Author: KARN GUPTA (Advocate)

Question: Whether regulation of cross border mergers and acquisitions improve the allocation of resources around the globe?

There has to be drawn a fine line between over regulation and under regulation. There are debates surrounding many issues of merger regulation for eg: voluntary notifications, efficiency of the effects test and the pre review and post review schools of thought. With the advent of capitalism in India the need for legislative reforms became imperative as a resultant effect of globalisation. The Indian competition Act 2002 was enacted as a step in the direction of better standards of competition regulation in the country. The models of the US and the EU in terms of competition law could be termed as the predominant ones for the world economy to follow.[1]The Competition Commission of India (CCI) is still trying to establish itself as a credible authority in the field of competition law in India and mergers is one important aspect which it will have to adjudicate upon in the near future in a substantial way. The task is to establish such a competition regulation mechanism in India which is independent of the models prevalent in the US and EU.


The US has anti trust laws dating back to 1890s primarily to control the concentration of economic power. The primary purpose of anti trust legislation was freedom of individual choice, distributive justice and pluralism. The initial approach of the antitrust laws resulted in protection of small businesses at the cost of big ones. This attitude changed in the 1980s when economic efficiency became the goal of antitrust policy. This was done at the expense of small struggling competitors or businesses but the same was considered necessary for efficient economic growth. The focus shifted from protecting competitors to protecting competition. This resulted in concentrated markets but the economists as well as policymakers had no problem with the same. Section 7 of the Clayton Act is the primary legislation in the US governing mergers and acquisitions which provides for acquisition by one corporation of stock of another.

In addition to the Clayton Act, there is the Sherman Act in the US which is also a principal legislation governing mergers. It states that every contract, combination or conspiracy that restrains trade or commerce among the states or with foreign nations is illegal and that every person who monopolises or tries to monopolize is guilty of felony. The anti trust law in the US governs cross border mergers and acquisitions. The primary aim was to have equality amongst businesses by promoting competition. Therefore small businesses were protected against the larger competitors before the 1980s. In 1980s the primary purpose of the legislation changed and economic efficiency began to emerge as the goal of anti trust policy. The focus shifted from protecting competitors to protecting competition. Consumer welfare was sought to be achieved by providing for allocative efficiency. Robert Bork states in his 1978 article, The Antitrust Paradox, “the whole task of Antitrust can be summed up as the effort to improve allocative efficiency without impairing productive efficiency so greatly as to produce either no gain or a net loss in consumer welfare.” Therefore in the US, there is nothing wrong with concentrated markets with the primary aim of achieving the benefits of economies of scale.

The US primarily operates on the effects test whereby it measures the effects which a potential merger have on the US economy even if it is including a foreign act. The US courts do not prohibit large international mergers due to policy reasons. The Department of Justice (DOJ) and the Federal Trade Commission (FTC) are the primary administrative agencies responsible for antitrust law enforcement. They employ a reasonableness test that considers the degree of conflict with foreign law or articulated foreign economic policies. There are also pre merger notifications in place in the US with the enactment of the Hart Scott Rodino Antitrust Improvement Act of 1976 which provides for review of mergers having an effect on the US market by the DOJ or the FTC. The purpose of this Act is to reduce the costs associated with reversing a merger once it is completed. Under the effects test the test could be reduction of competition in either the product or geographic market (15 U.S.C. Restatement (a) (1994)). Therefore in the US large international mergers are not stopped primarily because of their size but they are certainly reviewed or scrutinized based on the ‘effect’ they may have on the US market. The productive capacity of the business enterprises was sought to be encouraged. The benefits of economies of scale were given preference rather than protecting small businesses or competitors. This is in stark comparison to the position prevalent in Latin America and East Asian countries. The US applies its anti trust laws to foreign business combinations based on the effects test. Much of merger regulation has been framed by the courts. For eg: in the case of United States of America v Aluminium Co. of America[2], the ‘effects test’ was established. Under President Franklin D. Roosevelt, the Justice

