, the Commission shall proceed to deal with the case, in accordance with provisions contained in Section 31 of the Act.

Question 9.
Discuss the provisions and powers of Competition Commission of India to impose penalty for non-furnishing of information on combination under the Competition Act, 2002. (June 2016, 5 marks)
Answer:
Section 43A provides that if any person or enterprise who fails to give notice to the Commission under sub section (2) of Section 6, the Commission shall impose on such person or enterprise a penalty which may extend to one per cent of the total turnover or the assets, whichever is higher, of such a combination. Thus, failure to file notice of combination falling under section 5 attracts deterrent penalty.

Question 10.
Comment on the following:
Compliance of the Competition Act, 2002 in relation to merger and amalgamation. (Dec 2016, 3 marks)
Answer:
One should take care of the following check list regarding the compliance in relation to merger and amalgamation :

1. Check whether the merger or amalgamation is a combination or not as per the threshold limit as specified in Section 5 of the Competition Act, 2002.
2. Ensure that combination is not likely to cause an appreciable adverse effect on competition within the relevant market in India. Sec 6(1)
3. Give notice to CCI under sec. 6(2) before entering into combination, disclosing the details of the proposed combination with in the period of 30 days from
   (a) Approval of the proposal relating to merger or amalgamation by the board of directors of the enterprises concerned with such merger or amalgamation .
   (b) Execution of any agreement or other document for acquisition referred to in section 5(a) or acquiring of control referred to in section 5(b).
4. As per Sec.6 (2A) no combination shall come into effect untH 210 days have passed from the day on which notice has been given to CCI has passed orders, whichever is earlier.
5. Section 6 is not applicable to share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement
6. On receipt of notice u\s 6(2), CCI will start its inquiry to check whether there is appreciable adverse effect on competition in India or not.

Question 11.
“Events taking place outside India but having an effect on competition in India is also subject to jurisdiction of Competition Commission of India.” Comment on extra territorial jurisdiction provided under Competition Act, 2002. (Dec 2017, 5 marks)
Answer:
Section 32 extends the jurisdiction of Competition Commission of India to inquire and pass orders in accordance with the provisions of the Act into an agreement or dominant position or combination, which is likely to have, an appreciable adverse effect on competition in relevant market in India, notwithstanding that,

(a) an agreement referred to in Section 3 has been entered into outside India; or
(b) any party to such agreement is outside India; or
(c) any enterprise abusing the dominant position is outside India; or
(d) a combination has taken place outside India; or
(e) any party to combination is outside India; or
(f) any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.

The above clearly demonstrate that acts taking place outside India but having an effect on competition in India will be subject to the jurisdiction of Commission.

The Competition Commission of India will have jurisdiction even if both the parties to an agreement are outside India but only if the agreement, dominant position or combination entered into by them has an appreciable adverse effect on competition’ in the relevant market of India.

Question 12.
“Mergers, Demergers or Reverse Mergers are resorted to enhance, utilise or protect the brand value already earned by an enterprise”. Explain how the reputation and goodwill associated with a brand name of the Company could be advantageously exploited. (June 2018, 5 marks)
Answer:
One of the objectives of Mergers, Demergers and Reverse Merger is to acquire a new product or brand name.

Acquiring a new product is different from acquiring a brand name. A company may be able to build a brand name for a particular line of business. In a related field, the company might think of introducing another product so that reputation and goodwill associated with a brand name of the company could be advantageously exploited. In this situation, the company would be either installing a manufacturing facility for the new product or looking for a good party in the market with a reasonable market share.

If the company acquires its manufacturing facility, the company can save a lot of time and energy in creating a new industry. The combination of the ability of the company to takeover the manufacturing facility and build the said product with the company’s brand name develops a great market for the company.

