Gujarat National Law

University

Corporate Law - II
Project on:

Mergers and Acquisitions as a tool for

inorganic growth- a study of the legal
regime under the Indian Companies’
Act, 1956 and the Competition Act,
2002

Submitted To- Submitted by-

1
Mr. Balaji 07b104 Assistant
Professor of Law VII Semester Gujarat National
Law University IV year

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TABLE OF CONTENTS

NAME OF THE TOPIC PAGE NUMBER

Abstract 4
Introduction- Definition, Meaning 5
Types of Mergers 6
Main Motive Behind Mergers and 7

Acquisitions
Laws Regulating Mergers 8
Regulation of M&A Under Indian 9

Companies’ Act, 1956

Important Case laws Relating to 10

Various Points
Recommendations With Regard to 11

Indian Companies’ Act

Regulation of M&A Under Indian 13

Competition Act, 2002

Recommendations With Regard to 16

Indian Competition Act, 2002

Bibliography 20

ACKNOWLEDGMENT

In completion of this project, as the topic being a vast one and slightly more intriguing, a good
number of my well wishers have rendered their incomparable and un-substitutable help. It would
not be justified on my part to take the entire credit of making this project myself. Hence taking
too many names I would like to thank all those friends and foes who helped me in gathering
material for this project and also complete it on time.
Acknowledgments remain due to Prof. Balaji for having allowed an opportunity to work on this
paper.

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4
ABSTRACT
The paper aims to point out the changes that need to be made within the legal provisions in the
Indian Companies Act and the Competition Act with regards to mergers and acquisitions so
as to facilitate maximum level of inorganic growth. The paper firstly deliberates on the
general meaning of the terms and establishes the link between inorganic growth and the need
for mergers and acquisitions and goes on to analyze the existing legal regime and the
loopholes in it. The paper is divided into two sections that deal with the regime under the
Indian Companies Act and the Competition Act respectively.

5
 The meaning of mergers and acquisitions- An Introduction

The words "Mergers", "Amalgamation”, is not defined in the Companies Act, 1956. The words
used in the Companies Act are "compromise and arrangements". Arrangement is defined under
Companies Act to include a re-organization of the share capital including interference with
preferential and other special rights attached to shares.1

"Mergers" is generally a blending of two companies to form a third new company.

"Amalgamation" is generally absorption of one company to another. "Demergers" is splitting up
of a business and give rise to either a new resulting company or is merged/ amalgamated with
other company. Similar words like "reconstruction", "reorganisation" or "scheme of
arrangements" are also used.

Mergers can be defined to mean unification of two players into a single entity. Acquisitions are
situations where one player buys out the other to combine the bought entity with itself. It may be
in form of a purchase, where one business buys another business or a management buys out a
business from its owners. There is no specific process defined or out for carrying out mergers
and acquisitions. It is largely based on commercial decisions, which companies take keeping in
view the impact of taxes and its profitability. Further, mergers and acquisitions can be carried out
in many ways. For instance, an Indian company may go global and acquire shares of a foreign
company or vice-versa, where a foreign company acquires shares of an Indian company or both
companies create another company for merger purposes.2 All assets, liabilities and the stock of
one company stand transferred to Transferee Company in consideration of payment in the form
of:

(i) Equity shares in the transferee company ,

(ii) Debentures in the transferee company ,
(iii) Cash, or
(iv) A mix of the above mode.3
1
Payal Jain and Vinod Kothari & Co, Mergers and acquisitions, Retrieved from
<http://www.vinodkothari.com/tutorials/MERGERS%20&%20Amalgamation-%20presentation%20by%20Payel
%20Jain.pdf> on 10 June, 2010
2
Aparna Menon, A Legal Perspective on Mergers & Acquisitions for Indian BPO Industry, Retrieved from
<http://docs.google.com/viewer?a=v&q=cache:C7SQSxH2ClUJ:www.nasscom.in/upload/48895/> on 10 June, 2010
3
Prabhanshu, Laws Regulating Mergers And Acquisition In India, Retrieved from <
http://www.legalserviceindia.com/article/l463-Laws-Regulating-Mergers-&-Acquisition-In-India.html on 10 June,
6
The corporation that merges the other with it continues to exist after having absorbed the other
entity. The concept of mergers or the definition of the same has not, however, been clearly given
in the Companies Act, 1956. It has instead been defined in the Income Tax Act, 1961 4; the
Companies Act mentions of mergers in the section 394 while dealing with the powers of the
National Company Law tribunal ,and there is also some mention of the same in the sections 396
and 396A that deal with the power of the central government to merge or amalgamate companies
in the public interest and the record maintenance by the merged entity.