Department charged Alcoa with illegal monopolization, and demanded that the company be dissolved. Trial began on June 1, 1938. The trial judge dismissed the case four years later. The government appealed. Two years later in 1944, the Supreme Court announced that it couldn’t assemble a quorum to hear the case so it referred the matter to the U.S. Court of Appeals for the Second Circuit. In the following year, Learned Hand wrote the opinion for the Second Circuit. Hand wrote that he could consider only the percentage of the market in “virgin aluminium” for which Alcoa accounted. Alcoa had argued that it was in the position of having to compete with scrap. Even if the scrap was aluminium that Alcoa had manufactured in the first instance, it no longer controlled its marketing. But Hand defined the relevant market narrowly in accord with the prosecution’s theory. Alcoa said that if it was in fact deemed a monopoly, it acquired that position honestly, through outcompeting other companies through greater efficiencies. Hand applied a rule concerning practices that are illegal per se here, saying that it does not matter how Alcoa became a monopoly, since its offense was simply to become one. Noted economist and former Federal Reserve chairman Alan Greenspan criticized the judgment of monopoly against Alcoa. He has quoted Learned Hand, the judge in U.S. v Alcoa. He said: “It was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them. Nothing compelled it to keep doubling and redoubling its capacity before others entered the field. It insists that it never excluded competitors; but we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.” Greenspan believes that the characterization of Alcoa as a threat to competition is erroneous, as “Alcoa is being condemned for being too successful, too efficient, and too good a competitor. Whatever damage the antitrust laws may have done to our economy, whatever distortions of the structure of the nation’s capital they may have created, these are less disastrous than the fact that the effective purpose, the hidden intent, and the actual practice of the antitrust laws in the United States have led to the condemnation of the productive and efficient members of our society because they are productive and efficient.” Greenspan grants that Alcoa was a monopoly, but maintains that it was not a coercive monopoly and, hence, should not have been subject to anti-trust action. Hence, to put it succinctly, in this case a Canadian corporation(which was subject to personal jurisdiction in the United States and owned by American interests) was held in violation of Sherman Act Section 1 for agreeing with European aluminum producers on world market allocations implying that none would sell aluminum in the United States. Judge Learned Hand ruled that the U.S. had jurisdiction and could apply its antitrust laws where wholly foreign conduct had an intended effect in the U.S This test was to a certain extent unsatisfactory because given the global nature of industry today, it is difficult to conceive of a wholly foreign act that could not be extended to meet the effects test, even if only in a remote way. In the Continental Ore case the Court found jurisdiction over a domestic plaintiff’s claim that it had been excluded from making sales into the Canadian market by exclusionary agreements entered into by the defendant’s Canadian subsidiary while stating that the “activities of the defendants had an impact within the United States and upon its foreign trade. In 1976, the Ninth Circuit attempted to limit the effects test somewhat in Timberlane Lumber Co. v. Bank of America. In that case, the court held that U.S. jurisdiction would be granted only if the intended effect on U.S. commerce was of substantial magnitude, or whether extraterritorial jurisdiction should be granted as a matter of international comity. In other words, the court should balance the interests of the U.S. with the interests of the foreign nation and foreign relations to determine whether the effects are substantial enough to grant jurisdiction and application of U.S. antitrust law. Although the U.S. Supreme Court has not determined whether a reasonableness test applies to the effects test, in Hartford Fire Ins. Co. v. California36, the Court held that comity was only required when there is a true conflict between foreign and domestic law. In other words, even if a U.S. court could withhold its exercise of jurisdiction based on comity, the only relevant inquiry is whether a foreign defendant was compelled by foreign law to violate U.S. law exists. Consequently, in the field of mergers and acquisitions, comity would rarely be grounds for foreign acts not to fall under the jurisdiction of the U.S. courts, unless government-owned entities were participants. As such, although courts in the U.S. are largely free to exercise jurisdiction over a wide range of international merger activity, for policy reasons, U.S. courts rarely prohibit large international mergers. However, as stated above, these policy decisions are largely based on the acceptance of merger activity in the search for allocative efficiency and economies of scale rather than a belief in limited jurisdiction. Nonetheless, the Department of Justice (”DOJ”) and the Federal Trade Commission (”FTC”), the primary administrative agencies responsible for U.S. antitrust law enforcement, temper their enforcement efforts by employing a reasonableness test that considers “the degree of conflict with foreign law or articulated foreign economic policies.


The birth of competition law in the EU took place with the treaty of Rome in 1958. This effort was more concerned with abuse of dominant position by a firm rather than structural concentrations of economic power. European policymakers could be termed as one step ahead of theri American counterparts in realizing that there are more benefits by achieving economies of scale by way of mergers. The focus in EU has been preservation of market structures rather than adopting a negative protective approach. On 21 September 1990, the merger regulation came into force in the EU competiton law providing a legal framework for the systematic review of mergers, acquisitions and other forms of concentration. The mergers are subject to review by the European Commission and the Commission has emphasised the merger regulation’s fundamental objective of protecting consumers against the effects of monopoly power in the form of high prices, lower quality, lower production and lower innovation. EU Competition law is governed primarily by Articles 85 and 86 of the Treaty of Rome establishing the European community. In terms of the purpose sought to be achieved, the Article 85 is equivalent to the Sherman Act and Article 86 is equivalent to the Clayton Act. The focus of antitrust law in the EU is more concerned with the prevention of abuse of dominant position. European policymakers had an early realization of the fact that market concentration afforded the advantages of economies of scale. They understood that there was no purpose in decentralizing economy by combating mergers. The European policymakers learned form their experience of World War II. The primary concern of European policymakers was prevention of abuse of dominant position. The merger regulation gives jurisdiction to the EC over any concentration having community dimension.