Question 13.
“Anti-trust laws world over believe that the free trade benefits the economy and at the same time, the legislations are formulated to forbid several types of restraints of trade and monopolisation”. Justify the statement in the context of the provisions of Competition Act, 2002 with respect to mergers, demergers or reverse mergers. (June 2018, 5 marks)
Answer:

• Antitrust law seeks to make enterprises compete fairly.
• It had a serious effect on business practices and the organization of U.S. industry.
• Premised on the belief that free trade benefits the economy, businesses, and consumers alike, the law forbids several types of restraints of trade and monopolization.
• These cover areas such as agreements between or among competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of monopoly power, and mergers.
• The Sherman Anti-Trust Act of 1980 is the origin of Anti-trust/ Competition Law in many countries.
• This legislation was the result of intense public opposition to the concentration of economic power in large corporations and in combinations of business concerns that had been taking place in the U.S. in the decades following the Civil War.

Question 14.
Certain ambiguities are cleared with the notification of Competition Commission of India (Procedure in regard to transactions of business relating to Combinations) Amendment Regulations, 2018 on 9th October 2018 – Briefly comment. (June 2019, 3 marks)
Answer:
Certain ambiguities are cleared on notification of the CCI (Procedure in regard to transactions of business relating to combinations) Amendment Regulations, 2018 on 9^th October, 2018. There is a clarity in computing 210 days for a notified transaction that could be extendable on the number of requests by the Commission. Applicant has liberty to offer voluntary modifications.

Regulation 27 of the said regulations has made provision for appointing agencies to oversee the implementation of modifications directed by the Commission. Regulation 25 of the said regulations affords parties not to wait for the Commission to order modification after a long Drawn Phase II review process. This would result in speedier resolution of the Competition Commission of India’s concern according quicker approvals in line with international practices.

Question 15.
“Competition Commission of India takes into consideration various factors while assessing the adverse effect on competition.” – Analyse briefly. (Dec 2020, 5 marks)
Answer:
Section 20 (4) of the Competition Act, 2002 illustrates the factors that may be taken into view to test the appreciable adverse effect of competition (AAEC) by the Competition Commission of India.

The factors are actual and potential level of competition through imports ‘ in the market, barriers to entry in the market, market share, and likelihood of removing effective competition, innovation, whether benefits outweigh the adverse effects on competition.

The above yardsticks are to be taken into account irrespective of the fact whether an inquiry is instituted, on receipt of notice under section 6 of the Act or upon its own knowledge.

The scope of assessment of adverse effect is confined to relevant market which is a mix of geographical and product involved as per thev terms of Combination.

Most of the facts enumerated in section 20(4) are external to an enterprise. It is noteworthy that Section 20(4) requires to invoke principles of a “balancing”. It requires the Commission to evaluate whether the benefits of the combination outweigh the adverse impact of the combination, if any. In other words, if the benefits of the combination outweigh the adverse effect of the combination, the Commission will approve the combination. Conversely, the Commission may declare such a combination as void.

Being a quasi-judicial body, the Commission provides an opportunity of being heard to the affected parties before arriving at a decision to approve or reject a proposal through application or otherwise.

Question 16.
Suggest the regulations to be referred to in respect of Combinations under the Competition Act, 2002. (Dec 2020, 3 marks)
Answer:

• Section 6 of the Competition Act, 2002 deals with the provisions related to combinations.
• Any person or enterprise who proposes to enter into any combination, shall give a notice to CCI.
• The notice shall contain the details of proposed combination and shall submit the same together with the fee within 30 days of approval of the proposal relating to merger or amalgamation by the board of directors.
• No combination shall come into effect until 210 days have passed from the day of notice or the Commission has passed orders, whichever is earlier.

Question 17.
“In case any combination is to be notified for ex post facto approval, it would defeat the very intendment of the provisions of the Competition Act, 2002 yet there are exemptions from compliance either under regulations or through notifications issued by the Central Government”. Express your views on the statement. (Aug 2021, 5 marks)
Answer:
Prior approval from the Competition Commission of India is required to any combination as was held by Apex Court in SCM Solifert Limited & Anr. vs. CCI (Civil Appeal No. 10678 of 2016).

