Module_6

MODULE 6

REGULATION OF COMBINATIONS UNDER COMPETITION ACT 2002

6.1 INTRODUCTION

Mergers, acquisitions and amalgamations are methods of consolidating enterprises to ensure
increase in strength, profits and better management. However, in the process of consolidating
business, it may lead to a dominant position in the market for these enterprises that will endanger
the survival of other similar enterprises in that particular market. To avoid such a scenario, the
Competition Act, 2002 has laid down certain regulations for such transactions that are discussed
in detail in this section.

6.2 DEFINITION OF COMBINATION

Section 5 of the Competition Act 2002 explains what a combination for the purpose of its
applicability of the Act is i.e., to which ‘combination’, the Act is applicable. This section may be
read with Section 19 (Enquiry into certain agreements and dominant position of enterprise),
Section 20 (Inquiry into combination by Commission), Section 29 (Procedure for investigation
of combination) and Sections 30-34 (Procedure in case of notice under sub-section 2 of section
6)

Combinations mean mergers, amalgamation of companies, or acquisition of control, shares1,
voting rights or assets of one company by another company or group2

Section 5 Clause (a)-
Clause (i):- An ‘acquisition’ of an enterprise (by methods mentioned in the clause) under clause
(A) becomes ‘combination’ if the value ‘jointly’ of the assets of the acquiring enterprise and
acquired enterprise reaches the threshold limit of one thousand crores if the assets are only in
India or reaches turnover jointly to more than rupees three thousand crores. If the assets jointly

1 Section 2(v) of Competition Act, 2002.
2 Clause b explanation to Section 5 of Competition Act 2002.

of acquiring and acquired enterprise are situated ‘partly’ in India and ‘partly’ outside India, then
the value of the assets have to reach in aggregate more than five hundred million US Dollars or
in the alternative the value of turnover reaches fifteen hundred million US Dollars.

Section 5 Clause (b)-

▪ This clause deals with a case of acquisition of an enterprise by acquiring the ‘control’ only
(directly or indirectly), for example by voting agreement and not by acquisition of shares,
voting rights or assets as in the case of clause (a).

▪ Such acquisition is by a ‘person’ defined in Section 2(l)
▪ Such acquisition by a person who has already direct or indirect control after another

enterprise
▪ Such another enterprise must be engaged in production, distribution or trading of a similar or

identical or substitute goods or provision of a similar or identical or substitutable service.

Sub clause (i) then the value of the assets or turnover of the enterprise over which control has
been acquired along with the enterprise over which the acquirer already has direct or indirect
control jointly should reach to the threshold limit mentioned in the sub clause (i), sub-clause (A)
and (B).

Sub-clause (ii) if the enterprise which is acquired or being acquired is in a group, then would
belong after acquisition, jointly have or would jointly have the value of assets and turnover
mentioned in the sub-class.

6.3 CHANGES IN VALUE OF ASSETS OR VALUE OF TURNOVER (ENHANCE OR
REDUCE)

The value of assets or the value of turnover is determined by considering the book value of assets
shown in the audited books of accounts of the enterprise for the financial year immediately
preceding the financial year in which (a) the proposal relating to merger/amalgamation was
approved by the Board of Directors of the enterprises concerned; or (b) any agreement or other
document for acquisition was executed3

3 Section 6(2) read with Explanation (c) to Section 5 of Competition Act, 2002.

The Central Government is empowered, on the expiry of two years from the commencement of
the Act and thereafter every 2 years, to enhance or reduce the value of assets or value of
turnover, by a notification, in consultation with the Commission, for the purpose of Section 54.

At present, thresholds prescribed under the Act as enhanced by the Central Government5 are as
under:

Assets Turnover

India > INR 2000 crore > INR 6000 crore

Enterprise Worldwide >USD 1 bn with at OR >USD 3 bn with at least
Level INR 3000 crore in India

(with India least INR 1000 crore

component) in India

OR

India > INR 8000 crore > INR 24000 crore

Group Worldwide > USD 4 bn with at > USD 12 bn with at
Level
(with India least INR 1000 crore OR least INR 3000 crore in

component) in India India

Under this section, combination may take three forms-
1. Acquisition of enterprise
2. Mergers
3. Amalgamations

Each of them are discussed below-
6.3.1 Acquisition of an enterprise

4 Section 20(3) of Competition Act, 2002.
5 Notification No. S.O. 675(E) dated March 4, 2016.

An enterprise is defined under Section 2(h) of the Act. The first type of combination is an
‘acquisition’ of one or more enterprise by one or more persons6.