With regard to EU merger control legislation, it is based on three main propositions:

(i) The coming together of various European nations would result in major corporate reorganizations which need to be checked.

(ii) Dynamic competition environment will result in mergers and other forms of concentration in order to increase the economic competitiveness of the EU but the same needs to be checked at all stages.

(iii) Mergers or combinations should not result in lasting or substantial damage to competition.

EU has prevented politicisation of merger regulation by rejecting demands of industrial, social or employment considerations. It needs to be noted that any merger regulation governing cross border mergers should take into account the interests of various stakeholders or interested parties for eg: member states, lawyers, accountants and other members of the financial community, etc. The focus of the EU law is to prevent mergers which have the effect of stifling competition whereas all mergers with a community dimension need to be given the go ahead without any restriction. The primary purpose of merger regulation should be protection of consumers from the dastaradly effects of monopoly power. The aim should be to enhance consumer welfare by maintaining a high degree of competition in the common market. There is an emphasis on prohibition of creation of dominant position in the marketplace as it may result in abuse of dominant position if not checked. The cross border merger should not create higher prices or reduced innovation for the market. A single point agenda is to protect the consumers by increasing their welfare and shield the market from anticompetitive effects of mergers. The focus of regulation of cross border mergers are not those which may create more efficient firms but which adversely affect competition. There should be clear rules with regard to jurisdiction of the court where there are more than one state as in the EU. There should be a proper pre notification procedure in place in cases of cross border mergers and acquisitions. The criteria for regulation of cross border mergers should be competition based. There should be emphasis on timely decision making through which decisions benefitting consumers as well as any other affected parties are able to give their full realization value. There should be thresholds for merger regulation for eg: if a cross border merger reaches a maximum asset size value of Rs.1000 crores, the same may be stopped as resulting in a concentration affecting competition adversely in the market. Merger control mechanism should result in an active role for various interested parties and they should be given a right to be heard. These parties could be customers, competitors, suppliers, lawyers, economists, accountants, etc. There should be a clearly defined relevant market and an honest appraisal of cross border merger in terms of competitive assessment of the transaction. The regulation should target dominant position and its abuse by the relevant market player. The jurisprudence of any cross border merger or acquisition should include the competitive assessment of the wide variety of transactions affecting a broad array of product and geographic markets. The pre notification procedures could be put to use to clarify jurisdictional issues, discuss the scope of notifications thereby establishing the credibility of the policing authority with regard to cross border mergers. The cross border merger regulation should be transparent, predictable and merger control must permeate all the levels in a free marketplace, merger control mechanism should be free from political pressures and other external factors. The cross border merger regulation should be broad enough so as to include all full function joint ventures, there should be a dominance standard to test mergers in the global commercial marketplace, the approach towards regulation of cross border mergers should be guided by certain considerations which may be economic in nature. The regulation should be codified and transparent in its application.[3] The procedural rules of the codified laws should be implemented flexibly and with open mindedness, there should be greater emphasis on shaping the remedies that might be given and there should be greater international cooperation and convergence in merger control. There should be use of economic evidence, systematic market testing, ability to withstand political pressure, a common appreciation of competition law and policy across various parameters. The cross  border mergers would be controlled or regulated by the domestic laws of the respective countries. The regulation should also take into account of the spill over effects from the formation of cross border mergers. The cross border merger regulation should control any merger activity which may have the effect of producing higher post merger prices or reduced innovation. There should be a structured analytical framework for appraising reportable transactions that would serve as a foundation for analysis of mergers. The merger regulation should also take care of situations of collective dominance. The costs should not exceed the benefits of merger control. The main objective should be removal of prevention, restriction or distortion of competition. The conditions of jurisdiction should be spelt out clearly. For example, the EU merger regulation gives the European Commission jurisdiction over any concentration that has a community dimension. A transactions’ concentration aspect depends on the structure of the transaction. The cross border merger regulation should rely on a broad range of theories for eg: neighbouring market and potential entrant theories, conglomerate and portfolio effects and spill over effects.

The Commission has jurisdiction only over concentrations that have a “Community dimension”. The

