Introduction
Have you ever wondered how large corporations collaborate or acquire one another? It’s more than just a business choice; it’s a procedure governed by rules and regulations to maintain market equity.
Competition Commission Of India in preserving market competition
In India, Competition Commission of India (CCI) oversees those procedures by reviewing and assessing mergers and acquisitions. CCI serves as the fair trade regulator and antitrust ombudsman of Indian enterprises. CCI was established under the provisions of Competition Act, 2002.[1]
The Goal of the Act is to make sure one company doesn’t get too big and eliminate the chances of other companies competing which will create an appreciable adverse effect on competition.
For example: PVR Ltd and Inox Leisure Ltd, India’s top two Multiplex Chains, merged because the merger plan did not require CCI approval because both were closed for months due to the pandemic, affecting their combined sales of less than ₹1000 crore. There have been allegations that the PVR-Inox transaction created a Competition gap since they would not have qualified for exemption from statutory merger scrutiny by CCI if it had not been for COVID-19 lockdowns. However CCI squashed those allegations stating that any fear of probability of anti-competitive practices by an entity cannot be a subject of investigation (Section 29 of the Act governs the “procedure” for the investigations) .[2]
When Foreign enterprises enter the market through merger or acquisition, the CCI will scrutinize whether they comply with the Competition Act, 2002. One such notable example is Walmart’s (USA corporation) acquisition of Flipkart (Indian e-commerce company) in 2018. CCI approved the deal after accessing its impact on competition in the market. The merger intensified Competition in India’s e-commerce sector.[3] Another example is Acquisition of a 98% share of Essar Oil Limited ( Indian company) by Rosneft( Russian based Oil Company), Trafigura, and United Capital Partners Consortium in 2017 which was authorized by CCI and paved the way for substantial foreign investments in India’s energy sector.[4]
Effects of the Amendment in 2023
● India recently approved the Competition (Amendment) Act, 2023 which made many modifications to the Competition Act of 2002.[5] One of the key modifications brought about by the amendment is the introduction of a fresh threshold for deal value. Transactions like amalgamations, acquisitions or mergers that exceed ₹2000 crore and involving entities with considerable business presence in India will require clearance from the CCI.
Section 43(a) explains gun jumping imposing penalties if the companies proceed without the approval of CCI after they exceed the threshold limits.
Gun-Jumping Accusation:
Zomato – UberEats merger avoided being scrutinized under India’s anti-unfair competition laws by using a small transaction exemption. The Act, Section 5(a), necessitates CCI scrutiny, yet the deal escaped it using the exemption
Despite being considered too small for review initially, the deal is now under investigation because the regulator has the authority to look into transactions that might impact fair competition, even if they initially fall below the scrutiny threshold.
● This new threshold guarantees that even deals that would normally fall within the minimum exemption are subjected to inspection if their transaction value exceeds the statutory maximum.
Example of CCI penalties issued for non-compliance
The CCI fined an investment manager ₹20,00,000 for failing to report an acquisition involving real estate and private equity fund management firms. The penalized Investment Manager assumed managerial authority of venture capital and alternative investment funds registered with SEBI as a result of the purchases. Despite the investment manager’s claim of a lack of direct asset ownership, the cci found that the transaction gave the funds operational control over their assets. The CCI highlighted that control over portfolio entities was contingent upon shareholding and contractual rights held by the Investment Manager. Regarding turnover calculations, the CCI emphasized that acquiring material influence over an entity mandated considering its entire financials for threshold determination[6]
● The revision has also been shortened for executing combinations from 210 days to 150 days.
● In addition, the CCI must now make an initial opinion on a combination within thirty days; otherwise the combination is automatically accepted.
Detailed Explanation of Section 5 and Section 6
In the Competition Act, Section 5 and Section 6 specifically deals with combinations and its Regulations.
Section 5 sets a benchmark for what constitutes a net worthy merger or acquisition and warrants further scrutiny by defining the thresholds for combinations and determining asset values.
Section 6 is considered as the “permission slip” phase because enterprises that merge must inform CCI upon execution of agreements in relation to such combinations.
| Section 5: Conditions for Combinations | Details |
| Acquisition Thresholds | Acquisition or merger leading to a combination if: |
| Limit for Enterprise level : In India- Assets>₹2,000crores or Turnover > ₹6,000croresOutside India-Assets>$1bn with at least >₹1000 crores in India ; Turnover> $3bn with at least >₹3000 crore in India | Acquirer and acquired jointly have assets or turnover exceeding specific thresholds in India or internationally. |
| Limit for Group Level: In India-Assets>₹8000 crore or Turnover >24000Outside India- Assets>$4bn with at least >₹1000 crore in India or Turnover>$12bn with at least >₹3000 crore in India[7] | The resulting group, post- acquisition, meets set asset or turn over criteria |
| Control Over Similar Enterprises | The regulation applies when a person/ entity gains control over an enterprise engaged in similar/ substituted goods or services if: |
| When a person already in control gains further authority over enterprises in comparable goods/ servicesEnterprises jointly controlled possess assets or turnover meeting defined thresholdsThe resulting group holds assets or turnover beyond specified limits after acquisition. | |
| Section 6: Regulation of Combinations | Details |
| Boundary | Prohibits combinations likely to significantly affect competition |
| Notice to CCI | Entities proposing combinations must notify the Commission within thirty days. |
| Waiting period of one hundred and fifty days imposed after notification to the Commision or its orders | |
| The Commission processes the notice as per specified provisions. | |
| Exceptions | Share subscriptions, financing facilities or specific acquisition by financial entities are exempt from regulations |
● The Competition (Amendment) Act also established a three-year limitation period for accepting information or references about suspected Act violations.
In Conclusion, the Competition Commission of India’s stringent oversight and recent amendments underscore India’s dedication to fair market practices and equitable competition in mergers and acquisitions.
[1] THE COMPETITION ACT, 2002,(12 OF 2003),Acts of Parliament,(India)
[2]CCI rejects complaint against proposed merger of multiplex chains PVR, INOX, Business Standard,https://www.business-standard.com/article/companies/cci-rejects-complaint-against-proposed-merger-of-multiplex-chains-pvr-inox-122091301021_1.html
[3]Dipak Mondal,How Flipkart-Walmart deal aced the CCI test,(Aug 10, 2018)
,https://www.businesstoday.in/latest/economy-politics/story/how-flipkart-walmart-deal-aced-the-cci-test-109423-2018-08-10
[4]KVLAkshay, CCI approves Rosneft buyout of Essar Oil (Dec 02, 2016)
[5] Kritika Narula,Aman Mathur,Nayan David Absalom
The Competition (Amendment) Act, 2023, (Aug 09, 2023)
[6] Proceedings against Investcorp India Asset Managers Private Limited under Section 43A of the Competition Act, 2002.( Dec 17 2021) Competition Commission of India.
[7]THE COMPETITION ACT, 2002,(12 OF 2003),Acts of Parliament,(India)
Done By: V. Madhumitha, 5th year B.A, LL.B(Hons.)
SRM University, Kattangulathur
For Origin Law Labs
