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Criteria Considered by CCI Before Approval of Mergers, Amalgamation and Acquisition

The Mergers, amalgamations and acquisitions in India are regulated by the Competition Commission of India (CCI). CCI is the statutory authority responsible for reviewing combinations and assessing whether or not they cause or are likely to cause an appreciable adverse effect on competition within the relevant market(s) in India.

It does its work according to the rules and regulations set under the Competition Act, 2002. The Competition Act is the principal legislation that regulates combinations (acquisitions, mergers, amalgamations and de-mergers) in India. CCI approval is required for combinations where the parties involved exceed the assets/turnover thresholds set out in section 5 of the Competition Act. This section along with section 6 of the Competition Act, deal with the regulation of combinations, have been in force since 1 June 2011.

The CCI has to follow a set of procedures which have been laid down. These procedures are set in:
# The Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations 2011 (as last amended on 7 January 2016) (Combination Regulations).

# The Competition Commission of India (General) Regulations 2009 (General Regulations).

However, most times it is not enough to just follow these procedures before approval of a merger or amalgamation. The CCI has to keep in mind certain rules and regulations, and different criteria have to be considered before a merger can be approved. These are so as to not hamper the competition in the market.

In this paper we will attempt to understand the criteria.

Research Question:
This paper will concern itself with two research questions.

The questions are:
1) What is the concept of Competition Regulation?
2) What are the criteria considered by the CCI before approval of a Merger/Amalgamation/Acquisition?

Nature of the Research Paper:
This paper will be a doctrinal paper, i.e. the information gathered is from journals and articles and other already published sources. The sources that have been used will be given due credit in this paper.

Objective of the Research Paper:
The objective of the research paper is to understand what the criteria considered by the CCI are, and why they are needed to be considered before approval of any merger/amalgamation/acquisition. These objectives have been chosen because of the gradual increase in mergers and rapid spread of intense competition in businesses in India.

Concept of Competition Regulation:
The Competition Act, 2002 was enacted by the Parliament of India to replace The Monopolies and Restrictive Trade Practices Act, 1969. This Legislation was the basis on which the CCI was established. The main aim of the CCI under this act is to stop unwanted monopolies from emerging in the Indian economy.

It is a tool to implement and enforce competition policy and to prevent and punish anti-competitive business practices by firms. It is also often used to stop unnecessary Government influence in the Indian Economy. Competition laws is equally applicable on written as well as oral agreement, arrangements between the enterprises or persons.

This act was made to ensure that enterprises, persons or associations of enterprises, any other such organization specified in the act or by the CCI, shall not enter into agreements in respect of any part of economic activity including but not limited to production, supply, distribution, storage, acquisition or control of goods or provision of services, which may cause, or are likely to cause an“appreciable adverse impact”on competition in India.

“Appreciable adverse impact”in this case means a large number of implications like restricting any or all other companies or entities in the same field from carrying out any economic activity, to establishing a monopoly in the industry.

Any such agreement made would consequently be considered void and stopped from operation with immediate effect.

The act was also made to restrict abuse of dominant position[1]by any enterprise, which is in a position to impose directly or indirectly unfair or discriminatory conditions in purchase or sale of goods or services, or restricts production or technical development, or create any form of hindrance in entry of new operators to the prejudice of consumers[2].

The provisions relating to abuse of dominant position requires determination of dominance of the concerned in the relevant market.

The act was also designed to regulate the operation and activities of combinations (which means acquisition, mergers or amalgamations). Combination that exceeds the threshold limits specified in the act in terms of assets or turnover, any of which factors causes or is likely to cause any adverse impact on competition of the relevant market in India, can be scrutinized by the Commission, and ultimately stop (if no other option exists) such combination from coming into existence.

The main concept of regulating the competition in the Indian economy came from wanting to give not only the companies in the industries a fair chance in their relevant markets but also from wanting to give the consumers an equally fair chance at getting quality products at reasonable price ranges.

Criteria Considered by CCI:
The CCI will consider a few criteria[3] before sanctioning or approving a combination. These criteria are:
# What will be the actual level of imports in the market after the combination takes place.
# The total market share of the new entity formed through the combination the concentration of market share in the entity.
# Whether other competitors will make any unilateral effort to remain in the competition after the combination takes place, or will all efforts stop.
# Whether the resulting entity from the combination will create barriers to entry in the relevant market. Or even if they will stop other competitors expansions.
# In case of horizontal mergers, whether there is any overlap in the markets and other factors.
# The degree of countervailing in the market after the combination.
# Whether or not there is a chance of alternative suppliers and if there are substitute products existing in the market.
# The likelihood under which it is possible for the combination of getting a substantially large profit after combination.
# If the mere existence of the combination will curb other competition.
# Possibility of a failing business.
# The nature and extent of innovation coming into the market after the combination.
# Whether or not the benefits of the combination outweigh the adverse effects of it.
These are just some of the factors which have to be very carefully considered by the CCI before approving any combination. This is because it falls on to the CCI to ensure that no one exploits or tries to control the economy to suit their needs.

Case Analysis:
# Vodafone - Idea Merger-After the advent of the telecommunication service of Reliance Jio, many telecom companies have been forced to slash their prices and to bring about new offers.
Along with this is comes the merger of telecom giants Vodafone and Idea. Individually both these companies had dominant position in the market. Thus, the question that arises is why this combination was allowed by the Competition Commission of India. The answer to this lies within the analysis of the industry. After looking at the position of the industry after Jio, it could be seen that Jio was also in a position to abuse dominant position in the market. The merger was allowed to ensure that competition continues.

# Tata Steel - Bhushan Steel Takeover-Tata is already a giant in the steel industry and has near monopoly in most sectors of the steel market. Bhushan steel was the leading company in the field of auto-grade steel.
Though having stable operations, it was a non-performing asset. It was up for takeover. Tata Steel won the bid and then this has become known as Tata Steel BSL. This takeover has allowed Tata Steel to gain dominant position in the one steel field where it was not a leader. This opens avenue for a near monopoly in the steel market. Yet, the CCI allowed this takeover, because not only did it allow the economy to continue, but increased revenue in the market.

The criteria which the enterprises have to fulfil have been laid down after careful consideration. These are the requirements, which only when have been complied with can a combination be made.

These criteria are there to ensure that the free economy and trade of India are not hampered by any enterprises enjoying maximum sway over the economy or in their relevant market coming together.

It is only after a combination passes the scrutiny of the CCI, and only if the CCI is reasonably satisfied that the competition of the economy will not be affected in any way, will they approve a combination.

This actually ensures that the CCI has a huge say in which companies can be merged, and only after their assent that any combination can be formed. However, the main reason of such harsh criteria is to ensure that the economy and trade can grow instead of being hampered due to a very powerful combination growing unchecked in the market.

A. Articles:
Online article- Merger control in India: overview-byShweta Shroff ChopraandToshit Shandilya,Shardul Amarchand Mangaldas & Co

B. Books:
The Competition Act, 2002

[1]Section 4 (explanation) of Competition Act, 2002
[2]Section 4 of Competition Act, 2002
[3]Criteria from Section 20(4) of Competition Act, 2002

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