Community dimension test, which is based on turnover (net sales), attempts to identify those transactions that have an appreciable economic impact on the Community. Whether physical assets are located in the Community is irrelevant to determining the applicability of the Merger Regulation. The turnover-based thresholds in the Merger Regulation sometimes result in a very far-reaching jurisdiction, imposing what may be perceived as an unnecessary administrative burden on companies and the Commission. The Regulation will sometimes apply to transactions having only a marginal impact in the Community (particularly small joint ventures of large parent entities), while transactions with far more substantial impact fall outside the Regulation if the turnover thresholds are not met. To date, the Commission has always claimed jurisdiction over transactions that satisfy the turnover thresholds, even when they primarily affect markets outside the Community. Nevertheless, the Commission has reduced the amount of information required in the notification for several situations which typically raise fewer competitive concerns. A concentration is a concentration if it falls under the European Control Merger Regulation (ECMR) and the Commission has jurisdiction over it by virtue of its powers exercised under the regulation. Even if a concentration does not have a Community dimension, the Commission may obtain jurisdiction under the Merger Regulation if the parties to the concentration successfully apply for a referral under Article 4(5) ECMR, or one or more Member State authorities refer the concentration to the Commission under Article 22 ECMR. The ECMR operates on a threshold basis which requires that if the transaction crosses a particular limit, the Commission shall have jurisdiction over it and check it for any kind of concentration.

Turnover Thresholds under ECMR 2004

General thresholds: A concentration is deemed to have a Community dimension when it meets the following turnover thresholds (Article 1(2) ECMR):

• The combined aggregate worldwide turnover of all the undertakings concerned exceeds 5 billion; and

• the Community-wide turnover of each of at least two undertakings concerned exceeds 250 million; unless

• each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.

Alternative thresholds for smaller, multi-jurisdictional transactions:

Under an alternative set of turnover thresholds introduced in 1998, the Merger Regulation also applies to concentrations that meet the following thresholds (Article 1(3) ECMR):

• The combined aggregate worldwide turnover of all undertakings concerned exceeds 2.5 billion; and

• the aggregate Community-wide turnover of each of at least two of the undertakings concerned exceeds 100 million; and

• in at least the same three Member States:

-The combined aggregate turnover of all the undertakings concerned exceeds 100 million; and- The turnover of each of at least two of the undertakings concerned exceeds 25 million; unless

• each of the undertakings concerned achieves more than two-thirds of its aggregate Community-wide turnover within one and the same Member State.[4]

The notifying parties can now approach the Commission for review of a merger even if it does not have a community dimension. The test now is whether the merger in question is a concentration or not. If its a concentration the test is satisfied and the notifying parties can apply to the Commission. The referrals are usually made where the geographic markets are greater than the national markets.

Procedure before the Commission

The Merger Regulation lays down the rules for notification of proposed transactions, establishes the timetable for the process, provides for Commission investigative powers and sets out the rights of the parties. Other procedural aspects of the process are codified in Regulation (EC) No. 802/2004 (the ‘Implementing Regulation’) issued by the Commission on the basis of Article 23 of the Merger Regulation. The Implementing Regulation deals with the information to be provided in notifications, the calculation of time limits and the procedures for hearings and objections. A Commission Notice sets out a simplified procedure for concentrations that typically do not raise competition concerns. Last, the Commission’s Directorate General for Competition has issued Best Practice Guidelines on the conduct of EC merger control proceedings.

The distinctive procedural features of the EC merger control process include the following:

• A significant amount of informal pre-notification consultation of the parties with DG Competition.

• Notification using a standardized form (“Form CO”) that requires the provision of extensive information on the competitive situation in the markets concerned.

• Defined time limits for the Commission’s initial investigation and a possible in depth investigation

• A prohibition on closing the transaction during the Commission’s investigation.

However there is significant disagreement or controversy with regard to competition law policy both on domestic and international fronts. The Microsoft case is perhaps the best example where it could be termed as a subject of political and economic debate even after its resolution. Perhaps the best example of this controversy on an international scale is the proposed merger of Boeing and McDonnell Douglas, the two largest commercial aircraft manufacturers in the U.S.. In the U.S., antitrust authorities viewed the market as having only two significant competitors U.S.-based Boeing and E.U.-based Airbus. McDonnell Douglas’ market share was much smaller than the other two and was declining, so a merger could greatly enhance efficiencies while at the same time prevent large-scale layoffs in the industry. However, the European Commission (”Commission”), the E.U. competition law enforcement agency, objected to the merger and expressed concerns that Boeing would have an increased customer base from sixty percent to eighty-four percent of planes currently in worldwide service. The merger was eventually approved when Boeing agreed to withdraw from a number of long term supply contracts with E.U.-based airlines, under the pretense of improving the competitive landscape between Airbus and Boeing. The Boeing/McDonnell Douglas merger captures many of the great controversies regarding extraterritorial application of competition laws where differing enforcement agencies can: (1) define markets differently; (2) weigh the anticompetitive effects against the efficiency gains differently; (3) view the effects of the merger on the competitive landscape differently; and (4) disagree with regard to appropriate remedies. In the Boeing case, the U.S. had the incentive to approve the merger, even if it had substantial anticompetitive effects on a global scale because the costs imposed by these anticompetitive effects would, for the most part, be realized outside of the U.S. Hence, for global markets, national interests can still weigh heavily on competition law policy, which has spurred some to seek a global enforcement body, perhaps through the WTO, to develop international competition law standards and perhaps an international enforcement body.