According to Section 2(a) of the Competition Act, 2002, acquisition means directly or indirectly,
acquiring or agreeing to acquire:

▪ Shares, voting rights or assets of any enterprise;
▪ Control over management or Control over assets of any enterprise.

Also, Explanation (a) to Section 5 of the Competition Act, 2002 defines control. Control includes
controlling the affairs or management by:
▪ One or more enterprises, either jointly or singly, over another enterprise or group;
▪ One or more groups, either jointly or singly, over another group or enterprise

Methods of acquisition of an enterprise-
▪ Acquiring control
▪ Acquiring shares
▪ Acquiring voting rights
▪ Acquiring assets

The Acquisition can be by one or more or all these methods. The concept of acquisition under
this Act may be compared with the concept of acquisition under other laws such as-

▪ Acquisition under Company law- Under section 293 of Companies Act, 1956, the Board of
Directors of the Company shall not except the consent of such public company or subsidiary
in general meeting approve the matters mentioned in the section

▪ Acquisition under SEBI law- Under SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, for ‘listed’ companies, the acquisition by buying control, shares or voting right
or all of them, the acquisition may be without ‘control’ by buying shares and voting rights
etc. such acquisition may be through ‘market’ or off market trade by way of negotiations,
deals and understanding.

6 2(l) of Competition Act, 2002.

▪ Acquisition under special statutes- Statutory corporations, banks and other financial
institutions including government companies, may be acquired according to the law
applicable to each of them.

6.3.2 Amalgamations and mergers

Sections 230 and 232 of the Companies Act, 2013 may be referred to for the purpose of
combination by way of amalgamations and mergers.

What is a merger?

Eric L. Kohler defines ‘merger’ in his Dictionary for Accountants, in the words: “The fusion of
two or more enterprises, through the direct acquisition by one of the net assets of the other or
others. A merger differs from a consolidation in that in the former no new concern is created,
whereas in a consolidation a new corporation or entity acquires the net assets of all combining
units.”7

The term merger has not been defined under Companies Act, 1956 or Income Tax Act, 1961 but
the Companies Act explains the concept of merger as- A ‘merger’ is a combination of two or
more entities into one; the desired effect being not just the accumulation of assets and liabilities
of the distinct entities, but organization of such entity into one business.

Why mergers need to be regulated?

A merger leads to a bad outcome only if it creates a dominant enterprise that subsequently abuses
its dominance. Thus, the general principle is that mergers should be challenged only if they
reduce or harm competition and adversely affect welfare. From the point of view of competition
policy, it is horizontal mergers that are generally the focus of attention. The following are the
types of mergers that can be scrutinized in the light of its harmful impact on the competition in a
particular market:

Horizontal mergers- As in the case of horizontal agreements, such mergers have a potential for
reducing competition.

7 Siddharth Bawa, Law of Competition in India, Allahabad Law Agency, First Edition 2005, Chapter III: Prohibition
of Certain Agreements, Abuse of Dominant Position and Regulation of Combinations p. 2.

Vertical mergers- In rare cases, where an enterprise in a dominant position makes a vertical
merger with another firm in a (vertically) adjacent market to further entrench its position of
dominance, the merger may provide for concern. Some specific objections for vertical mergers
are-

▪ Fear of foreclosure- vertical mergers can create captive distribution channels which will
foreclose rival firms from the market and will threaten competition in general.

▪ Entry blocking- monopolies have the ability to prevent the entry of firm into the market.
▪ Prize squeezes- vertical mergers internalize the process of production and enable a firm to

reduce the costs. This will result in reduction in output prices, which is usually interpreted as
price squeeze.

Conglomerate mergers- it is neither horizontal nor vertical. There are no clear mechanisms for
restraints on conglomerate mergers except those that are based on folklore. Some of the
objections to conglomerate mergers are-

▪ They create deep pockets which enable the firm to devastate the rivals
▪ Lower costs below the marginal cost of the industry
▪ Raise barriers to entry
▪ Engage in reciprocal dealing to the disadvantage of the rivals
▪ Eliminate potential competition

What is an amalgamation?

Amalgamation of Companies means, the combination of one or more companies into a new
entity. An amalgamation is distinct from a merger because neither of the combining companies
survives as a legal entity. Rather, a completely new entity is formed to house the combined assets
and liabilities of both companies8. In India, mergers are of two forms i.e. merger by absorption
and merger by consolidation. Thus, mergers and amalgamations are considered as the same in
India.