Types of Mergers

There are different types of mergers that take place in the economy of a country. These are:

1. Horizontal mergers;

2. Vertical mergers; and

3. Conglomerate mergers

a. HORIZONTAL OR ANNEXING MERGERS:

When the merger of such two or more companies takes place which produce the similar kinds of
products and compete directly with each other. The merger of sick companies results “in the
elimination of duplication of facilities and operations and broadening the product line, reduction
in the finance for working capital, widening the market area and reducing unhealthy
competition.” The recent merger of the banks in the private sector and the merger of Arcellor
with Mittal Steel are all instances of horizontal mergers.

b. VERTICAL OR STREAMING MERGERS:

The process of vertical mergers are essentially a method of backward integration where the
object is to ensure that the inputs of raw material are seamlessly available by merging the sources

2010.

4
Section 2(1)(b) defines amalgamation as ‘ the merger of one company with another”, further providing that the
entire property and all the liabilities of the amalgamating company or companies before the process of
amalgamation becomes the property of the merged entity after the process of amalgamation is complete.
7
of their production with the main company which improves the efficiency of the merged entity
besides also ensuring an outlet for the goods produced in the in the merged company. The
merger of the CORUS with TATA will ensure, besides other things, the strengthening of the raw
material source for its various other projects as car manufacturing by employing the
technological prowess of the former which supplies steel to automobile manufacturers as
VOLVO and FORD.

c. CONGLOMERATE OR DIAGONAL MERGERS:

When two or more companies carrying out different businesses merge with each other to
diversify the product profile and thus ensure that the earnings are greater with the availability of
resources and technology as well as staff that can ensure better productivity of the merged
company. Perhaps the most important aspect of diversification is the aim to make the company
simply too large to avert the threats of take over by other rival companies.

The main motives behind mergers and acquisitions

With the FDI policies becoming more liberalized, Mergers, Acquisitions and alliance talks are
heating up in India and are growing with an ever increasing cadence. Indian markets have
witnessed burgeoning trend in mergers which may be due to business consolidation by large
industrial houses, consolidation of business by multinationals operating in India, increasing
competition against imports and acquisition activities.

There are a variety of drivers and motivating factors at play in the M&A world. Apart from
personal glory (or greed), M&A deals are often driven by many justifiable market-consolidation,
expansion or corporate diversification motives. And, of course, ever present as an inspirational
force in M&A is the old reliable financial, generally tax related motivation. Another reason is to
gain monopoly, the company which has been acquired by the acquirer is always a company
which is trembling financially but had something to offer the acquiring company ( like market
share or intellectual capital).5

Very often the government provides the healthy companies with the tax incentives to take over
and merge the sick industries with itself. There are various benefits that are guaranteed under the
5
Piyush Singh and Daphne Menzes ,Cross Border Mergers And Takeovers : A Recent Trend, Retrieved from<
http://www.legalserviceindia.com/article/l80-Mergers-&-Takeovers.html> on 10 June, 2010
8
IT Act, 1961 and at times, the accumulated losses of the sick company are used to offset the
profits of the healthy company, thereby helping it to profit in the process. The gestation period of
the new businesses drastically reduces. With the talent pool of the merging company at its
disposal, the new entity will have the expertise and the dexterity to maneuver through the new
markets and avenues that were till now not available to it. Also, the combined resources of the
two companies in terms of the production facilities, marketing outlets, liquidity etc. will be the
strengths of the new body which will strategically position it in the market giving it an edge over
the rivals.

