Merger and Amalgamation in Competition Law

Table of Contents

Introduction

The word Amalgamation and Merger has not been defined in the Companies Act, 2013. The ordinary dictionary meaning of the expression is “Combination”. A Merger is the absorption of one company by another company, including all its assets and liability.[1] Amalgamation occurs when two or more companies are joined to form a third entity or one is absorbed into or blended with another. The Merger and Amalgamation of companies not only alter existence of the old companies but it totally changes the management and the way the new company would run in future. A Merger of Companies is typically conducted through a scheme of arrangement under Section 230 to 240[2] of the Indian Companies Act, 2013.

With respect to the Competition Act, 2002 – Section 5 of the 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 person or enterprises”.

COMBINATIONS, REGULATIONS OF COMBINATIONS AND MERGER CONTROL THRESHOLDS COMBINATIONS

Combinations means mergers[3], amalgamation of companies or acquisition of control, shares, voting rights or assets of one company by another company or group. As such, combinations are usual business activities, which allow companies to consolidate their position in markets.

A merger is a combination of two or more business into one business. Laws in India use the term, “Amalgamation” for merger. Income Tact Act, 1961 – Section 2(1A) defines amalgamation as the merger of one or more companies with another or merger of two or more companies to form a new company, is such a way that all assets and liabilities of the amalgamating companies become assets and liabilities of the amalgamated company and shareholders not less than nine – tenth in value of shares in the amalgamating company or companies become shareholders of the amalgamated company.

PROCEDURE FOR INVESTIGATION OF COMBINATION

The procedure for investigation into a combination is set out under Section 29 of the Competition Act, 2002 and Regulation 19 of the Combination Regulations 2011.

No undertaking shall – enter into Merger which substantially

Strengths a dominant position in the market
Lessening the competition in the relevant market.

The scope of undertaking is huge in Competition Law it includes partnership forms; sole proprietorship and company. Decrease in the Competition leads to decrease in the price, it is then advantageous to the government and the customer.

Notwithstanding the provision contained in the act

An undertaking intends to acquire the share/ assets of another undertaking.
Two or more undertaking (Merger).

FIRST PHASE REVIEW

With the object to merger whole or a part of the business for which it is necessary to meet pre merger notification threshold stipulated in the regulation provided by the commission.

Such undertaking shall apply for Clearance from the Commission of intended merger.

Concerned undertaking shall –

Submit a pre – merger application to the Commission – as soon as they agree in principle to proceed with the merger or sign a non – binding letter of intent by them for merger. The same shall be in a form and accompanied by a processing fee as may be prescribed by the Commission. The concerned undertaking – shall not proceed with the intended merger until they have received clearance from the Commission.

COMMISSION

Pass order with 30 day as to whether the intended merger meets the threshold and as to whether there is any presumption of dominance.
Failure to make any presumption within the prescribed period of 30 days then in such a case it will be presumed that the Commission has no objection to the intended merger.
Commission may also ask for further furnishing of information from the undertakings.

SECOND PHASE REVIEW

Commission shall within 90 days of receipt of the requested information – Review the merger to the assets whether it substantially lessens competition by creating or strengthening a dominant position in the relevant market. Commission gives decision.
If the concerned undertaking fail to provide information requested by the Commission, the Commission may reject the application.
Failure on the part of Commission to make any presumption within the prescribed time it will then be presumed that there is no objection, under Section 29 (A) and 31 (1) of the Act.

APPRECIABLE ADVERSE EFFECT ON COMPETITION (AAEC)

AAEC in the relevant market in India as the criterion for regulation of combinations. In order to evaluate appreciable adverse effect on competition, the Act empowers the commission to evaluate the effect of Combinations on the basis of factors mentioned under Section 20 (4).

To understand the jurisprudence as to AAEC it is pertinent to note that – Board of Trade of the City of Chicago v. United States[4] it was held that – AAEC is not defined abstractly or in general terms in the Competition Act, every case has to be examined with relation to the facts. Also in the case of Haridas Exports v. All India Float Glass Manufacturers Associations [5]it was held that AAEC determination must be done keeping in view the Public Interest.

[1] A.N.Sridhar, Strategic Financial Management for CA Final, (Shroff Publishers and Distributors Private Limited: Mumbai), Ed 4^th, p 1100.

[2] A Merger of companies is typically conducted through a scheme of arrangement under Sections 391 to 394 of the Indian Companies Act, 1956.

[3] Eric L. Kohler defines “merger” as – “The fusion of two or more enterprises, through the direct acquisition by one of the net asset of the other or others. A merger differs from a consolidation in that in the former no new concern is created, whereas in a consolidation a new corporation or entity acquires the net assets of all combining units.”

[4] Board of Trade of the City of Chicago v. US, 246 U.S. 231.

[5] Haridas Exports v. All India Float Gas Manufacturers Association, (2002) 111 Comp. Cas 617 (SC).

Author: PRANJALI PANDYA,
Damodaram Sanjivayya National Law University, Visakhaptnam,