8 Amalgamation, INVESTOPEDIA.COM, www.investopedia.com/terms/a/amalgamation.asp (last visited on
January 12, 2019)

6.4 REGULATIONS OF COMBINATION UNDER SECTION 6

Section 6 is consequential to Section 5 insofar as any acquisition contemplated in Section 5
becomes a combination, the provisions of this Section are attracted. Since no person or enterprise
shall enter into combination if it causes ‘appreciable adverse effect on competition’. This sub-
section is attracted only if the combination appreciably affects the competition within the
‘relevant market’9 in India.

Appreciable Adverse Effect on Competition (AAEC)-

Not all combinations are considered to be anti-competitive. Some instances are10-

▪ Combinations within the same group of companies;
▪ Acquisition of not more than 15% of voting rights, not leading to control;
▪ Acquisition of shares where the acquirer already has 50% or more shareholding;
▪ Combinations taking place entirely outside India which, have insignificant local nexus and

effects on markets in India

The Competition Act, 2002, envisages appreciable adverse effect on competition in the relevant
market in India as the criterion for regulation of combinations.

In Haridas Exports v. All India Float Glass Manufacturers Association11 it was held, the words
“adverse effect on competition” embraces acts, contracts, agreements or combinations which
operate to the prejudice of the public interests by unduly restricting competition or unduly
obstructing due course of trade. Public interest is the first consideration. It does not necessarily
mean interest of the industry

Following are the factors that are required to be considered while determining whether a
combination has an appreciable adverse effect on competition12:

▪ Actual and potential level of competition through imports in the market
▪ Extent of barriers to entry to the market

9 Section 2(r) of Competition Act, 2002.
10 Competition Laws in India: An Overview, Kochhar & Co.,
http://www.kochhar.com/pdf/Rationale%20For%20Competition%20Laws.pdf (last visited on January 12, 2019)
11 (2002) 111 Comp. Cas. 617 (SC).
12 Section 20(4) of Competition Act, 2002.

▪ Level of combination in the market
▪ Degree of countervailing power in the market
▪ Likelihood that the combination would result in the parties to the combination being able

to significantly and sustainably increase prices or profit margins
▪ Extent of effective competition likely to sustain in a market
▪ Extent to which substitutes are available or are likely to be available in the market
▪ Market share, in the relevant market, of the persons or enterprise in a combination,

individually and as a combination
▪ Likelihood that the combination would result in the removal of a vigorous and effective

competitor or competitors in the market
▪ Nature and extent of vertical integration in the market
▪ Possibility of a failing business
▪ Nature and extent of innovation
▪ Relative advantage, by way of the contribution to the economic development, by any

combination having or likely to have appreciable adverse impact on competition
▪ Whether the benefits of the combination outweigh the adverse impact of the combination,

if any.

In the case of Jet Airways (India) Limited and Etihad Airways PJSC13

Issue- Whether the transaction of the combination creates an AAEC in the market

In 2013, Etihad, a UAE based company, proposed to acquire 24% in Jet Airways (India). The
issue in question was whether it led to Appreciable Adverse Effect on Competition (AAEC).

The Commission held that a relevant market in this case was that of international passenger
transport based on the point of origin or point of destination. While ascertaining whether there
would be any AAEC, it stressed on the relevancy of trans boundary competition considering that
the routes were international. It was observed that there were 38 routes to/from India to other
destinations where Etihad and Jet Airways fly and there was at least one competitor on each of
such route. Except 7 destinations, where Jet Airways and Etihad 122 had a combined share of

13 Combination Registration No. C-2013/12/144.

more than 50 percent, rest all destinations had less combined share. Also, of these 7 destinations,
on 3 routes, the share of one was more than 50 percent and of the other less than 5 percent.

Thus, the decision was primary based on the observation that there has been sufficient
competition in the relevant market and therefore this transaction shall not lead to AAEC in the
market.

In the case of Tesco Overseas Investment Limited (TOIL) and Trent Hypermarket Limited
(THL)14

Issue 1- Whether the transaction shall lead to AAEC in the relevant market

CCI approved the combination between TOIL and THL under Section 31(1) of the Competition
Act.