Laws Regulating Merger

Following are the laws that regulate the merger of the company:-

1. Companies Act, 1956 – [Sec 391-394]

2. Listing Agreement
3. Accounting Standard - 14
4. SEBI Takeover Code (in case of acquisition by/of a listed company)
5. Company Court Rules
6. FEMA (in case of merger of companies having foreign capital)
7. Competition Act, 2002
8. Income Tax Act, 1961
9. Indian Stamp Act

However this paper is limited to the analysis of –

1) Indian Companies Act and
2) Competition Act

(I)

Regulation of mergers and acquisitions under The Companies Act ,1956

Section 390 to 394 of Companies Act, 1956 deal with arrangements, amalgamations, mergers
and the procedure to be followed for getting the arrangement, compromise or the scheme of
amalgamation approved.
9
The procedure to be followed while getting the scheme of amalgamation is as follows:-

(1) Any company, creditors of the company, class of them, members or the class of members can
file an application under section 391 seeking sanction of any scheme of compromise or
arrangement. However, by its very nature it can be understood that the scheme of amalgamation
is normally presented by the company.6 While filing an application either under section 391 or
section 394, the applicant is supposed to disclose all material particulars in accordance with the
provisions of the Act.

(2) Once the drafts of merger proposal is approved by the respective boards, each company
should make an application to the high court of the state where its registered office is situated so
that it can convene the meetings of share holders and creditors for passing the merger proposal.

(3) Upon satisfying that the scheme is prima facie workable and fair, the Tribunal order for the
meeting of the members, class of members, creditors or the class of creditors. Rather, passing an
order calling for meeting, if the requirements of holding meetings with class of shareholders or
the members, are specifically dealt with in the order calling meeting, then, there won’t be any
subsequent litigation. The scope of conduct of meeting with such class of members or the
shareholders is wider in case of amalgamation than where a scheme of compromise or
arrangement is sought for under section 391.

(4) The scheme must get approved by the majority of the stake holders viz., the members, class
of members, creditors or such class of creditors. The scope of conduct of meeting with the
members, class of members, creditors or such class of creditors will be restrictive some what in
an application seeking compromise or arrangement.

(5) There should be due notice disclosing all material particulars and annexing the copy of the
scheme as the case may be while calling the meeting.

6
The MOA of both the companies should be examined to check the power to amalgamate is available. Further, the
object clause of the merging company should permit it to carry on the business of the merged company. If such
clauses do not exist, necessary approvals of the share holders, board of directors, and company law board are
required. The stock exchanges where merging and merged companies are listed should be informed about the
merger proposal. From time to time, copies of all notices, resolutions, and orders should be mailed to the concerned
stock exchanges. The draft merger proposal should be approved by the respective BOD’s. The board of each
company should pass a resolution authorizing its directors/executives to pursue the matter further.

10
(6) In a case where amalgamation of two companies is sought for, before approving the scheme
of amalgamation, a report is to be received form the registrar of companies that the approval of
scheme will not prejudice the interests of the shareholders.

(7) The Central Government is also required to file its report in an application seeking approval
of compromise, arrangement or the amalgamation as the case may be under section 394A.

(8) After complying with all the requirements, if the scheme is approved, then, the certified copy
of the order is to be filed with the concerned authorities.

Important case laws on various topics

1. Workers : on the question as to whether workers have a right to object as a result of their
status as neither creditors nor members, in a recent decision Kamani Employees Union v/s KEC
International Ltd.7, the Bombay High Court has held that workers have a locus standi following
the precedent laid by the Supreme Court in NTC Workers Union v/s Ramkrishnan8.

