Regulations Of Competitions
The world as we know it thrives on Competition. It is, without doubt, a
fundamental incentive's agent in the grant arena of development and progress.
And of course, competitions are not always constructive and beneficial in the
wider scheme of expansion. It is for this cause the Indian Constitution relays
up on the Regulation of Combinations in Competition Law.
What are Combinations?Section 5 of the Competition Act explains combination as: Acquisition 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
Combination within the Competition Law is the merger between two or more
enterprises or firms or the business sector acquisitions (such as companies or
firms) by other business enterprises. The Government controls combinations or
mergers and acquisitions within the country to promote competition and thereby
seeing to that small scale establishments are not overshadowed and swallowed by
more reputed industries. This is because the merger of big shot companies not
only reduce competition but also make it difficult and almost impossible for
smaller firms to grow or profit from their business. The accumulation of wealth
in certain sectors of business and the consumer concerns can lead to major
economic and social discrepancies within the nation.
Procedure For Investigation Of Combinations
As per the Combination Regulations, the Commission shall form its prima facie
opinion as to whether the combination is likely to cause or has caused
appreciable adverse effect on competition within the relevant market in India
within 30 days from the receipt of the notice.
If the Commission is prima facie of the opinion that a combination has caused or
is likely to cause adverse effect on competition in Indian markets, it shall
issue a notice to show cause to the parties as to why investigation in respect
of such combination should not be conducted. On receipt of the response, if
Commission is of the prima facie opinion that the combination has or is likely
to have appreciable adverse effect on competition, the Commission shall deal
with the notice as per the provisions of the Act.
Regulation of CombinationsSection 6 of the Act provides for the law relating to regulating Combinations.
It prescribes that all transactions qualifying as a Combination should be
notified to the Competition Commission of India in Form I (short form
application) or Form II (long form application) as applicable.
Section 6 further provides that a Combination shall not be given effect to until
approved by the Commission or until 210 days have passed from the date of
notifying to the Commission whichever is earlier. The CCI may either approve the
Combination or may approve subject to modifications in the structure of the
Combination or not approve the Combination.
Over the past few years CCI has suggested ‘modifications’ i.e., a change in
structure of the Combination or a requirement of divestiture of certain products
prior to approving a Combination only in three out of the 500 odd notifications
received by the Commission till date.
The Central Government has powers to exempt certain transactions from the
applicability of Section 5 and Section 6 and pursuant to that the Central
Government has notified certain exemptions from time-to-time by way of
notifications. Certain exemptions are also provided by the Competition
Commission in schedule I of the Competition Commission of India (Procedure in
regard to The Transaction of Business Relating to Combinations) Regulations,
Types Of Combinations
Horizontal Combinations involve the merging of enterprises or firms with
identical level of production process, with substitute goods and are
competitors. The horizontal combination is primarily a friendly merger between
companies, although it can be a takeout of one by the other. Of course the
synergy formed by this combination enhances the business performance, financial
gains and shareholder value in the long run. The cost efficiency with the staff
cut-offs leads to the increased margins of the company.
However this tends to pave way for reduced competition as a monopolist agenda
emerges from the combinations of powerful enterprises, along with the
unemployment that follows which has a very drastic and adverse effect on the
economy of the country. It is also bad for the consumers as the reduced
competition gives the companies a higher pricing power. Therefore these merges
are the chief focus and are often scrutinized by the Competition Law Authority
for the above given reasons.
Non-Horizontal Combinations The non-horizontal combinations are of two types:
Vertical and Conglomerate combinations.
Vertical CombinationsVertical merging is combining of business firms engaged in different phases
of the manufacture and distribution of a product into an interacting whole.
This leads to increased competitiveness, a greater process control, wider market
share, a better supply chain co-ordination and decline in cost as this sort of
integration is the structuring of supply chain of companies under a particular
Conglomerate CombinationsConglomerate combinations involve firms or enterprises in unrelated business
fields. Such combination happens when two companies that provide different
services and goods or are integrated into varying sectors of business merge
together. This sort of merger happens when the companies achieve a stronger
stand in the market both in products and services and profit management unlike
when they are individual enterprises.
Conglomerate merges can lead to an ascend in market share, synergy and cross
selling. Here diversification takes a major roll and thereby reduces the
risk exposure factor. The cons of this particular combination can be the
monopolization of a company over a certain market and the over expansion of the
conglomerate can seriously affect the quality of functioning of the company and
result in the collapse of the system. Such coalescence can be detrimental as it
restricts business options for newly formed enterprises in the market. However
it is to be note that Non Horizontal Conglomerations do not promote loss of
direct competition and are therefore not anti-competitive within an overall
The regulation of combinations in a broad sense has two expressions. The first
one being the procedural format to be followed by the parties and the CCI,
starting off from the point of notifying the Commission proceeding to the
dispensation of the final order. The transactions presented to the Commission
through notification maybe countenanced, countenanced with modification or held
null in accordance with the concerned provisions of the Act. At the centre of
any resolution made by the Commission is the, COMPETITION APPRAISAL, markedly
pertaining to vertical and horizontal combinations.
Further in the challenge of steading the competition market what helps is the
careful and erudite assessment of the unilateral and coordinated effects both
quantitatively and qualitatively owing to specific cases. A number of factors
come and go while assessing combinations but the overall guiding notion is a
barter between the anti-competitive effects and the pro-competitive effects.
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