MERGER-

The role of mergers and competition in the market is crucial as both influence productivity, competitiveness, and
overall economic growth, which is reflected in indicators like GDP. Mergers and acquisitions (M&A) have the
potential to strengthen firms and make them more competitive, but they must be regulated to prevent monopolies and
ensure fair competition, as governed by the Competition Act, 2002 in India. Let’s dive into the details of how these
factors interrelate:

Role of Competition in Market- 1. Competition: Healthy competition is essential for encouraging innovation,
enhancing productivity, and delivering consumer benefits. When companies compete, they aim to produce better
products, lower prices, and improve services to gain market share.
2. Productivity: Competition drives firms to become more efficient. With multiple players in the market, companies
are compelled to optimize resources, adopt new technologies, and reduce wastage.
3. Competitiveness: Increased competition improves a company’s ability to survive and thrive, both domestically and
internationally. Competitive firms are more resilient and adaptable to changes in market conditions.
4. GDP Growth: A competitive market can contribute to overall economic growth. Productivity gains from
competition can boost the GDP as companies create more value with fewer resources, fueling economic expansion.

Competition Act, 2002- The Competition Act, 2002, which is India’s antitrust legislation, aims to regulate business
combinations (e.g., mergers, acquisitions) through the Competition Commission of India (CCI). Key provisions
include:
- Prevention of Anti-Competitive Combinations: The Act restricts mergers or acquisitions that could cause an
appreciable adverse effect on competition (AAEC) in the market. Combinations that meet specific thresholds are
subject to scrutiny to prevent market dominance.
- Combination Thresholds: Not all combinations need CCI review. Only mergers exceeding specific asset or turnover
limits—detailed for both domestic and international parties—are regulated. This is to focus on potentially impactful
combinations only.
- Regulation of Combinations: The Act’s Section 5 defines combinations to include mergers, acquisitions, and
takeovers, while Section 6 regulates combinations to avoid AAEC. Combinations not meeting the Act’s thresholds
are often exempt.

Mergers and Competition Act

- Section 5: Deals with the definition of a combination, encompassing mergers, acquisitions, and control acquisition.
- Section 6: Enforces regulation on combinations, voiding any that may result in AAEC. Notifying the CCI is
mandatory before a combination comes into effect.

In addition, Section 3 addresses AAEC, underscoring that anti-competitive conduct and agreements harmful to the
market are not permissible. Factors such as market entry barriers, consumer benefits, improved goods distribution,
and technological progress are considered by the CCI when evaluating AAEC.

RELEVANT PROVISIONS- • Section 3 relates to adverse effect.

• Section 5 defines Combination.
• Section 6 is about regulation of combination,
• Voluntary notification regime
• Commission to decide in 90 working days, else Combination is deemed approved• Commission can take, upon its
own knowledge or information, action within 1 year after combination
• Appreciable adverse effect & relevant market
• Enterprises intending to enter into a combination have to give notice to the CCI.
• No combination comes in effect until passing of 210 days after notice to CCI or passing of order by CCI (whichever
is earlier)

Section 3- The term ‘appreciable adverse effect on competition’ , used in section 3(1) has not been defined in the
Act.
The determination of appreciable’ has proved to be a main problem under the Competition Act. So in order to be
considered ‘appreciable’ , the effect has to be substantial. However; this may not be in line with Indian economic
interests.
• Accordingly, a more appropriate meaning has been given in Law Lexicon where ‘appreciable’ is defined as ’capable
of being estimated, weighted, judged of or recognized by the mind’ which is ‘perceptible but not a synonym of
substantial.’
• For the most practical purposes ‘appreciable’ has to be more than just a detectable effect but may not be substantial.

Considerations by the Competition Commission of India (CCI)-Section 19 of the Competition Act specifies the
factors the Competition Commission of India (CCI) must consider to determine if an agreement has an Appreciable
Adverse Effect on Competition (AAEC) under Section 3. Here are the key factors and how they’re applied:
1. Barriers to New Entrants: Does the agreement make it difficult for new businesses to enter the market?
2. Driving Out Competitors: Does the agreement aim to eliminate existing competitors from the market?
3. Foreclosure of Competition: Does the agreement prevent others from entering or competing in the market?
4. Accrual Benefit to Consumers: Does the agreement provide any advantages, like better prices or improved
quality, to consumers?
5. Improvements in Production/Distribution: Does the agreement lead to better production processes or more
efficient distribution?
6. Promotion of Development: Does it help in technical, scientific, or economic development by improving goods,
services, or production?
Automobiles Dealers Association v. Global Automobiles Limited & Anr. (2012)-In this case, CCI ruled that while
evaluating an agreement, it’s essential to consider all factors under Section 19(3). For an agreement to be anti-
competitive, it must likely (not just possibly) harm competition. The probability of harm to competition is enough to
qualify the agreement as anti-competitive if it’s shown to likely create AAEC.

In summary, CCI looks at whether an agreement restricts market access, harms competition, or lacks consumer or
efficiency benefits, with a focus on probable (not just possible) competitive harm.

Relevant Market and Determination of AAEC-AAEC is assessed within a relevant market, determined by:
- Relevant Product Market: Considers factors like consumer preferences and the existence of specialized producers.
- Relevant Geographic Market: Assesses where the products are sold at comparable prices, influenced by transport
costs and regional demand.

Example: Jet-Etihad Case-The Jet-Etihad merger is a prominent example where the CCI approved the deal based
on competition assessments, despite one member’s dissent over potential adverse effects. The case illustrates how the
CCI relies on provided data to determine whether a merger enhances or undermines competition.

Competition (Amendment) Bill, 2012-The proposed amendments in the 2012 Bill include:
- Combination Approval Timeframe: Provides a defined timeline for CCI decisions.
- Vertical Agreements: Expands oversight of anti-competitive vertical agreements.
- Dominance: Recognizes abuse by more than one entity or group.
- Group Definition Changes: Updates the definition of a “group” for better regulation.
EXCEPTIONS
• All types of intra-group combinations, mergers, demergers, reorganizations and other similar transactions
should be specifically exempted from the notification procedure and appropriate clauses should be incorporated in
sub-regulation 5(2) of the Regulations.
• Not applicable to share subscription or financing facility or any acquisition, by a public financial institution,
foreign institutional investor, bank or venture capital fund, pursuant to any covenant of a loan agreement or
investment agreement.
• These institutions need to send a notice within 7 days from the date of acquisition
• These transactions do not have any competitive impact on the market for assessment under the Competition Act,
Section 6.

Conclusion
The combination of mergers and competition laws promotes an environment where businesses can grow while
ensuring that markets remain competitive. Mergers enable companies to achieve economies of scale and increase
their market share, but must be balanced to avoid dominance that could harm consumers. As Indian markets expand
and foreign investments increase, the need for rigorous but supportive governance over mergers grows. The
Competition Act ensures that each combination is evaluated for its benefits and potential market impacts, making it
critical for maintaining a dynamic and competitive market landscape.