2. Court has wide power and is not a rubber stamp.-The Court has wide and discretionary
powers and will examine the merits and demerits of the scheme as a reasonable man would do.
Even if a scheme is approved by a majority of members and creditors the courts would examine
the scheme to see it is fair, just and reasonable as is not contrary to any provisions of law and
does not violate public policy as held in the case of Miheer H. Mafatlal v/s Mafatlal Industries
Limited.9

3. S.393 requires full disclosure along with notice calling a meeting.- The notice calling for a
meeting shall be accompanied by a statement disclosing all material interest of its directors and
managing directors. Further, sec 393 (1) (a) requires an explanation of the material interest
involved. Therefore, the statement contemplated under this section is quite different from the
explanatory statement u/sec 173 as held in the case of Hindustan Lever Limited10.

7
109 CC 666 (BOM)
8
(PR) (1983) 53 company cases 184
9
(1996) 87 company cases 792 (SC)
10
(1995) 83 Company Cases 30 (SC)
11
4. Issues of Valuation- The Supreme Court in Miheer H. Mafatlal v/s Mafatlal Industries
11
Limited held that where Chartered Accountants value shares and they are accepted by the
members, the court will not interfere with the Valuation. Similar were the views of Supreme
Court in Hindustan Lever Employees Union Vs. Hindustan Lever Limited.12

5. Creditors right of objection - In an arrangement between members, a close reading of

section 391 to 394, the court has powers to transfer the liabilities to the Transferee Company. But
strictly, speaking, there is no provision for holding a creditors meeting and a recognition of their
votes. However, the court has recognised these interests to overcome these lacunae. It is
recognized that creditors have a very significant role to play, as they have to deal with a new
management to recover their dues as held in the case of Union of India v. Asia Udyog.13

6. If approval of scheme is required by ¾ th majority, how majority is to be reckoned? Is ¾

value of creditors/ “present & voting” or “total value of creditors/ shareholders”?
In large number of cases held ¾ present & voting as held in the case of Swift Formulation Pvt
Ltd14.

7. Whether Foreign Company incorporated in another country can be amalgamated with

an Indian Company under section 391/394.
Yes, as definition of “transferor company” includes any body corporate as held in the case of
Mosechip Semi Conductor Technology Ltd.15

Recommendations with specific reference to the Indian Companies Act, 1956 -

The above discussion and analysis goes to show the stage of development and changing
environment in the M&A space in India. At present, the process of mergers and acquisitions in
India is court driven, long drawn and hence problematic. The process may be initiated through
common agreements between the two parties, but that is not sufficient to provide a legal cover to
it. The approval of the High Court is required for bringing it into effect. The entire process has to
be to the satisfaction of the Court. This sometimes results in delays. In the context of increasing

11
(1996) 87 Company Cases 792
12
(1995) 83 company cases 30 (SC)
13
(P) Ltd. (1974) 44 Com Cases 359 (Del.)
14
(2004) 121 Comp cases 27
15
(2004) 120 Comp Cases 108 (AP)
12
competitiveness in the market, speed is of the essence, especially in an expanding and vibrant
economy like ours.

(i) Contractual mergers should be given statutory recognition in the Company Law in India
as is the practice in many other countries. Such mergers and acquisitions through contract form
(i.e. without court intervention), could be made subject to subsequent approval of shareholders
by ordinary majority. This would eliminate obstructions to mergers and acquisitions, ex-post
facto protection and ability to rectify would be available.

(ii) Cross Border Mergers: A forward looking law on mergers and amalgamations needs to also
recognize that an Indian company ought to be permitted with a foreign company to merge. Both
contract based mergers between an Indian company and a foreign company and court based
mergers between such entities where the foreign company is the transferee, needs to be
recognized in Indian Law. Irani Committee had recognized that this would require some
pioneering work between various jurisdictions in which such mergers and acquisitions are being
executed/ created.

(iii) Valuation of shares: Irani Committee had recommended that valuation of the shares of
companies involved in schemes of mergers needs to be made mandatory in respect of such
companies. It has also been recommended that such valuation should be carried out by
independent registered valuers rather than by Court appointed valuers. Valuation standards may
also be developed on the lines of ‘International Valuation Standards’ issued by the International
Valuation Standards Committee. Benchmarking of valuation techniques and Peer Review
Mechanism for Valuers was also suggested to be provided for. It is also understood that the
Government is considering a Bill to regulate the profession of valuers as in the case of
professions of Company Secretaries and the Chartered Accountants. This is a welcome step.

