REGULATION OF COMBINATION UNDER COMPETITION ACT, 2002

[Mr. M. GOVINDARAJAN]

 INTRODUCTION:

Chapter II of the Competition Act, 2002 ‘(Act’ for short) deals with the prohibition of certain agreements, abuse of dominant position and regulation of combination by Competition Commission of India (‘Commission’ for short).   In this article the regulation of combination by the Commission is discussed with reference to the provisions in this Act.

DEFINITION:

Sec.5 of the Act gives the definition of the term ‘combination’.   The acquisition of one or more enterprise by one or more persons or merger or amalgamation of enterprises shall be a combination of such enterprises and persons or enterprises.   The same would be amount to combination if-

(a)    Any acquisition where-

(i)    the parties to the acquisition, being the acquirer and the enterprises, whose control, shares, voting rights or assets have been acquired or are being acquired jointly have-

(A)   Either, inIndia, the assets of the value of more than Rs.1000 crores or turnover more than Rs.3,000 crores; or

(B)   InIndiaor outsideIndiain aggregate, the assets of the valued more than $500 million, including at least Rs.500 crores inIndia, or turnover more than $15,000 million, including at least Rs.1500 crores inIndia; or

(ii)    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-

(A)   Either inIndia, the assets of the value of more than Rs.4000 crores or turnover more than Rs.12000 crores; or

(B)   Inundator outsideIndia, in aggregate, the assets of the value of more than $ 2billion, including at least Rs.500 crores inIndia, or turnover more than $6 billion, including at least Rs.1500 crores inIndia; or

(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, if-

(i)      The enterprise over which control has been acquired along with the enterprise over which the acquirer already has direct or indirect control jointly have-

(A)    Either in India, the assets of the value of more than Rs.1,000  crores or turnover more than Rs.3,000 crores; or

(B)     in India or outside India, in aggregate of the value of more than $500 million, including at least Rs.5000 crores in India, or turnover more than $1500 million, including at least Rs.1500 crores in India; or

(ii)    The group, to which enterprise whose control has been acquired, or is being acquired, would belong after the acquisition, jointly have or would jointly have-

(A)    Either inIndia, the assets of the value of more than Rs.4000 crores or turnover more than Rs.12000 crores; or

(B)     in India or outside India, in aggregate, the assets of the value of more than $2 billion, including at least Rs.500 crores in India, or turnover more than $6 billion, including at least Rs.500 crores in India; or any merger or amalgamation in which-

(i)    The enterprise remaining after merger or the enterprise created as a result of the amalgamation, as the case may be, have-

(A)   Either inIndia, the assets of the value of more than Rs.1000 crores or turnover more than Rs.3000 crores; or

(B)    in India or outside India, in aggregate, the assets of the value of more than $500 million, including at least Rs.500 crores in India, or turnover more than $1500 million, including at least Rs.1500 crores in India; or

(ii)  The group, to which the enterprise remaining after the merger or the enterprise created as a result of the amalgamation, would belong after the merger or the amalgamation, as the case may be, have or would have-

(A)  Either inIndia, the assets of the value of more thanRs.4000 crores or turnover more than Rs.12000 crores; or

(B)   in India or outside India, in aggregate, the assets of the value of more than $ 2 billion, including at least Rs.500 crores in India, or turnover more than $6 billion including at least Rs.1500 crores in India.

The said section gives explanation to the terms ‘control’, ‘group’ and for the value of assets. 

 The term ‘control’ includes controlling the affairs or management by one or more enterprises, either jointly or singly, over another enterprise or group; or 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 exercise 26% or more of the voting rights in the other enterprise or appoint more than 50% of the members of the board of the directors of the enterprise or control the management or affairs of the other enterprise.

The value of assets shall be determined by taking the book value of the assets as shown, in the audited books of account of the enterprise, in the financial year immediately preceding the financial year in which the date of proposed merger falls, as reduced by any depreciation, and the value of assets that include the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout-design or similar other commercial rights, if any referred to in Sec. 5(3).

REGULATION:

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 inIndia and such a combination shall be void.

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 proposed combination within thirty days of-

• ·Approval of the proposal relating to merger or amalgamation by the Board of Directors of the enterprise concerned with such merger or amalgamation, as the case may be;
• ·Execution of any agreement or other document for acquisition or acquiring of control.

