Acquisitions

Intersection of Merges & Acquisitions with Indian Competition Law

Author: Antima  Tiwari
Student, New Law College, BVDU, Pune

Competition in a market refers to a process of gaining profits and of the interest of self. One must remember that it should also be beneficial for society as a whole. The rationale behind this is because not only does helps in increasing the economy but also helps the market system work efficiently.

The most important form of corporate restructuring is what we call mergers and acquisitions. In simple words, the process of merger involves the merging of 2 different companies to make an entirely new one. On the flip side, acquisition is a process where one comes takes over another through the process of buying their shares or stocks etc. A merger enables the competition in regulating changes in the market complex.

What are mergers?

Mergers are the merging of two or more businesses into one, with one company continuing to operate while the other shuts down. The existing corporation acquires the assets, liabilities, and shares of the dead company or firms. Amalgamations, or the fusing of two or more companies, are another term for mergers.

Kinds of Mergers:

Before getting into the process of mergers under the Acts, we should first understand the different types of mergers:

Horizontal merger: A merger that occurs between businesses that trade similar goods and services. Such kind of mergers does try to improve the market share value of the enterprise but it might have an adverse effect on the competition of the market and as a result market’s competition suffers.

Vertical merger: This type of merger involves where an enterprise is involved in different levels and types of products in two different market fields. This can be because of the supplying of goods (for) production, and storing of goods while treading them.

Conglomerate merger: This merger helps the two merging companies in enhancing their work while at the same time trying to sustain financial stability by strengthening it. This merger is of two types:

  • Pure conglomerate merger: The kind of merger which happens between two companies that are doing their businesses together and are also related to each other.
  • Mixed merger: The major goal of the enterprise under this type of merger is to extend their business and earn profits through market access and also improve the varieties of products.

The market has witnessed an increase in the M&A industry recently, especially in the times of the Covid-19 pandemic. The reasons for the increase in the M&A between the enterprises can be because of the market share, large economy, and diversification and tax consequences.

Combination under Competition Act

Section 5 of the Act[1] defines a combination as any person has acquired an enterprise, merger or its amalgamation if and when (a) when acquired, the parties attain a good influence over the voting rights or has gained its control over the assets of the enterprise (b) if and when the total value of the assets are greater than INR one thousand crores, or their total turnover is more than INR three thousand.

When a group buys a company or gains control over its shares and voting rights, it is referred to as a combination. The notion also applies when the enterprise’s net asset value surpasses four thousand crores and it has a turnover of twelve thousand crores or more. Even if the asset’s overall value, in or out of India, is two billion dollars.

A combination occurs when a person achieves directly or indirectly any control over an enterprise and then exercises its influence over all other firms which are involved in the distribution, manufacturing, or trading of similar services. If an organisation acquires control of a group after a merger and its valuation reach INR four thousand crores or the overall worth of the assets exceeds to about two billion dollars, it is considered a takeover.

Mergers under the Competition Act

Under the Indian Competition Act, mergers has been frequently utilized to include the acquisition of shares as well as control over the enterprise’s voting rights and assets. The merger results in a shift of management responsibilities from one company to another. One business is entitled to control over a specific portion of the assets as well as managerial authority.

A merger is a common activity occurring between two or more commercial enterprises in order to develop their own operations. There are, however, some mergers that have a negative impact on competition. Mergers have negative effects on the market because they reduce competition by reducing the number of firms in the market.

Any merger has the potential to prevent new people from joining the market, which benefits them because then the output is limited. Mergers also tends to raise the price of goods and services, putting customers’ interests at risk. In general, it may be claimed that mergers have complete market control.

Penalty

If a person rejects or has failed to notify the CCI, it would constitute a violation of Section 43A of the Act[2], which would result in a penalty. The CCI also has the authority to purchase combinations on its own initiative or based on evidence that the combination regulation has a detrimental effect on the market.

Conclusion

Combinations are business procedures that are shared by all company entities to accelerate economic growth and improve trade practices, which benefits consumers. Combinations aren’t always advantageous, and they might have socioeconomic consequences, as today’s rivalry could be tomorrow’s supremacy. The Companies Act of 1956 and the MRTP Act of 1969 were the principal statutes dealing with merger regulation prior to the enactment of the Competition Act. These changes had a significant impact on the merger provisions under the competition act. The statute was amended in 2007 to make notification to the commission mandatory in the case of combinations, i.e. mergers, acquisitions, and amalgamations. The 2012 change to the competition act raised the combination limit, providing some relief to various types of mergers.

[1] The Competition Act 2002, section 5

[2] The Competition Act 2002, section 43A

 

 

 

For daily Updates Do Follow Us on
Facebook
Instagram
LinkedIN
Twitter
YouTube

 

To read more blogs click here

+ posts