(iv) Separate Electronic Registry for merger/amalgamation: Further reforms like a separate
electronic registry for schemes under Sections 391/394 of the Companies Act, Stamp Duties
reforms, compulsory registration of all property of a company above a certain value,
simplification of the mutation procedure subsequent to scheme of arrangement between two or
more companies would also strengthen the corporate laws regulation in the country. Since these
would involve a coordinated effort/approach to be followed by the Central Government, State
Governments and Courts, it may take some more time before these reforms come into effect.

13
(v) Merger of class of Companies: The Irani Committee had recommended that for mergers
within a group, the Companies Act may prescribe a short form of amalgamation. Conceptually a
scheme of amalgamation or merger between holding company and subsidiary company stands on
a different footing from amalgamation and merger between two independent companies. So also
merger between two private limited companies should be viewed differently as compared to the
merger of two public limited companies. It is likely that the proposed new Bill provides for less
regulation in respect of mergers among associate companies/two private limited companies
where no public interest is involved. The concept of contractual merger should also be thought of
as an alternative to the form of merger available under the Act as on date.16

(II)

Regulation of mergers and acquisitions under The Competition Act, 2002

Throughout the last century, there was a proliferation of competition laws in countries across the
globe and, as of now, there are 106 of these. Almost all of these have merger control provisions.
Such large number overwhelmingly demonstrates the necessity of having competition law,
including provisions of merger control. It is a proven theory that competition brings about lower
prices, better quality and spurs innovation. It is widely acknowledged that competition benefits
both the consumers and enterprises.

Enterprises have an innate desire to acquire monopoly position or substantial market power, even
if for a brief period. This desire leads to expansion of business, either through organic or
inorganic growth. As for the latter, while most M&As bring about efficiency and are thus
beneficial, some can have anti competitive effects through unilateral or coordinated effects. If the
combining enterprises come to wield substantial market power, they can raise prices or reduce
outputs or do both, without bothering consumers and competitors. Sometimes, a combination of
enterprises can transform market structure to facilitate concerted or collusive action. The former
results in unilateral effect and the later in coordinated effect. International experience shows that
80-85% of mergers and acquisitions do not raise competitive concerns and are generally
approved between 30-60 days. The rest tend to take longer time and, therefore, laws permit
sufficient time for looking into complex cases. The International Competition Network, an
association of global competition authorities, had recommended that the straight forward cases

16
Vikram Malik, Revision of the Companies Act, Retrieved from <
http://www.indialawjournal.com/volume1/issue_2/article_by_vikram_malik.html> on 10 June, 2010
14
should be dealt with within six weeks and complex cases within six months. In India, the
Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) was the nodal legislation
regulating concentration of economic power, control of monopolies and prohibition of unfair and
monopolistic trade practices. However, the MRTP Act was felt to be obsolete as it did not
promote competition and was too rigid and inflexible. Therefore, the Competition Act was
enacted in 2002 (Competition Act) to promote competition that will result in industrial growth
leading to greater efficiency and innovation. The Competition Act envisaged a new Competition
Commission of India (CCI) whose mandate is to regulate:
(a) Anti-Competitive Agreements;
(b) Abuse of Dominant Position; and
(c) Combinations, in the form of Acquisition, Mergers and Amalgamations.