No combination shall come into effect until 210 days have passed from the day on which the notice has been give to the Commissioner or the Commission has passed orders whichever is earlier   If the Commission does not, on the expiry of a period of 210 days from the date of notice given to the Commission pass an order of issue directions the combination shall be deemed to have been approved by the Commission.   For the purpose of determining the period of 210 days the period of 30 working days and a further period of 30 working days shall be excluded.  Where any extension of time is ought by the parties to the combination, the period of ninety working days shall be reckoned after deducting the extended time granted at the request of the parties.

Procedure of enquiry:

On receipt of notice of proposal, the Commission is of the 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, it shall issue a notice to show cause to the parties to combination calling upon them to response within thirty days of the receipt of the notice, as to why investigation in respect of such combination should not be conducted.

After receipt of the response of the parties to the combination, the Commission may call for a report from the Director General and such report that shall be submitted by the Director General within such time the Commission may direct.

The Commission, if it is prima facie of the opinion that the combination has, or is likely to have, an appreciable adverse effect on competition, it shall, within seven working days from the date of receipt of the response of the parties to the Commission, or the receipt of report from Director General called whichever is later, direct the parties to the said combination to publish details of the combination within ten working days of such direction, in such manner, as it thinks appropriate, for bringing the combination to the knowledge or information of the public and persons affected or likely to be affected by such combination.

The Commission may invite any person or member of the public, affected or likely to be affected by the said combination, to file his written objections, if any, before the Commission within fifteen working days from the date on which the details of the combination were published.

The Commissioner may, within fifteen working days from the expiry of the period as aforesaid, call for such additional or other information as it may deem fit from the parties to the said combinations. The additional or other information called for by the Commission shall be furnished by the parties within fifteen days from the expiry of the period.  After receipt of all information and within a period of forty five working days from the expiry of the period the Commission may proceed to pass orders.

ORDERS OF COMMISSION:

Type of orders:

Where the Commission is of the opinion that any combination does not, or is not likely, to have an appreciable adverse effect on competition, it shall order, approve that combination including the combination in respect of which a notice has been given. 

Where the Commission is of the opinion that the Combination has, or is likely to have, an appreciable adverse effect on competition, it shall direct that the combination shall not take effect.

Where the Commission is of the opinion that the combination has, or is likely to have, an appreciable adverse effect on competition but such adverse effect can be eliminated by suitable modification to such combination; it may propose appropriate modification to the combination to the parties to such combination.

Parties who accept the modification:

 The parties who accept the modification proposed by the Commission shall carry out such modification within the period specified by the Commission.  If such parties to the combination fail to carry out the modification within the period such combination shall be deemed to have an appreciable adverse effect on competition and the Commission shall deal with such combination in accordance with the provisions of the Act.

Parties who do no accept the modification:

If the parties to the combination do not accept the modification proposed by the Commission, such parties may within thirty working days of the modification, submit amendment to the modification proposed by the Commission. If the Commission agrees with the amendment it shall, by order, approve the combination.  If the Commission does not accept the amendment the parties shall be allowed a further period of thirty working days within which such parties shall accept the modification proposed by the Commission. If the parties fail to accept the modification the combination shall be deemed to have an appreciable adverse effect on competition and shall be dealt with in accordance with the provisions of this Act. 

Other orders:

Where the Commission has directed that the combination shall not take effect of the combination is deemed to have an appreciable adverse effect on the competition, without prejudice to any penalty which may be imposed or any prosecution which may be initiated under this Act, the Commission may order that the acquisition or the acquiring of control or the merger or amalgamation shall not be given effect to. The Commission may, if it considers appropriate, frame a scheme to implement its order. 

Where the Commission has ordered a combination to be void, the acquisition or acquiring of control or merger or amalgamation shall be dealt with by the authorities under any other law for the time being in force as if such acquisition or acquiring of control or merger or amalgamation had not taken place and the parties to the combination shall be dealt with accordingly.

PENALTY:

If any person or enterprise who fails to give notice to the Commission, 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?  If any person, being a party to a combination makes a statement which is false in any material particular, or knowing it to be false or omits to state any material particular knowing it to be material such person shall be liable to a penalty which shall not be less than Rs.50 lakhs but which may extend to Rs.1 crore as may be determined by the Commission.