THL was engaged in the business of multi-format retail trading in India including hypermarkets,
supermarkets and smaller convenience stores, TOIL was not present in the retail market in India.
Therefore, there were no horizontal overlaps between the business activities of THL and TOIL in
the retail market in India. Thus, the CCI reached the decision that the transaction shall not lead to
AAEC in the market.

Sub-section 1 of Section 6- ‘Combination Prohibited

This sub-section prohibits formation of combinations if it causes appreciable adverse effect on
competition. The test of ‘rule of reason’ has to be applied to consider, whether a particular
combination causes or is likely to cause (if permitted) the appreciable adverse effect on
competition. Since this sub-section statutorily creates prohibition, Section 23 of the Indian
Contract Act is attracted which states that-

A consideration and object is lawful unless a) it is forbidden by law, b) it is of such a nature that,
if permitted, it would defeat the provisions of any law, c) is fraudulent, d) involves or implies,
injury to the person or property of another, e) the court regards it as immoral, or opposed to
public policy.

14 Combination Registration No. C-2014/03/162.

Section 3 of the Competition Act, 2002 dealing with prohibition on certain anti- competitive
agreements shall also be referred to for this purpose.

Sub-section 2 of Section 6

Under this section, the power is given to any person or enterprise who proposes to enter into a
combination, to move the commission to enquire as mentioned in Section 30, whether the
combination is prohibited under sub-section (1). However, the Commission has no power to
judge the validity of a combination except for the purposes of this Act.

Sub- section 2A of Section 6

This provision states that no combination shall come into effect until 210 days have passed from
the day on which the notice has been given to the Commission under Section 6(2) or the
Commission has passed order under Section 31 of the Act, whichever is earlier.

Procedure under Section 6(2)-

Under this sub-section any person or enterprise who ‘proposes’ to enter into a combination (i.e.
not after entering into a combination) may, at his or its option (i.e. voluntarily and not
compulsory) give notice to the Commission within 7 days of-

▪ Approval of the board of directors about proposal relating to merger or amalgamation under
Section 5(c) or

▪ Execution of any agreement or other document under Section 5(a)(b)

The notice must be in the form specified and the fee which may be determined by regulations
framed under section 64(2) (b). Once notice is given, Section 30 will come into operation and
inquiry into such disclosures made in notice will take place accordingly. If the enterprise or
person who is entering into proposed combination or has entered into such combination, then
section 20 may be attracted and if pursuant to such enquiry it is held that the combination entered
into ‘prohibited’ combination, then section 31 will be attracted and on failure to comply
directions passed by Commission under Section 31, the further penalties will be attracted.

Sub-section 3 of Section 6

The Commission shall, after receipt of notice under sub-section (2), deal with such notice in
accordance with the provisions contained in:

▪ Section 29 (procedure for investigation of combination)
▪ Section 30 (inquiry into disclosures under this sub section)
▪ Section 31 (orders of Commission on certain combinations)

Triggering Event for filing notice-

The notice under Section 6(2) with the CCI has to be filed within 30 days of the triggering event.
In case of mergers or amalgamations, a notice is required to be filed with the Commission within
30 days of the board resolution approving the merger or amalgamation passed by the board of
directors of the enterprises concerned with such merger or amalgamation. In the case of an
acquisition, a notice is required to be filed with the Commission within 30 days of the execution
of any agreement or other documents for acquisition.

The term ‘other documents’ means any binding document, conveying an agreement or decision
to acquire control, shares, assets or voting rights.

In an acquisition where the parties to the global agreement have fulfilled the jurisdictional
thresholds for notification under Sec 6(2), the global agreement shall be considered to be the
triggering point for giving the notice15.

In the case of Tesco Overseas Investment Limited (TOIL) and Trent Hypermarket Limited
(THL)16

Issue- Whether there was a failure to notify the CCI under Section 6(2) of the Act

CCI imposed a penalty of 30 million on TOIL for the failure to notify the Commission within 30
days of the trigger event.

CCI interpreted Section 6(2) of the Competition Act and Regulation 5(8) of the Competition
Commission of Combination Regulations 2011, and considered the following to be the triggering
event in case of an acquisition: (a) execution of any agreement; (b) any binding document, by

15 Case No. C-2015/07/297 Baxalta.
16 Supra Note 14.

whatever name called, conveying an agreement or decision to acquire (not being a binding term
sheet/memorandum of understanding); or (c) any communication made to the central
government or state government or any statutory authority conveying its intention to acquire.