The Indian competition regulation is carried on by the Competition Act 2002. It needs to be noted that there have been many changes to the Indian Competition Act 2002 since its enactment. Most noteworthy of these changes was the introduction of a mandatory notification process for persons undertaking combinations above the prescribed threshold limits. In early 2008 the Competition Commission of India also promulgated and circulated a draft of the Competition Commission (Combination) Regulations. The regulations provide a framework for the regulation of combinations which include M&A transactions or amalgamations of enterprises. For understanding the Indian competition regulation scenario, it needs to be looked at from a holistic perspective. Therefore it looks at Section 3 and 4 along with  Section 5 of the Competition Act 2002. Section 4 of CA prohibits the abuse of a dominant position by an enterprise. Under the Monopolies Act, a threshold of 25% constituted a position of strength. However, this limit has been eliminated under the CA. Instead, the CA relies on the definitions of ‘relevant market’, ‘relevant geographic market’ and ‘relevant product market’ as a means of determining an abuse of a dominant position. Under Section 6, the CA prohibits enterprises from entering into agreements that cause or are likely to cause an ‘appreciable adverse effect on competition within the relevant market in India83’. Under the new regime, the Competition Commission has investigative powers in relation to combinations84. Various factors are provided for determining whether a combination will or is likely to have an appreciable adverse effect on competition in India, and penalties are provided for such violations.

Criteria under Section 5

One of the most significant provisions of CA, Section 5, which defines ‘combination’ by providing threshold limits in terms of assets and turnover is yet to be notified. There is no clarity as to when it will be made effective. At present, any acquisition, merger or amalgamation falling within the ambit of the thresholds constitutes a combination. Section 5 states that:

The acquisition86 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 or enterprises, if-

(a) any acquisition where-

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

(A) either, in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars or turnover more than fifteen hundred million US dollars; 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 in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than two billion US dollars or turnover more than six billion US dollars; 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 rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars or turnover more than fifteen hundred million US dollars; 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 in

India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than two billion US dollars or turnover more than six billion US dollars; or

(c) 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 in India, the assets of the value of more than rupees one thousand crores or turnover more than rupees three thousand crores; or (B) in India or outside India, in aggregate, the assets of the value of more than five hundred million US dollars or turnover more than fifteen hundred million US dollars; 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 in India, the assets of the value of more than rupees four thousand crores or turnover more than rupees twelve thousand crores; or

(B) in India or outside India, the assets of the value of more than two billion US dollars or turnover more than six billion US dollars.

Regulation of Combinations under Section 6

Essentially, a transaction must satisfy two conditions before Section 6 is triggered: (i) it must involve total assets or turnover, with separate criteria for domestic and international entities; and (ii) it must have a territorial nexus with India. Under the originally enacted CA 2002, the reporting of a combination was optional. However, the act now mandates notification within 30 days of the decision of the parties’ boards of directors or of execution of any agreement or other document for effecting the combination. The general industry perception is that a memorandum of understanding or a letter of intent will qualify as an ‘agreement’. However, these are generally executed to spell out a basic understanding among the transacting parties and to enable the acquirer to conduct due diligence, based on which further negotiations are carried out. Going  forward, execution of such a document shall trigger merger filings. This will increase compliance costs at a premature stage when it is uncertain whether the transaction will close. It will also add to the bulk of notification applications submitted to the Competition Commission. It remains to be seen whether the Competition Commission will have adequate internal capacity to handle and dispose of such applications efficiently. If it does not have the resources, the delay will potentially have a cascading effect and affect the ability of parties to close on time. Therefore, it would be prudent to insert a clause in all future transaction documents stating that closing will be subject to any prior regulatory clearance that may be required from the Competition Commission.

210 Day Waiting Period

The CA now provides for a post-filing review period of 210 days, during which the merger cannot be consummated and within which the Competition Commission is required to pass its order with respect to the notice received. If the commission fails to pass an order within the time limit, the proposed combination will be deemed to be approved. While the principles behind the review process are similar to those applied in many other countries (including the Hart-Scott-Rodino pre-merger filing and review process in the United States), fears abound about both the length and scope of the process. The duration is longer than that established in most countries and may prove burdensome. Clearly, timing is critical in any M&A transaction. Factoring this in, the draft regulations envisage that the Competition Commission may form an initial opinion within 30 to 60 days of receipt of notice and not necessarily wait for the expiry of 210 days, particularly when it is of the prima facie opinion that the combination will not have an appreciable effect on competition.

