IMPROVEMENT TOWARDS COMPETITION LAW
The Competition Act ,2002 was enacted on 13th January,2003 for the purpose of underlaying the competition commission of India (CCI) . The primary intended of this law is to protect competition in the market in order to maximize consumer welfare . A robust competition law and policy is quintessential for enhancing efficiency and consumer welfare. Before the enactment of the competition Act ,2002 there was the Monopolies and Restrictive Trade practice act ,1969.It owed its inspiration to Article 38 and 39 of the Constitution of India 1950 which enshrines that the state should strive to promote public welfare by securing and protecting a social order and ensure that the ownership and control of material resources are so distributed as to serve the common good and that the operation of economic system is based in a manner which does not result in concentration of wealth in a few hands. It was designed to avoid concentration of economic power in the India economy .However , in spite of the avowed objective , it was objective, it was observed that the previous regime was inadequate since it lacked enforcement powers as they did not have the power to levy penalties. Even the legal regime was outdated and not in times with the global economy. The Government of India decided to liberalize the economy control and move from a regime of command and control economy to a free market.
The advantages of having an effective competition regime are threefold:
- Allocative efficiency which ensures the effective allocation of resources . Allocation efficieny can be achieved only if all firms are of sufficient size to realize significant economies of scale and markets are either competitively structured or entry barriers are low. In such cases, all companies are price takers and the demand and supply forces in the market determine the price. Allocation efficiency is attained when prices are equated to marginal cost, which is a condition for perfect competition.
- Productive efficiency which ensures that costs of production are kept at minimum.
- Dynamic efficiency which promotes innovation practices. Dynamic efficiency refers to development of new products. This can be done by ensuring proper reward to the inventor in lieu of developing and disclosing the invention to public.
Keywords:- competition commission of India, consumer, welfare, Government, liberalize.
Framework of Analysis of Combinations
Section 5 and 6 of the Competition Act, 2002 (CA02) deal with Combinations. Section 5 sets out the transactions which are notifiable for clearance from the Commission. The Act stipulates that all Combinations have to be notified to the Competition Commission within 30 days of the decision to merge or a penalty would be levied .Thresholds in terms of value of assets and turnover for the three categories of transaction mergers, acquisition and acquisition for control, define the nature of ‘control’ exercised by the acquiring or acquired entity and of ‘group’. Section 6 is on the substantive test of combinations and competition “No person or enterprise shall enter into a combination which is likely to have an appreciable adverse effect on competition within the relevant market in India and such a combination will be void” a decision the Commission must take in 250 calendar days proposed to be reduced to 150 days. The notification time limit of 30 days stipulated in the Act is not a strict time limit with CCI allowing for a grace period within reasonable boundaries notifying a merger. This shifts the onus on quick and timely clearances on the merging parties as a forerunner to the Green Channel automatic clearances. Lower redefined thresholds for emergent market; understanding of ‘control’ and ‘owner’; and the yardstick from ‘decisive influence’ to ‘material influence’ in tune with international practices are signs of a mature competition authority.
Sections 5 and 6 came into effect in June 2011 two years after the Commission was established and the other two sections notified. The non-exhaustive list of factors listed in Section 20(4) to assess a merger and its impact on timelines was cited as a major factor of delay in clearances and of concern to the corporate sector Time no doubt is a critical factor.4 Market responses on the bourses can change the course of mergers in terms of valuation and of new contenders including white knights. The apprehension of law firms that a merger or acquisition can be stalled or delayed in running through the laundry list of Section 20(4) was perhaps a misplaced understanding of regulatory abilities, or maybe an excuse. CCI is systematic in considering all factors listed in 20(4) and in doing so have looked at concepts that fall outside the haloed list: concepts of non-compete clause, gun-jumping, standstill operations and catchment area to mention in tune with changing business in emergent platform markets.
CCI revises long form for mergers and acquisitions approvals
Amendments have now been notified to Form – II, which appertain to cases requiring detailed examination to assess the likely effect of the combination on competition in India In efforts to reduce the compliance burden and make assessments more objective, Competition Commission of India (CCI) has revised the long form format for submission of details related to mergers and acquisitions.
Under the Competition Act, Mergers and Acquisitions (M&As) or combinations beyond a certain threshold require approval from the CCI.
The regulator said the amendment revises the content and format of information that the parties to a combination used to file under section 6(2), where the post-combination market share exceeds 15 per cent in cases of horizontal overlap and 25 per cent in cases of vertical interface. ”The amendment to the Form – II is aimed to remove duplicity and limit the information requirement so that they remain focused and relevant to the objective of assessment of a merger, suitably clustering the information on common subject, streamlining the flow of information for better navigation and appreciation of material furnished in the notification prior, the regulator had amended Form – I. This form is used by parties regarding to provide information while seeking approval for a combination, where the combined market share post-merger is not significant.
Conclusions
The economics of competition law in the combination cases has two phases: the first phase where the emphasis was on the scope afforded for a merger or an acquisition to emerge as a dominant holding to exert market power. The second phase shifts to looking at investments where mergers and acquisitions are tools to achieve this objective. The coming of age of the Indian economy prompts an equally open approach to mergers and acquisitions.
This article is written by DEEPANJALI TIWARI,BA LLB 4TH YEAR,LCIT COLLEGE BILASPUR (C.G) during her internship.
