MODULE 5

COMBINATION

Combinations Defined

 Combinations are described as “the acquisition of one or more firms by one or more
persons or merger or amalgamation of enterprises” in Section 5 of the Competition
Act, 2022.
 Broadly, combination under the Act means acquisition of control, shares, voting rights
or assets, acquisition of control by a person over an enterprise where such person has
direct or indirect control over another enterprise engaged in competing businesses,
and mergers and amalgamations between or amongst enterprises when the combining
parties exceed the thresholds set in the Act.
 Entering into a combination which causes or is likely to cause an appreciable adverse
effect on competition within the relevant market in India is prohibited and such
combination shall be void.

TYPES OF COMBINATIONS:

Under the Competition Act, 2002 in India, combinations are broadly categorized into
different types based on the nature of the transaction. These types of combinations include:

 Acquisition: Section 2 (a) says that “Acquisition” refers to the act of directly or
indirectly obtaining or agreeing to obtain any enterprise’s shares, voting rights, or
assets; any enterprise’s control over management or control over its assets.
 Merger: A merger happens when two or more companies combine to form a new
company. The existing companies cease to exist as separate entities and merge their
resources and operations into a single entity.
 Amalgamation: Amalgamation is similar to a merger but typically involves the
blending of assets and liabilities of two or more companies into one. The shareholders
of the merging companies usually become shareholders of the amalgamated company.
 Takeover: A takeover happens when one company acquires control over another
company, often against the will of the target company’s management. Takeovers can
be hostile or friendly, depending on the approach of the acquiring company.

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TYPES OF MERGERS:

1. Horizontal Mergers
 Horizontal mergers involve the merging of enterprises or firms with identical level of
production process, with substitute goods and are competitors. The horizontal mergers
is primarily a friendly merger between companies, although it can be a takeout of one
by the other. Of course, the synergy formed by this mergers enhances the business
performance, financial gains and shareholder value in the long run.
 The cost efficiency with the staff cut-offs leads to the increased margins of the
company. However, this tends to pave way for reduced competition as a monopolist
agenda emerges from the combinations of powerful enterprises, along with the
unemployment that follows which has a very drastic and adverse effect on the
economy of the country.
 It is also bad for the consumers as the reduced competition gives the companies a
“higher pricing power.” Therefore, these merges are the chief focus and are often
scrutinised by the Competition Law Authority for the above given reasons.
2. Vertical Mergers
 Vertical merging is “combining of business firms engaged in different phases of the
manufacture and distribution of a product into an interacting whole”. This leads to
increased competitiveness, a greater process control, wider market share, a better
supply chain co-ordination and decline in cost as this sort of integration is the
structuring of supply chain of companies under a particular company.
3. Conglomerate Mergers
 Conglomerate Mergers involve firms or enterprises in unrelated business fields. Such
Mergers happens when two companies that provide different services and goods or
are integrated into varying sectors of business merge together. This sort of merger
happens when the companies achieve a stronger stand in the market both in products
and services and profit management unlike when they are individual enterprises.
 Conglomerate merges can lead to an ascend in “market share, synergy and cross
selling”. Here diversification takes a major roll and thereby reduces the “risk
exposure” factor. The cons of this particular Mergers can be the monopolization of a
company over a certain market and the over expansion of the conglomerate can
seriously affect the quality of functioning of the company and result in the collapse of
the system. Such coalescence can be detrimental as it restricts business options for

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 newly formed enterprises in the market. However, it is to be note that Non-Horizontal
Conglomerations do not promote loss of direct competition and are therefore not anti-
competitive within an overall framework.

FACTORS DETERMINING THE APPRECIABLE ADVERSE EFFECT OF

COMPETITION BY COMBINATION: SEC 20(4)

(a) actual and potential level of competition through imports in the market;

(b) extent of barriers to entry into the market;

(c) level of concentration in the market ;

(d) degree of countervailing power in the market;

(e) likelihood that the combination would result in the parties to the combination
being able to significantly and sustainably increase prices or profit margins;

(f) extent of effective competition likely to sustain in a market;

(g) extent to which substitutes are available or are likely to be available in the market;

(h) market share, in the relevant market, of the persons or enterprise in a combination,
individually and as a combination;

(i) likelihood that the combination would result in the removal of a vigorous and
effective competitor or competitors in the market;

(j) nature and extent of vertical integration in the market;

(k) possibility of a failing business;

(l) nature and extent of innovation;

(m) relative advantage, by way of the contribution to the economic development, by

any combination having or likely to have appreciable adverse effect on
competition;

(n) whether the benefits of the combination outweigh the adverse impact of the
combination, if any.

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COMBINATIONS COVERED UNDER THE COMPETITION ACT, 2002:

Section 5 and Section 6 of the Competition Act, 2002 covers the definition and provisions for
regulation of combinations.