In India, Anti-trust issues are regulated by the Competition Act. The Competition Act contains
provisions for regulation of acquisition, takeover, merger, and combination etc. of companies.
The Competition Commission of India (CCI), established under the Competition Act, has the
power to regulate mergers or combinations and to reverse mergers or combinations if it is of the
opinion that a merger or combination has or is likely to have an ‘appreciable adverse effect’ on
competition in India. The powers of the CCI to regulate combinations in India have been a
source of some concern in the recent past. A ‘combination’17 is an enterprise formed through
acquisition, merger or amalgamation18. The Competition Act prohibits any “combination which
causes or is likely to cause an appreciable adverse effect on competition within the relevant
market in India.”19 Accordingly if the relevant sections are notified CCI shall have right to
examine proposed combinations which may, in the future, abuse their dominant position. Under
the Competition Act, if a proposed merger crosses certain threshold based on the combined value
of the assets or turnover of the acquirer and the target company, will have to obtain clearance
from the CCI.20 However, the proposed threshold is considered by many to be low.
The main concern as regards the competition regime in India is the proposed procedure for
approval of a merger from the CCI. Under the Competition Act, proposed combinations crossing
the threshold limits must be notified to the CCI within 30 days of the execution of the merger

17
Section 5 of the Competition Act
18
Section 5 of the Competition Act
19
Section 6(1) of the Competition Act. Emphasis supplied.
20
Section 5 of the Competition Act. Presently, the threshold limits are a combined turnover of INR 30 Billion or the
combined value assets is more than INR 10 Billion. For overseas transactions, the threshold limits are US$500
million worth of assets or a combined turnover of more than US$ 1.5 billion.
15
agreement.21Also, the CCI has a time-frame of 210 days to clear the combination. 22 This is seen
as an unusually long waiting period and may materially impact all merger activities in India. The
CCI has in recent times made soothing noises and even said that they would seek to ‘fast-track’
merger approvals within a 30-day timeframe.23

What can CCI do -

1. Draft Regulations soften the rigor of law;

2. Approve/approve with modification/reject the proposed combination
3. In case competition concerns are eliminated by the parties, the combination may be
approved.
4. Declare merger void.
5. Ensures certainty in business.24

Following provisions of the Competition Act, 2002 deals with mergers of the company:-
(1) Section 5 of the Competition Act, 2002 deals with “Combination” defining a combination by
reference to assets and turnover
(a) exclusively in India and
(b) in India and outside India.

For example, an Indian company with turnover of Rs. 3000 crores cannot acquire another Indian
company without prior notification and approval of the Competition Commission. On the other
hand, a foreign company with turnover outside India of more than USD 1.5 billion (or in excess
of Rs. 4500 crores) may acquire a company in India with sales just short of Rs. 1500 crores
without any notification to (or approval of) the Competition Commission being required.

Section 6 of the Competition Act, 2002 states that, no person or enterprise shall enter into a
combination which causes or is likely to cause an appreciable adverse effect on competition
within the relevant market in India and such a combination shall be void.

21
Section 6(2) of the Competition Act
22
Section 6(2A) of the Competition Act. This period can be extended up to 60 days. If the CCI cannot finish
investigation within that time, the merger is deemed to be approved.
23
Aparajit Bhattacharya, Emerging Issues regarding M&A Activities in India: Some Key Areas of Concern,
Retrieved from < http://executiveview.com/knowledge_centre.php?id=10749&search=&type=> on 10 June,
2010

24
G R Bhatia, “ Regulation of combinations”, CCI website

16
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. These transactions do
not have any competitive impact on the market for assessment under the Competition Act,
Section 6.

In 2007 the Competition (Amendment) Act introduced significant changes to the competition
law regime. 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.
Partly in response to public and industry comments, significant changes were made and a new
version of the regulations was circulated in 2009. The regulations provide a framework for the
regulation of combinations which include M&A transactions or amalgamations of enterprises.
The merger provisions are not yet in force. Nonetheless, it is only a matter of time before the
relevant provisions will be notified. As it is, a large part of the procedural provisions of the
Competition Act relating to the establishment of the Competition Commission are already in
force.

Recommendations-

1) Implications of mandatory notification- Under the originally enacted Competition Act

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 terms 'agreement' and 'other document' are
not defined. 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
17
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.

2) Implications of 210-day waiting period and thresholds - The Competition Act 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, 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 turnover in India exceeds a certain value. 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 Competition Act provides that prior
18
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.