Section 6 (2) of Competition Act, 2002 requires filing of application within 30 days prior to combination. Such combination shall take effect after 210 days thereof or orders under Section 31, whichever is earlier.

Notification no. S.0.2039(E) dated 29th June 2017 does away with time requirement of 30 days but to wait for orders by the Commission. In addition, notifications have been issued on 10-08-2017,30-08-2017 and 22-11 -2017 respectively granting exempting combinations relating for five years to Regional Rural Banks, Public sector Banks so also Public Sector Oil and Gas Bodies.

The provisions of section 6 of the Act do not apply to share subscription or financing facility or any acquisition, by a public financial institution, foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or investment agreement.

Categories of combinations mentioned in Schedule I to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 are ordinarily not likely to cause an appreciable adverse effect on competition in India, notice under sub-section(2) of section 6 of the Act need not normally be filed.

Question 18.
Explain Competition Test (AAEC). (Aug 2021, 3 marks)
Answer:
Section 5 of the Competition Act, 2002 explains combination. The acquisition of one or more enterprises by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons through acquisition of controlling shares, voting rights or assets.

However, section 6 of the Competition Act, 2002 declares a combination as void if it causes or is likely to cause an adverse effect on competition within the relevant market in India.

The Commission shall have due regard to all or any of the following factors listed under section 20(4) of the Competition Act, 2002 for the purpose of determining whether the combination causes or is likely to cause an ‘appreciable adverse effect on competition in the relevant market. The adverse impact can be caused due to extent of barriers to entry in the market or degree of countervailing power in the market, level of combination and other derogatory market forces.

Question 19.
The parties intending to file a notice with the Competition Commission prior to filing of the notice to a proposed combination in terms of Regulation 5 of Combinations Regulations are encouraged to approach the Commission for pre-filing consultations. Outline the procedure to be followed along with details to be submitted to the Commission in this respect. (Dec 2021, 5 marks)
Answer:
In accordance with international best practices, the Commission allows for an informal and verbal consultation with the staff of the Commission prior to filing of the notice to a proposed combination in terms the Competition Act, 2002 and the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011.

Such pre-filing consultations help the parties intending to- file a notice with the Commission in identifying the information required for filing a complete and correct Form I/II/III as well in identifying additional information that the Commission may require to assess the likely impact of the proposed combination on competition in the relevant markets.

The parties intending to file a notice with the Commission are encouraged to approach the Commission for pre-filing consultations. A request for pre-filing consultation should be made by the parties intending to file a notice at the earliest and at least 10 days before the intended date of filing, to allow time for allocating a case team for the pre filing consultation. A copy of draft application comprising of Form I/II/III, as the case may be and supporting documents should be forwarded along with the request for scheduling a pre filing consultation.

A summary of the proposed combination along with the following details should also be submitted:
a. Basic details of the proposed combination including various steps involved in the same;
b. A brief description of the relevant market(s) and sector(s) involved;
c. The likely impact of the proposed combination on competition in those markets and sectors in general terms;
d. Key issues regarding which the parties wish to seek consultation from the Commission;
e. Any other details which according to the parties may be pertinent for a meaningful consultation.

Question 20.
Under what circumstances, the Competition Commission may inquire into the appreciable adverse effect caused or likely to be caused on competition in India? (Dec 2021, 3 marks)
Answer:
The Commission under section 20 of the Competition Act, 2002 may inquire into the appreciable adverse effect caused or likely to be caused on competition in India as a result of combination in the following circumstances:

1. upon its own knowledge or information (suo moto)\ or
2. upon receipt of notice under section 6(2) relating to acquisition referred to in section 5(a); or acquiring of control referred to in section 5(b); or merger or amalgamation referred to in section 5(c) of the Act.