The 210-day period applies in case of cross-border transactions outside India where one of the contracting parties has a substantial presence in India. Regardless of the size of the transaction, notification is required where the combined asset value or turnover in India exceeds a certain value. This means that it is mandatory for a foreign company with assets of more than $500 million that has a subsidiary or joint venture in India with a substantial investment (above $125 million) to notify the Competition Commission before acquiring a company outside India. Basing the threshold on combined value only where there is no economic consequence in India seems rather restrictive for the transacting parties, because there is no rationale behind subjecting the parties to the merger review and making them incur substantial costs triggered by the notification. For example, a UK manufacturer with large operations in India would have to notify the Competition Commission of the acquisition of a small domestic operation within the United Kingdom despite the fact that the transaction would have zero economic effect on its Indian operations. Not only this, the company would have to wait for the Competition Commission’s approval for a period that could extend to 210 days before the deal could become effective. This waiting period may dissuade foreign investors from investing in India and force them to seek other destinations.

The threshold limits are unrealistic. Many transactions not affecting competition in India will require Competition Commission approval for the sole reason that one of the parties involved is big enough to satisfy the thresholds. For instance, the CA provides that prior Competition Commission approval is required to give effect to an acquisition where the combined assets of the acquirer and the target are more than $250 million or where the turnover of the parties exceeds $750 million. Large Indian conglomerates will have to wait for the mandatory 210 days in order to be able to acquire a small company that has no significant presence in the market where the acquirer alone meets the minimum combined size that requires Competition Commission approval. Section 32 of the Competition Act explicitly allows the Competition Commission to examine a combination already in effect outside India and pass orders against it provided that it has an ‘appreciable adverse effect’ on competition in India. This power is extremely wide and allows the Competition Commission to extend its jurisdiction beyond the Indian shores and declare any qualifying foreign merger or acquisition as void. An ‘appreciable adverse effect’ on competition means anything that reduces or diminishes competition in the market. Section 32 states that: The Commission shall, 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, 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 in the relevant market in India. The wording of Section 32 succinctly lays down the scope of the applicability of the provision as far as the subject matter is concerned. It shall apply to:

• Anti-competitive agreements

• Abuse of dominant position

• Combinations

Combinations in the terminology of CA or cross border mergers have thus been included within the domain of the regulatory and investigative powers of the Commission. This provision needs to be read along with Section 18 of CA. Section 18 specifies in rather generic terms the duties of the Commission and the steps it can take to perform its functions under CA. It states that: Subject to the provisions of this Act, it shall be the duty of the Commission to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India: Provided that the Commission may, for the purpose of discharging its duties or performing its functions under this Act, enter into any memorandum or arrangement with the prior approval of the Central Government, with any agency of any foreign country. This provision is a vindication of the purpose of the Act stated in rather broad terms in the preamble of the Act. This enabling provision actually provides teeth to the power conferred to the Commission under Section 32. Section 18 of the Competition Act entrusts the Commission with an overarching duty of sustaining competition in the market. The magnitude of this duty, as a corollary, entails that the Commission is vested with a comprehensive, overall perspective on the economy. Unlike sector specific regulatory authorities, the Commission combines the twin powers of private enforcement and the ability to pursue claims for damages. Hence, the Commission is uniquely situated to ensure a robust level of consumer welfare.The Commission for the purpose of exercising its extra territorial powers would most certainly need the cooperation and help of the regulatory authorities of other countries. Section 18 enables the Commission to smoothen and accelerate the exercise of its power under Section 32 by way of entering into arrangements and memorandum of understandings with the regulatory bodies of other countries in order to facilitate the entire process.

Appreciable Adverse Effect

The Commission has been granted wide powers under Section 32 read with Section 18 of

CA. However, the caveat is that 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 in the relevant market in India.

Section 20(4) is indicative of the factors or the circumstances when ‘appreciable adverse effect on competition’ can be inferred101. There are fourteen factors under this subsection

and any one or all shall have to be considered by the Commission so as to

ascertain the cause of AAEC in any given case:

1. actual and potential level of competition through imports in the market;

2. extent of barriers to entry into the market;

3. level of competition in the market;

4. degree of countervailing power in the market;

5. likelihood that the combination would result in the parties to the combination being able to significantly and sustainably increase prices or profit margins;

6. extent of effective competition likely to sustain in a market;

7. extent to which substitutes are available or are likely to be available in the market;

8. market share, in the relevant market, of the persons or enterprise in a combination,

individually and as a combination;

9. likelihood that the combination would result in the removal of a vigorous and effective

competitor or competitors in the market;

10. nature and extent of vertical integration in the market;

11. possibility of a failing business;

12. nature and extent of innovation;

13. relative advantage, by way of the contribution to the

economic development by any combination having or

likely to have appreciable adverse effect on competition;

14. whether the benefits of the combination outweigh the adverse impact of the

combination, if any.

Section 3 of the COMPETITION ACT 2002:

The Raghavan Committee report made the following recommendations (mentioned here in the paper in brief) which form the basis for Section 3 of the Competition Act:

(i) Agreements between firms have the potential of restricting competition. Thus a difference has been made between horizontal and vertical agreements. Horizontal agreements refer to agreements between competitors and vertical agreements are agreements relating to a buyer and seller relationship.