3) Critics of the merger control provisions have been urging the Competition Commission to
implement the new law in two stages - a volitional notification for a predetermined time period
should precede the second mandatory notification process. The existing legal regime will subject
a large number of mergers, with little or no connection to India, to Competition Commission
review. In this context, it is imperative and critical for the Competition Commission to be
sensitive to the concerns of interested parties and ensure that combinations are regulated in a
manner that is conducive to national growth, while remembering that competition law is a
necessity in free market economies to safeguard the interests of consumers and ensure freedom
of trade. Undoubtedly, the Competition Act will play a significant role in the development of the
Indian economy. Indian markets cannot function in isolation; they need to align themselves with
their investors in an increasingly flat world.25

4) Filing costs and process- The regulations prescribe certain exhaustive forms through which
the Competition Commission is to be notified. However, there is no clarity about how pieces of
information which may be classified as confidential and difficult to disclose will be addressed.
Once privileged information is in the public domain, competitors can keep track of significant
M&A transactions that are underway, which may jeopardize successful closure. Moreover, the
fees payable are staggering. The notice must be accompanied by a fee of approximately $50,000,
which may increase to $100,000 in certain cases. Further, the Competition Commission will
issue a show-cause notice if it is of a prima facie opinion that the combination is likely to cause
an appreciable adverse effect on competition in India. A fee of $40,000 is to be filed along with
the response to the show-cause notice. In addition, the Competition Commission has the power
to compel parties to publish the details of a proposed combination to enable any person from the
public to raise objections to such combination. Such publication burdens parties with an
additional sum of $40,000. Clearly, the filing fees involved are exorbitant and need to be revised.
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Priti Suri, Merger Review under the Competition Act: Regressive or Progressive Steps?, Retrieved from <
http://www.psalegal.com/pdf/Merger-Review-under-the-Competition-Act-Regressive-or-Progressive-
Steps09252009121723PM.pdf>
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5) Competition Commission's extra-territorial powers- 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' 26 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 and hence a benchmark should be provided by the CCI to conclude about the
same.

26
An 'adverse effect' on competition means anything that reduces or diminishes competition in the market. When
determining whether a combination has an adverse effect on competition in India, the Competition Commission may
consider the likelihood of the combination to:
1. create barriers to new entrants in the relevant market;
2. drive existing competitors out of the market;
3. create a monopoly that hampers improvements in production or distribution of
goods or provision of services; and
4. affect the interests of consumers in any other way.

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 Bibliography

Books Referred:
• Louis Pitman Russell, “Indian Companies’ Act, 1956”, 2nd Edition, 1999, Education
Society’s Press.
• Ramaiya A., “Guide to Companies’ Act”, 6th Rev. Edition, 1971, Madras Law Journal
Office

Articles Referred:
• Preeti Suri, “Merger Review under the Competition Act: Regressive or Progressive
Steps?”, Retrieved from < http://www.psalegal.com/pdf/Merger-Review-under-the-Competition-
Act-Regressive-or-Progressive-Steps09252009121723PM.pdf> on 12 August, 2010
• Aparajit Bhattacharya, “ Emerging Issues Regarding M&A Activities in India”,
Retrieved from < http://executiveview.com/knowledge_centre.php?id=10749&search=&type=> on
10 July, 2010
• Vikram Malik, “Revision of the Companies’ Act”, Retrieved from<
http://www.indialawjournal.com/volume1/issue_2/article_by_vikram_malik.html> on 10 June, 2010

Cases Cited:
• Kamani Employees Union v/s KEC International Ltd.
• NTC Workers Union v/s Ramkrishnan
• Miheer H. Mafatlal v/s Mafatlal Industries Limited
• Hindustan Lever Employees Union Vs. Hindustan Lever Limited
• Union of India v. Asia Udyog
• Mosechip Semi Conductor Technology Ltd.
• Swift Formulation Pvt. Ltd.

Facilitating Websites:
• www.indiancompaniesact.com
• www.companylaw.uk
• www.laws4india.org
• www.manupatra.com
• www.indianlegalservice.com

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