TOIL had filed a notice with CCI under Section 6(2) on March 31, 2014, subsequent to
execution of the Share Purchase Agreement and Joint Venture Agreement between TOIL, THL
and Trent Limited. The Commission held that since TOIL had filed an application with
Department of Industrial Policy and Promotion and Foreign Investment Promotion Board on
December 17, 2013 to seek the approval for the combination in question, the notice had to be
filed within 30 days of such an application i.e. by January 16, 2014. Hence, there was a delay of
seventy-three days in filing the notice that led to the imposition of penalty on TOIL.

6.4.1 Exemptions from filing notice under Section 6(2)

Section 54(a)

In exercise of the powers conferred by this provision, the Central Government, in public interest,
has exempted: an enterprise, whose control, shares, voting rights or assets are being acquired has
either assets of the value of not more than INR 250 crore in India or turnover of not more than
INR 750 crore in India from the provisions of Section 5 of the said Act for a period of five
years17. A banking company in respect of which the Central Government has issued a
notification under Section 45 of the Banking Regulation Act, 1949, from the application of the
provisions of Sections 5 and 6 of the Act for a period of five years18.

Sub-section 4 and 5 of Section 6-

The public financial institution, foreign institutional investor, bank or venture capital fund,
referred to in sub-section are exempted from the application of the provision of section 6 in
respect of-

▪ Share subscription
▪ Financing facility, or
▪ Any acquisition.

17 Ministry of Corporate Affairs notification S.0.48 (E) dated 4th March 2011.
18 Ministry of Corporate Affairs notification S.0.93 (E) dated 8th January 2013.

when these activities are performed pursuant to any covenant of a loan agreement or investment
agreement only and not otherwise.

Sub-section 5 lays down a statutory obligation for the institutions mentioned in sub-section (4) to
file, within 7 days from the date of acquisition, in the form as specified by regulations, with the
Commission, the details of the acquisition including the details of-

▪ Control
▪ The circumstances for exercise of such control and
▪ The consequences of default arising out of such loan agreement or investment agreement

Acquisitions where enterprises whose control, shares, voting rights or assets are being acquired
have assets of Rs. 350 crores or less in India or turnover Rs. 1000 crore or less in India, are
exempt from Section 5 of the Act for a period of 5 years (i.e., up to March 3, 2021)19.
Accordingly, a notice for such acquisitions need not be filed with CCI. This exemption is
applicable only to acquisitions and is not applicable to mergers or amalgamations.

6.4.2 Combinations not required to be notified

According to Regulation 4 of the Combination Regulations, the categories of combinations
mentioned in Schedule I are ordinarily not likely to cause an appreciable adverse effect on
competition (“AAEC”) in India and therefore, notice under section 6(2) need not be filed20.

If there are uncertainties as to what would constitute the trigger document, parties have the
option of approaching the CCI through a pre-filing consultation however such consultation is
informal and verbal and not binding.

6.4.3 Filing of notice under Section 6(2)-

1. How to notify CCI
▪ The notice in respect of a combination is required to be filed in original, along with one
copy, and an electronic copy thereof, with the registry of the CCI.

19 Notification No. S.O. 674(E) dated March 4, 2016
20 Regulation 4 of Procedure in regard to the transaction of business relating to combinations) Regulations, 2011
(hereinafter “Combination Regulations”)

▪ The notice should be complete in all respects (must be filed in required format) and
accompanied by filing fees21.

▪ In the event the parties are claiming confidentiality on certain information provided by
them in the notice, a public version of the notice, and an electronic version thereof, is also
required to be filed22.

▪ The notice must also be accompanied by summary(ies) of the combination23, along with
separate electronic copies thereof.

▪ The Commission also introduced an online system for e-filing of notices through its
online portal www.efilingcci.gov.in, wherein a notice can be filed with Commission
electronically. The facility of e-filing is available only in respect notice filed in Form I.
The cut-off limit for filing a notice though e-filing is the 20th day from the relevant
trigger event.

2. Documents that are required to be filed along with the notice in Form 1-

Generally, following documents are required to be filed along with the notice (in Form I).

▪ Certified copy of the authorization in favor of a person signing the notice in the
prescribed format.