It has also been provided that a suo moto enquiry shall be initiated by the Commission within one year from the date on which such combination has taken effect. Thus, the Act has provided a time limit within which suo moto inquiry into combinations can be initiated. This provision dispels the fear of enquiry into combination between merging entities after the expiry of stipulated period.

On receipt of the notice under section 6(2) from the person or an enterprise which proposes to enter into a combination, it is mandatory for the Commission to inquire whether the combination referred to in that notice, has caused or is likely to cause an appreciable adverse effect on competition within the relevant market in India.

Question 21.
Critically examine the criteria considered by Competition Commission of India, before sanctioning or approving a Combination. (June 2022, 5 marks)

Question 22.
X Ltd. having equity share capital comprising 10 crore shares of ₹ 10 each totaling ₹ 100 crore and also having some reserves, has got assets worth ₹ 500 crore. It wants to merge with Y Ltd. for vertical integration so as to remain in a competitive market.

Y Ltd., which will remain after amalgamation, has share capital comprising 40 crore equity shares of ₹ 10 each totaling ₹ 400 crore and also has reserves and assets worth ₹ 700 crore.

All the assets of X Ltd. will be transferred to Y Ltd. upon approval of amalgamation. The legal cell of Y Ltd. insists on the need for obtaining approval from the Competition Commission of India claiming it to be a pre-requisite for amalgamation.

You are required to
(i) Explain whether the contention of legal cell is tenable? (2 marks)
(ii) Briefly write the relevant legal requirements of the Competition Act, 2002. (June 2013) (4 marks)
Answer:
(i)

• In this case, the legal cell of Y Ltd. insists on the need for obtaining approval from the Competition Commission of India.
• In this case, the total value of Y Ltd. is ? 1,100 crores.
• It does not exceed the threshold limit as prescribed under Section 5 of the Competition Act, 2002, therefore the contention of the legal cell of Y Ltd. is not correct.

(ii)

• Section 6 of the Competition Act, 2002 deals with the provisions related to combinations.
• Any person or enterprise who proposes to enter into any combination, shall give a notice to CCI.
• The notice shall contain the details of proposed combination & shall submit the same together with the fee within 30 days of approval of the proposal relating to merger or amalgamation by the board of directors.
  But now as per sec. 6(2A) of the Act, limit of 30 days has been removed and inserted that no combination shall take effect except by the approval of Authority.
• No combination shall come into effect until 210 days have passec from the day of notice or the Commission has passed orders, whichever is earlier.

Question 23.
Metal Ltd. (transferee company) filed a petition under the provisions of the Companies Act, 2013 for approval and sanction of the scheme of reconstruction, arrangement and demerger between Metal Ltd. and Brass Ltd. (transferor company). The Regional Director objected that the authorised share capital of the transferee company is not sufficient to allot new shares to the members of the transferor company and therefore, the transferee company should be directed to increase its authorised share capital after following the procedure prescribed under the Companies Act, 2013. Will the objection hold good? Explain. (Dec 2015, 5 marks)
Answer:
No, sanction to the scheme of amalgamation cannot be refused on the ground that the transferee company does not have sufficient authorised capital on the appointed date.

Once the scheme is sanctioned the transferee company can thereafter increase its authorised capital to give effect to the scheme.

Question 24.
John Ltd. is in the process of taking over Tony Ltd. Turnover of Tony Ltd. as per latest financial statements is ₹ 800 Crore and. assets value is ₹ 280 Crore. There are no material changes in the value of assets and projected turnover for the current financial year. The Board of Directors seek your opinion for obtaining approvals in terms of Competition Act, 2002. (Dec 2020, 5 marks)
Answer:

• Section 5 of Competition Act, 2002:
• It envisages financial thresholds beyond which any combination requires approval of the Competition Commission of India.
• Combinations that involve assets or turnover below threshold limits ‘ need to be notified to the Competition Commission of India for seeking approval.
• Central Government has granted exemption to acquisition of small targets known as de minimis exemption. In terms of Notification No. S.O. 988 (E) dated March 27,2017, all forms of combinations involving assets not more than ₹ 350 Crore in India or turnover of not more than ₹ 1,000 Crore in India are exempt from Section 5 of the Act for a period of 5 years.
• In the given case, both value of assets and turnover are within the notified thresholds and hence, no need to seek approval from the Competition Commission of India.

