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Regulation of Combinations

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Regulation of Combinations

The Competition Act regulates all combinations of trading firms. Such combinations include the control, voting powers and assets of a single or more than one enterprise by either one or more than one individual, or an individual's control over an enterprise when he already holds direct or indirect control over another enterprise producing and trading in similar goods and services. This combination may also involve the merger of enterprises.

A combination which however goes beyond the Act's specified threshold limits concerning assets may cause an adverse impact in competition within the market in India. When this happens, the Act empowers the CCI to scrutinize it. The Commission fixes the threshold limits as follows:

  • Where acquisition is concerned, the firms' combined assets in excess of Rs 1000 crores or a turnover greater than Rs 3000 crores (this is equivalent to US$500 million and US$1500 millions where any of these firms happen to be outside the country)
  • These limits are over Rs 4000 crores and Rs 12000 crores (equivalent to US$2billion and US$6 billions) where the acquirer is any enterprise within and outside India respectively.
  • In cases of mergers, limits are more than Rs 1000 crores and turnover greater than Rs 3000 crores (equivalent to US$500 million and US$1500 million when one of the enterprises is outside India.
  • Limits are over Rs 4000 crores or Rs 12000 crores (equivalent to US$2 billion and US$ 6 billion where the merged entity is part of a group either in India or outside respectively.
  • The term “group” refers to two enterprises which either directly or indirectly exercise more than 26% voting rights in the other, or appoint more than half of its board of director members or exercise control over the affairs of the other.

However these provisions for regulating combinations will not work where sharing of subscription or financial facilities is concerned when the enterprise is a Public Financial Institution, a bank or venture capital fund or a foreign investor. The only criterion is that such institutions must provide acquisition details within a week from the day of acquisition to the CCI.

The Inquiry Procedure:

The CCI has the power to inquire about a combination within a year from the time it came into effect. It may do so based on information it has or information it obtains from some other individual. To go ahead with a combination, the prior approval of the CCI is essential.

The notice stating intent of combination must be extended to the CCI within 30 days of the merger being approved by the boards of both enterprises and execution of any agreement stating acquisition. If the enterprises fail to notify the CCI, they may have to pay penalties up to 1% of turnover or the combination's assets, whichever is of higher value.

Investigation Process:

When it receives this notification, the CCI must have a prima facie opinion in a time frame of 30 days (Long Form notification) and 60 days (Short Form notification). If the CCI feels that this combination will not adversely affect the competition, the combination is approved. In case it thinks that more investigation is needed, a show cause if given to the parties which must be addressed within 30 days. The DG is ordered to make a report to the CCI which he has to submit by 60 days. Within three days of this report, the CCI will make that prima facie opinion concerning whether it finds the combination causing an adverse impact or not. This opinion is thereafter communicated to the concerned parties and when the opinion is negative, the parties must publish all details of this combination within 10 days. The public is empowered to raise objections within 15 days of such publication. This forces the CCI to call for more inquiries and hearings to come to a decision. Finally, the CCI must pass a final order within 210 days from the notification date, stating its approval or rejection. If it fails to do so, the combination is deemed to have been approved. A combination that comes into effect in violation of these stated timelines is declared invalid.

Related Topics:

  • Competition Law in India

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