▪ Copy of the proof of payment of filing fee.
▪ Copies of approval of the proposal relating to merger/amalgamation and/or agreement

/other document executed in relation to the acquisition or acquiring of control. 4.
▪ An authorization letter in favor of a person located in India who is authorized to receive

communication(s) on behalf of the notifying party(ies) from the CCI.
▪ Certified copy(ies) of the order(s)/decision(s) passed in other jurisdictions where the

proposed combination has been filed and approved.
▪ Copies of the most recent annual report and accounts of the parties to the combination.
▪ Copies of all presentations prepared by or for or received by any members of the board of

management, or the board of directors, or the supervisory board, as applicable in the light

21 Regulation 13(1) of Combination Regulations 2011.
22 Proviso to Regulation 13(1) of Combination Regulations 2011.
23 Regulation 13(1A) and 13(1B) of Combination Regulations 2011.

of the corporate governance structure, or the other person(s) exercising similar functions
(or to whom such functions have been delegated or entrusted), or the shareholders’
meeting, analyzing the combination (only in cases wherein there are overlapping
goods/services between the parties to the combination or the parties to the combination
are engaged in different stages of production/supply/distribution/storage/sale and service
or trade in products or provision of services or the parties to the combination are engaged
in supply of complimentary, noncompeting but related goods/services).
▪ Two summaries prepared in accordance with sub-regulation (1A) and (1B) of regulation
13 of the Combination Regulations.
▪ An affidavit in support of the request for confidentiality as specified in regulation 42 of
the Competition Commission of India (General) Regulations, 2009 (“General
Regulations”)

However, this is not an exhaustive list of documents to be filed along with the notice and,
depending on the nature of the combination, other documents may also be required to be filed.

3. Who should file the notice?

The acquirer is required to file the notice in case of acquisition. However, all the parties to the
combination are required to jointly file the notice in case of mergers or amalgamation.24

4. Fees to be paid-

At present, the filing fee for notice filed in Form I is Rs 15,00,000 and that for notice filed in
Form II is Rs 50,00,00025 (See Regulation 11 of the Combination Regulations). No fee is payable
for filing the notice in Form III.

5. Changes in the information submitted to CCI-

The Parties shall inform the Commission of any change in the information provided in the notice
to the Commission, at the earliest, during the Commission’s assessment of the combination. If
the change in the information provided in the notice is likely to significantly affect the factors for
the determination of the Commission’s assessment of the combination, the Commission may

24 Regulation 9(1), 9(2) and 9(3) of Combination Regulations 2011
25 Regulation 11 of Combination Regulations 2011

treat the notice filed as not valid, after providing parties an opportunity of being heard26. (See
Regulation 16 of the Combination Regulations)

6. Suo motu inquiry by the CCI27-

The Commission may initiate suo motu inquiries into mergers, amalgamations and acquisitions
that have not been notified to it, as to whether such a combination has caused or is likely to cause
an Appreciable adverse effect on the competition. However, the Commission shall not initiate
inquiries after the expiry of 1 year from the date on which the combination has taken effect. In
such cases, CCI may commence proceedings under Section 43A of the Act for failure to file
notice in terms of Section 6(2) of the Act.

7. Single notice for series of transactions-

Several transactions may constitute a single combination if they are inter-related and if the
ultimate intended effect of the transaction is sought to be achieved by such series of steps /
smaller individual transactions. In such cases, a single notice covering all these steps/transactions
that is filed by parties is sufficient.

In the case of Piramal Enterprises Limited 28

The Commission considered valid a single notice given under Form II by Piramal Enterprises
Limited (PEL) under subsection (1) of Section 20 of the Competition Act, 2002 read with
Regulation 8 of the Competition Commission of India (Procedure in regard to transaction of
business relating to combinations) Regulations, 2011 for the following series of transactions-

The combination pertaining to acquisition by PEL of:
(a) 9.96 percent stake in Shriram Transport Finance Company (“STFC”) on 10th May 2013 from
the stock exchange by way of a contract note (“STFC transaction”);

26 Regulation 16 of Combination Regulations 2011.
27 Section 20(1) of Competition Act, 2002.
28 Combination Registration No. C-2015/02/249.

(b) 20 percent equity stake (directly and indirectly) in Shriram Capital Limited (“SCL”),
pursuant to the execution of a Collaboration Agreement dated 17th April 2014, entered into,
inter-alias, between PEL and SCL (“SCL transaction”); and

(c) 9.99 percent stake in Shriram City Union Finance Limited (“SCUF”) on 3rd June 2014,
pursuant to a preferential allotment (“SCUF transaction”).