Question 25.
Explain the provisions related to combinations under section 5 of the Competition Act involving the Central Public Sector Enterprises (CPSEs) operating in the Oil and Gas Sectors?
Answer:
In exercise of the powers conferred by Section 54(a) of the Competition Act, 2002, the Central Government in the public interest hereby exempts all cases of combinations under section 5 of the Act involving the Central Public Sector Enterprises (CPSEs) operating in the Oil and Gas Sectors under the Petroleum Act, 1934 and the rules made thereunder or under the Oilfields (Regulation and Development) Act, 1948 and the rules made thereunder, along with their wholly or partly owned subsidiaries operating in the Oil and Gas Sectors, from the application of the provisions of sections 5 and 6 of the Act, for a period of five years from the date of publication of this notification in the Official Gazette.

Competition Act Notes

Competition Commission of India (CCI / Commission)
Section 7 of the Act provides for the establishment of the Competition Commission of India (Commission). The Commission is a statutory body, established under the Act with the legislative mandate inter alia to prevent practices having adverse effect on competition, to promote and sustain competition in the markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in the markets, in India.

National Company Law Appellate Tribunal (NCLAT)
The Act also provided for the establishment of Competition Appellate Tribunal (COMPAT) which was in operation till 25th May 2017. With effect from 26th May 2017, COMPAT has been merged with the National Company Law Appellate Tribunal (NCLAT) constituted under the Companies Act, 2013 and the NCLAT has been designated as the Appellate Authority under the Act.

Combinations and the Competition Act, 2002 Act
Section 5 defines the combination as (i) acquisition of control, shares, voting rights or assets; or (ii) 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; or (iii) merger or amalgamation.

Kinds of combinations
Horizontal combinations – Horizontal combinations involve the joining together of two or more enterprises engaged in producing the same goods, or rendering the same services.

Vertical combinations – Vertical combinations involve the joining together of two or more enterprises where one of them is an actual or potential supplier of goods or services to the other.

Conglomerate combinations – Conglomerate combinations involve the combination of enterprises not having horizontal or vertical connection. These enterprises are engaged in unrelated activities and may be affected with an objective to diversify into new areas by the acquiring enterprise

Combinations

• Combinations include acquisition of control, shares voting rights, assets, merger or amalgamation.
• Threshold has been defined under Section 5 of Competition Act so that CCI keeps an eye on the combinations.
• As per Section 6 of Competition act, entering into a combination which causes or likely to cause appreciable adverse impact on competition is prohibited and such a combination will be declared as Void.
• Students may please note for easy remembering that Turnover limits are around 3 times that Assets and Group level are 4 times that of Company level thresholds.
• The thresholds for filing notice with respect to Combinations as provided in Section 5 is:

Level	India/Global	Assets	Turnover
Company Level	India	>INR 2,000 crore	>INR 6,000 crore
	Global incl India	> 1 Billion U$ with > INR 1,000 crores in India	> 3 Billion U$ with > INR 3,000 crores in India
Group Level	India’	>INR 8,000 crore	>INR 24,000 crore
	Global incl India	> 4 Billion U$ with > INR 1,000 crores in India	>  12 Billion U$ with >  INR 3,000 crores in India

Regulation of Combinations
Section 6 of the Competition Act, 2002 prohibits any person or enterprise from entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.