THRESHOLDS FOR COMBINATIONS UNDER THE ACT: (Sec 5)

Individual/ Enterprise: Either the combined assets of the enterprises would value more than
(INR) 2,500 crores in India or the combined turnover of the enterprise is more than (INR)
7,500 crores in India. In case either or both of the enterprises have assets/turnover outside
India also, then the combined assets of the enterprises value more than US$ 1.25 billion,
including at least (INR) 1,250 crores in India, or turnover is more than US$ 3.75 billion,
including at least (INR) 3,750 crores in India.

Group: The group to which the enterprise whose control, shares, assets or voting rights are
being acquired would belong after the acquisition or the group to which the enterprise
remaining the merger or amalgamation would belong has either assets of value of more than
(INR) 10,000 crores in India or turnover more than (INR) 30,000 crores in India. Where the
group has presence in India as well as outside India then the group has assets more than US$
5 billion including at least INR 1250 crores in India or turnover more than US$ 15 billion
including at least INR 3750 crores in India.

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GROUP DEFINITION: Sec 5 – EXPLANATION (b)

“Group” means two or more enterprises where one enterprise is directly or indirectly, in a
position to—

(i) exercise twenty-six per cent. or such other higher percentage as may be
prescribed, of the voting rights in the other enterprise; or

(ii) appoint more than fifty per cent. of the members of the board of directors in the
other enterprise; or

(iii) control the management or affairs of the other enterprise.

EXEMPTION NOTIFICATIONS:

In exercise of the powers conferred by clause (a) of Section 54 of the Act, the Central
Government, in public interest, has exempted:

 an enterprise, whose control, shares, voting rights or assets are being acquired has
either assets of the value of not more than INR 250 crore in India or turnover of not
more than INR 750 crore in India from the provisions of Section 5 of the said Act for
a period of five years.
 a banking company in respect of which the Central Government has issued a
notification under Section 45 of the Banking Regulation Act, 1949, from the
application of the provisions of Sections 5 and 6 of the Act for a period of five years.

PROCEDURE FOR REGULATION OF COMBINATION: SEC 6

Once any merger, amalgamation or any merger that has been classified as a combination, it
has to adhere to the regulations laid down in Section 6 of the Competition Act, 2002. Section
6(1) proscribes the formation of combinations that are likely to have an appreciable adverse
effect on competition in the relevant market in India and further declares that such
combinations should be deemed void. Now subject to the proscription laid down in Section
6(1) of the Competition Act, if any person or enterprise thinks fit to form a combination,
formation of a combination is possible with the sanction of the Competition Commission
India. The following system is required to be followed before the Competition Commission
of India passes an order of approval or rejection with respect to the desired combination.

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Submission of Notice to CCI

As per Section 6(2) of the Competition Act, any person or corporation who intends to set foot
into a combination has to compulsory give a notice to the Commission. The notice has to be
in the format précised and it should be followed by the prescribed fee and such notice has to
communicate all the particulars of the proposed combination. The notice must be given to the
Commission in 30 days of receipt of approval from the board of directors of any enterprise in
pursuit to enter into a merger or amalgamation, or within thirty days of performance of any
agreement or other document for the acquisition of any enterprise or to acquire to have the
power over any enterprise. Though, no combination can come into reality unless 210 days
have passed from the date on which the Commission had received notice from the
corporation under Section 6(2), or the date on which the Commission has passed any order on
the combination under Section 31 of the Competition Act (which offers with orders of the
Competition Commission of India on combinations), whichever comes earlier.

Disposal of Notice by CCI

Amidst the receiving of the notice under Section 6(2), the Commission will scrutinize the
notice and form a prima facie opinion if the bring forward combination is likely to or has
provoke an appreciable adverse effect on competition in the relevant market. If the
Commission is of the prima facie opinion that the combination is to be expected or has
provoked an appreciable adverse effect on competition in the relevant market, it will examine
the combination under the investigation procedures provided in Section 29 of the
Competition Act.

Passing of order by CCI

The powers to issue orders on combinations are laid down under Section 31 of the
Competition Act and are given to the Competition Commission of India. After investigation
occurs, assuming the Commission is of the assessment that any combination does not, or isn't
probably going to significantly affect rivalry, it shall by order confirm the combination with
reference to which notice was brought into the Commission under Section 6(2).

Appeals

Under the relevant provisions of the Act, an appeal to Competition Appellate Tribunal
(COMPAT) may be filed within 60 days of receipt of the order /direction/decision of the
Commission.