8. Time limit for giving notice to the Commission

Any person or enterprise proposing to enter into a combination shall notify the Commission in
the specified form disclosing the details of the proposed combination within 30 days of the
approval of such proposal by the board of directors or of the execution of any agreement or other
document. The proposed combination shall not take effect for a period of 210 days from the date
it notifies the Commission or till the Commission passes an order, whichever is earlier. If the
Commission does not pass an order within 210 days, the combination shall be deemed to have
been approved.

6.4.4 Failure to give the notice under Section 6(2)

When the parties to a combination fail to file notice under Section 6(2), then the Commission on
its own knowledge or information relating to such combination, inquire into whether such a
combination has caused or is likely to cause an appreciable adverse effect on competition within
India and direct the parties to the combination to file notice in Form II within thrity days of the
receipt of the notice.

Section 43A of the Competition Act empowers the Commission to impose a penalty on a person
or enterprise who fails to give a notice under Section 6(2) of the Act. The penalty may extend
upto one percent of the total turnover or the assets, whichever is higher, of such a combination.

In the combination transaction of UltraTech Cement Limited29:

It was held that the Commission can levy the maximum penalty given under Section 43A but the
Commission has sufficient discretion to consider the conduct of the parties and the circumstances

29 Combination Registration. No. C-2015/02/246.

of the case to arrive at the appropriate amount of penalty. In the said case apart from the size and
scale of the Combination, the Commission also took into consideration the fact that the Acquirer
had voluntarily filed the notice with the Commission subsequent to the delay and the Acquirer
had fully co-operated with the Bank. As a result, the Commission imposed a nominal penalty.

6.5 PROCEDURE FOR INVESTIGATING A COMBINATION

The procedure for investigating a Combination, comprise of three steps-

▪ A relevant market is identified according to the definition under section 2(r) of the Act, this
entails identifying both the relevant product market 2t as well as the relevant geographic
market 2c.

▪ The Combination is scrutinized to determine whether the combination has an appreciable
adverse effect on competition in the relevant market. The criteria for such an analysis are laid
down under Section 20(4) of the Act.

▪ On the basis of (1) and (2), the Commission decides whether the combination should be
approved, rejected or approved with modifications to the combination. The modifications to
the Combinations are made on the basis of how the anti-competitive effects could be
minimised or eliminated.

6.6 SECTION 31- ORDERS OF COMMISSION ON CERTAIN COMBINATIONS

Where the Commission is of the opinion that the combination is not likely to result into an
appreciable adverse effect on competition, it shall approve the combination by order but if they
decide to the contrary then the Commission shall direct that the combination shall not take effect.
The Commission may propose certain modifications to make the combination lawful. If the said
modifications are accepted, the combination is approved. Otherwise, the combination shall be
deemed to have an appreciable adverse effect on the competition. If the Commission does not on
the expiry of 210 days from the date of giving the notice under Section 6(2), pass an order or

issue a direction according to sub-section (1) or (7), the combination shall be deemed to have
been approved by the Commission.

6.7 SECTION 32- ACTS TAKING PLACE OUTSIDE INDIA BUT HAVING AN EFFECT
ON INDIAN COMPETITION

The Commission shall, notwithstanding that, an agreement referred to in Section 3 has been
entered into outside India (a) Any party to such agreement is outside India; or (b).Any enterprise
abusing the dominant position is outside India or (c) A combination has taken place outside India
or (d) Any other mater matter or practice or action arising out of such agreement or dominant
position or combination is outside India, have power to inquire into such agreement or abuse of
dominant position or combination if such agreement or dominant position or combination has or
is likely to have an appreciable adverse effect on competition, pass such orders as it may deem
fit.

6.8 APPEALS

The Central Government has notified the Competition Appellate Tribunal (COMPAT) to hear
and dispose of appeals against any direction issued or decision made or order passed by the
Commission under respective sections of the Act, such as orders relating to notification of
combination, inquiry by the Commission and penalties30.An appeal has to be filed within 60 days
of receipt of the order/direction/decision of the Commission

6.9 CONCLUSION

In the light of the provisions under Competition Act, 2002 and the Combination Regulations
2011, it is apparent that stringent conditions have to be complied with before a combination can
come be validly operative in the relevant market. Non-compliance of these provisions can lead to
imposition of heavy penalties. Also, the provisions ensure that no dominant position is created in
the market in favor of a single entity or group of entities. This facilitates free market economy
that aids in better economic growth.

30 Section 53(A) of Competition Act, 2002.