(ii) It is not necessary that the agreement in question has to be in writing but it can be an informal agreement as well and therefore oral and informal agreements can also be declared illegal by the Commission.

(iii) Proof will generally be based on circumstantial evidence and parallelism of action between firms can indicate this.

(iv) A distinction needs to be made between what could be called an illegal practice of price cartellisation and must therefore be curbed and punished and a perfectly legitimate economic and business behaviour in responding to a situation s=could be termed as a price leadership position.

(v) It is important to define the relevant markets.

(vi) Agreements are considered illegal only if they result in unreasonable restrictions on competition. Based on the US law, this is tested on what is known as the ‘rule of reason’ analysis.

(vii) It is not possible to provide an exhaustive list of agreements that attract the attention of such provision and the ‘rule of reason’ needs to be applied to individual cases. An illustrative list would include the following:

  • Agreements regarding fixing of purchase or selling prices.
  • Agreements limiting quantities, markets, technical development or investment.
  • Agreements regarding territories to be served and sources of supply.
  • Agreements regarding dissimilar treatment of equivalent transactions with their trading parties that place them at a disadvantage.

(viii) Agreements involving a presumption of illegality:- In general the rule of reason test is required for establishing that an agreement is illegal. However, for certain kinds of agreements the presumption is often that they cannot serve any useful purpose and therefore do not need to be subject to the rule of reason test. The following kinds of horizontal agreements are often presumed to be anti competitive:

  • Agreements regarding prices. This would include all agreements that directly or indirectly fix the purchase or sale price.
  • Agreements regarding quantities.
  • Agreements regarding bids (collusive tendering).
  • Agreements regarding market sharing.

(ix) Vertical agreements would include the following:

  • Tie in arrangements.
  • Exclusive supply agreements.
  • Exclusive distribution agreements.
  • Refusal to deal.
  • Resale Price Maintenance (RPM).

Therefore this section classifies agreements into two categories: horizontal as well as vertical agreements. Horizontal agreements are those which are at the same stage of production chain whereas vertical agreements are those which are at different stages or levels of production chain. Sub section (1) of Section 3 says that “which causes or is likely to cause an appreciable adverse effect on competition within India”. This can be broken down in three parts:

(i) It should affect competition within India.

(ii) Affect should be appreciable ie: not minimal.

(iii) It should either actually affect competition or be likely to affect competition.

It needs to be noted that the aforementioned makes it absolutely clear that it is not necessary that damage to competition has occurred. It was held in Summit Health v Pinhas[5] , “when the competitive significance of respondents exclusion from the market is measured not by a particularised evaluation of his practice, but by a general evaluation of the restraints impact on other participants and potential participants in that market, the restraint is covered by the Sherman Act.” In United States v Griffith[6], it was held by the US court that:

(1) Even if there was absence of specific intent to restrain or monopolise trade, it may be violative of Sherman Act.

(2) It is sufficient that a restraint of trade results as a consequence of the defendants conduct or business arrangements.

(3) Specific intent in the sense in which common law used the term, is necessary only where the act falls short of the results prohibited by the Sherman Act.

(4) The use of the monopoly power, however legally acquired, foreclose competition, to gain competitive advantage, or to destroy a competition is unlawful.


Thus we have seen that cross border mergers are relevant and important especially for developing economies. There should not be over regulation of the mergers which may hamper economic growth and timely decisions beneficial for the people in general. There are various parties which benefit from a merger and thus stopping mergers per se is not the solution in today’s commercial market. The developed economies are developed because they dared to take steps which were foreseeable in future for the parties concerned. If on the other hand we look at regulation of mergers, there is enough literature on board to prove the sufficient existence of merger activity. Regulation should not become a hindrance to economic development and this is what the attempt of the present paper is, to convey the message that mergers especially cross border in nature are necessary for the economy. International examples can be of some assistance for the purpose of serving a broad guideline or a roadmap. They cannot be definitive for other jurisdictions where the legal systems are differently positioned. The routes taken by Europe and US need not be necessarily followed by India. They can be digressed from and other alternatives more suitable to the mores and needs of socio-economic scenario of India can be followed. In fact, the legislative and administrative mechanism for cross border merger control as prevalent in US and Europe can serve little purpose while determining the competition policy for India. It is undeniable that CA has embodied the ‘effects’ doctrine for the purpose of controlling the cross border mergers and controls. This is an importation of the law as prevalent in the US. The need and the rationale for including such a provision in the Indian landscape is contestable. Indian economy is vastly different from the highly developed and corporation dominated economy of US. Moreover, the laws of a particular country are chosen in the background of the social and the economic contexts of a particular country. There are lessons India can and should learn from the experiences of the Europe and US instead of imitating their legal regimes. The entrepreneurship spirit of the corporate sector need to be encouraged and the same needs to be supported by regulation rather than restricting it. As India integrates at a fast pace with the global economy there is a need to ensure international co-operation to tackle cross border challenges. Even though the CA embodies the ‘effects’ doctrine, its implementation has been more or less ineffective. The experience has been a mixed bag. Since 1990s various sectoral regulators like those in power and telecommunications have been appointed to attract investment in various areas as well as ensure healthy competition. However, this augurs a conflict due to an overlap