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 PENALTIES:

Competition Act, 2002 prescribes various types of penalties in Combination cases on

individuals and companies such as:

(i) Gun-jumping and/or failure to notify: consummation of a notifiable transaction

before CCI’s approval or failure to notify a notifiable transaction may attract a
penalty of up to 1% of the worldwide turnover or value of assets of the parties to
the proposed Combination, whichever is higher;
(ii) Material omission by enterprises/individuals: where the parties/individuals make
materially false statements (knowing it to be false) or omit to disclose material
facts in the notification, penalties between ₹ 50 lakhs (approx. USD 0.06 million)
to ₹ 1 crore (approx. USD 0.135 million) can be imposed; and
(iii) Non-compliance: failure to pay penalties prescribed at (i) above, may result in
additional penalties and/or imprisonment of up to three years.

CASE LAWS:

1. Competition Commission of India v. Thomas Cook (India) Ltd.,

The Supreme Court upheld the Competition Commission of India's (CCI) decision to impose
a penalty on Thomas Cook for violating the Competition Act, 2002. The case focused on the
interpretation of "combination" under the Act and the requirement to notify interconnected
transactions. The Supreme Court clarified that interconnected and interdependent
transactions, even if seemingly separate, constitute a composite combination and must be
notified under the Act. The Court restored the Rs. 1 crore penalty, which the Competition
Appellate Tribunal (COMPAT) had previously overturned.

2. CCI vs. Bengal Chemicals & Pharmaceuticals Ltd. (2016).

In this case, the CCI disapproved a merger after determining that it would result in an AAEC
in the market for quinine and its salts. This judgment highlights the crucial role the CCI plays
in maintaining a competitive market by scrutinising potential mergers that could negatively
affect competition.

3. Eli Lilly & Co. vs. Competition Commission of India (CCI)

The National Company Law Appellate Tribunal (NCLAT) overturned an CCI order that had
imposed a penalty on Eli Lilly for not notifying the acquisition of Novartis Animal Health in

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 India. The NCLAT ruled that the acquisition was exempt under the de minimis notification,
which was issued after the acquisition but should have been applied retrospectively,

4. SCM Solitifert Ltd. v. CCI (2018)

The Supreme Court emphasized that under Section 6 of the Competition Act, combinations
must be notified to CCI before being executed. Seeking approval after the deal is done
defeats the law’s purpose. The Court clarified that even if CCI later approves a deal, parties
can still be penalized under Section 43A for gun-jumping—failing to notify in advance.
Internal approvals do not permit proceeding without prior CCI clearance, and ex-post facto
approvals are not allowed.

"de minimis" refers to a threshold below which certain actions, like mergers or acquisitions,
are exempt from the need for regulatory approval. This exemption is based on the idea that
transactions below a certain size are unlikely to have a significant impact on
competition. Specifically, in India, the de minimis exemption applies to acquisitions or
mergers where the target entity's assets or turnover fall below specified thresholds.

GUN JUMPING:
 In competition law, "gun-jumping" refers to the premature implementation of a
merger or acquisition before obtaining the necessary regulatory approvals. This can
involve sharing commercially sensitive information, combining resources, or
implementing operational changes before the merger is officially approved by the
relevant authorities. Gun-jumping is essentially "jumping the gun" on the integration
process, potentially violating standstill obligations and competition laws.
 Gun-jumping can lead to a reduction in competition and harm consumers. By
allowing companies to prematurely integrate their businesses, gun-jumping can create
barriers to entry for new competitors and give existing companies an unfair
advantage. This can lead to higher prices, reduced innovation, and a less competitive
market.
 In India, the Competition Act, 2002, prohibits gun-jumping and allows the
Competition Commission of India (CCI) to act against companies that violate the
Act's provisions related to mergers and acquisitions. The CCI can impose penalties,
invalidate the deal, or take other actions to ensure that mergers and acquisitions are
conducted in a fair and transparent manner.

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Types of Gun-Jumping:
 Procedural Gun-Jumping:
This occurs when parties to a merger fail to notify the competition authority (like the
Competition Commission of India, CCI, in India) about the proposed combination
before proceeding with the transaction.
 Substantive Gun-Jumping:
This involves actions that put the combination into effect prematurely, even if the
parties haven't fully notified the competition authority or received approval. This can
include sharing confidential information, coordinating business activities, or
implementing operational changes before the merger is finalized.
Consequences of Gun-Jumping:
 Penalties:
The competition authority can impose penalties, which may include fines, on
companies that violate standstill obligations or fail to notify the authority.
 Reputational Damage:
Gun-jumping can have significant reputational implications for the parties involved,
as it can be seen as a violation of competition laws.
 Invalidation of the Deal:
In some cases, the competition authority may invalidate the merger if it finds that
there has been significant gun-jumping.
Example:
If two companies are planning to merge and they start sharing confidential information about
their products, pricing strategies, or market shares before obtaining the necessary regulatory
approvals, this could be considered gun-jumping.

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