Subject to the provisions contained in sub-section (1), any person or enterprise, who or which proposes to enter into a combination, shall give notice to the Commission, in the form as may be specified, and the fee which may be determined, by regulations, disclosing the details of the proposed combination

No combination shall come into effect until two hundred and ten days have passed from the day on which the notice has been given to the Commission under sub-section (2) or the Commission has passed orders under section 31, whichever is earlier.

Ordinarily exempt transactions under Combination Regulations
The Combinations Regulations, 2011 provide for the procedural framework on regulation of the combinations. Schedule I to the Regulations provides a list of transactions which are ordinarily not likely to raise competition concerns and hence normally exempt from approval requirements. They are known as ‘ordinarily exempt’ transactions. However, such ordinarily exempt transactions also need prior approval of the Commission if the same is likely to cause an appreciable adverse effect on competition within the relevant market in India and such a combination.

Inquiry into combination by the Commission
The Commission under section 20 of the Competition Act may inquire into the appreciable adverse effect caused or likely to be caused on competition in India as a result of combination in the following circumstances:

1. upon its own knowledge or information (suo moto); or
2. upon receipt of notice under section 6(2) relating to acquisition referred to in section 5(a); or acquiring of control referred to in section 5(b); or merger or amalgamation referred to in section 5(c) of the Act.

Competition Test (AAEC)
The Commission shall have due regard to all or any of the following factors listed under section 20(4) for the purposes of determining whether the combination causes or is likely to cause an ‘appreciable adverse effect on competition’ (AAEC) 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 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 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 competition or competitors in the market;

(o) 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.

Relevant market
Relevant market is the mix of relevant geographic market and relevant product market. Sub-section (r) of sections defines relevant market to mean the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets.

Filing of notice (Form)
For seeking approval to the proposed combination, parties to the combination are required to give notice to the Commission by filing Form I or Form II. Format of these forms are given in Schedule II to the Combination Regulations

Consultation with the Commission
Consultation prior to filing of notice of the proposed combination – the Commission allows for an informal and verbal consultation with the staff of the Commission prior to filing of the notice to a proposed combination in terms of regulation 5 of Combinations Regulations, under section 6(2).

Procedure for Investigation of combination
Section 29 prescribes procedure for investigation of combinations.

Section 30 empowers the Commission to determine whether the disclosure made to it under section 6(2) is correct and whether the combination has, or is likely to have, an appreciable adverse effect on the competition.

Section 31 provides that the Commission may allow the combination if it will not have any appreciable adverse effect on competition or pass an order that the combination shall not take effect, if in its opinion, such a combination has or is likely to have an appreciable adverse effect on competition.

Orders of Commission on combinations .
The Commission, after consideration of the relevant facts and circumstances of the case under investigation by it under section 28 or 30 and assessing the effect of any combination on the relevant market in India, may pass any of the written orders indicated herein below:

• Approve
• Reject
• Modify

Deemed approval
if the Commission does not, on expiry of a period of 210 days from the date of filing of notice under section 6(2) pass an order or issue any direction in accordance with the provisions of section 29(1) or section 29(2) or section 29(7), the combination shall be deemed to have been approved by the Commission.

Extra Territorial Jurisdiction of Commission
Section 32 extends the jurisdiction of Competition Commission of India to inquire and pass orders in accordance with the provisions of the Act into an agreement or dominant position or combination, which is likely to have, an appreciable adverse effect on competition in relevant market in India, notwithstanding that,

(a) an agreement referred to in section 3 has been entered into outside India; or
(b) any party to such agreement is outside India; or
(c) any enterprise abusing the dominant position is outside India; or
(d) a combination has taken place outside India; or
(e) any party to combination is outside India; or
(f) any other matter or practice or action arising out of such agreement or dominant position or combination is outside India.

Power to impose penalty for non-furnishing of information on combination
Section 43A provides that if any person or enterprise who fails to give notice to the Commission under subsection(2) of section 6, the Commission shall impose on such person or enterprise a penalty which may extend to one per cent of the total turnover or the assets, whichever is higher, of such a combination.