in competition policy. The fact there have been hardly any problems so far is because the competition authority has been ineffective. For instance, a plethora of agencies apart from CCI regulate mergers and acquisitions in India. These include the Telecom Regulatory Authority of India, Petroleum and Natural Gas Regulatory Board, Central Electricity Regulatory Commission, Reserve Bank of India, Securities Exchange Board of India, Company Benches, etc. The interface between sector-specific regulation and competition law in India is unique. In the immediate past, the Indian economy has witnessed a massive growth spurt. While the fast-paced development has lifted millions of people up from poverty levels, it has also led to concomitant challenges. India has seen several economic scandals and other crises during the period of economic boom. A significant feature of the Indian economic and legal regime during this period has been a mushrooming of innumerable regulatory authorities. Hence, with several regulatory authorities cropping up simultaneously, it is natural that they might end up having overlapping jurisdictions. Apart from defining its relationship with the existing regulators the Commission needs a proper mechanism in order to make the regulation effective. This mechanism includes the need to evolve a well defined and purposive competition policy. There is need for synergy between government action and competition104. The government also needs to resolve the complexities that exist due to the inter-relationship between various government policies like trade policy, industrial policy with competition policy as a whole. At the state level there are five major policies that are responsible for nurturing anti-competitive policies: procurement policy, excise policy, truck operations, bid rigging in construction and retail services106. The imperative need is thus to develop a synergy between government action and competition. The synergy can be developed by incorporating a few important touchstones and parameters which shall ensure a compatible development of the two. These broad parameters can thus be stated as:

  • Assess all laws and government policies on the touchstone of competition
  • All government policies should have an explicit statement about the likely impact of the policy on competition
  • Governments at the union and the state level should frame and implement policies by acknowledging the market process
  • Government should evolve a system of ‘competition audit’ which could be applied to all existing and future policies

A failure to develop a harmonious relationship between the government policy and the competition policy shall be detrimental to the cause and purpose of both. Competition policy by virtue of its nature leaves an impact across various sectors of the economy. Hence, the failure of any governmental policy especially in the aforementioned areas to take into account the competition issues involved there with would inevitably reduce its effect and thus frustrate the purpose of its incorporation. Further as stated above, the CA seeks to regulate ‘combinations’ including acquisitions, mergers or amalgamations of enterprises. Notifications of combinations are mandatory. Acquisitions of one or more enterprises by one or more persons, or mergers or amalgamations of enterprises are combinations if they meet the jurisdictional thresholds based on assets and turnover. Thresholds for parties having assets or turnover in India are different from parties that have assets or turnover within and outside India. However, the threshold levels for the purpose of regulating the combinations are very high. The legislators have presumed that small mergers or mergers involving corporations of smaller size cannot trigger any competition issues. It needs to be realized merely because US and Europe provide such legislative provisions do not justify the incorporation of similar provisions in India. The threshold limits are too high and the provisions of CA in effect neglect the possible impact on a few important sectors of the Indian economy. There are a few industries which do not have the size contemplated under CA but can have tremendous localized impact. This is another factor that needs to be looked into while considering the provisions of CA which regulate mergers. To sum it up, it needs to be recognized, realized and acknowledged that combinations are economic enhancing trade practices hence they necessarily need to be encouraged by all so as to ensure ultimate benefit to the end consumers. However, there is a flip side of it too. Today’s combination can be tomorrow’s dominance and though dominance is not frowned upon under the CA but its abuse surely is. Abuse of Dominance is mandatorily prohibited under the law.

Therefore, every acquirer (not the target) has to be Competition Law Compliant even post combination and has to remain so forever if it desires to remain in healthy business practices. Except sovereign functions and functions relating to Atomic Energy, Space Research, Defence and Currency – all commercial activities of the departments of Union and States and their statutory bodies come within the ambit of the CA, which warrants the policy makers to seriously consider taking suitable steps before it is too late.

[1] This is primarily because of the levels of industrialisation they have achieved in comparison to their counterparts.

[2] 148 F. 2d 416, 444 (2d Cir. 1945).

[3] Codification refers to the already existing laws like the Clayton Act, Sherman Act and the EU Treaty.

[5] 500 US 322.

[6] 334 US 100.

Author: KARN GUPTA (Advocate)


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