Mergers and Acquisitions under the Indian Competition Law – A Critical Legal View

    Edited by: Vaani Garg


    Mergers & Acquisitions (combinations) means any situation in which two or more enterprises are joined together to form a new company for expansion . In the world of business, merging of two enterprises may take many different forms. It may also lead to undesirable anti-competitive impact, less competition, in addition to affecting the consumers unfavorably. In India, Mergers are regulated under the Companies Act 2013 and SEBI Act 1992. With the enactment of the Competition Act 2002, merger also came within the ambit of this legislation.  The research this article would concentrate on the regulatory powers of Competition Commission of India with respect to mergers and the various factors which affect Mergers and Acquisitions under Competition Act.

    Keywords – Combination, Competition Act, SEBI Act, Companies Act, Merger and AAEC


    The Companies Act 2013 states that a merger between companies tries to protect the interests of the secured creditors; and in the SEBI Act 1992 it tries to protect the interests of the investors.  Whereas the objective stated under Competition act 2002 is much broader – It aims at protecting the appreciable adverse effect on trade-related competition in the relevant market in India (AAEC). To exemplify, Indian airline and Air India have combined – as a result of which, market share of the combined entity has increased considerably. The enhanced market share may cause:

    • barriers to entry to other competitors; (competitors may not have market to trade);
    • hike in passenger fares and;
    • low quality of service.

    On the other hand it may not cause any concern at all if we look at the following :

    • passengers have wider choice (Jet Airways, SpiceJet, Kingfisher, Air Deccan, Indigo, Go Air, foreign airlines etc.);
    • because of the  wider choice, the combined entity may not be able to create entry barriers;
    • for successful and viable business venture the combined entity may have to provide competitive level price for tickets and maintain highest or at least similar levels of quality of services that its competitors would provide.

    In the Companies Act, 2013 and the SEBI Act, 1992, the legislations aim at protecting the interests of private individuals who are a part of the company. Whereas, in the Competition Act the impact of combinations directly affects the market – including basic elements such as the consumers and not just the companies. We may, therefore, safely say that apart from the fact that all these legislations are mutually exclusive, the Companies Act and the SEBI Act are the sub-sets of Competition Act in so far as legal scrutiny of mergers are concerned.


    The Constitution of India through articles 38 and 39 strives to promote the welfare of people by securing and protecting a social order in which justice – social, economic and political shall inform all institutions of national life that the ownership and control of material resources of the community are so distributed as best to serve the common good. The Monopolies Restrictive Trade Practice Act derives itself from these Constitutional provisions. But with the passage of time the factors which led to the passing of MRTP Act underwent tremendous changes which led to the framing of new Competition Act 2001.

    In India, the MRTP Act was enacted in 1969 and was mainly concerned with the control of monopolies and prohibition of monopolistic and restrictive trade practices, not on fostering competition or protecting the interest of the consumer. This led to the passing of Competition Act, 2002 that came into effect in the year 2003. The Competition Act primarily revolves around three sections. Section 3 deals with anti-competitive agreements (both horizontal and vertical), Section 4 deals with abuse of dominance by a single firm whereas Sections 5 and 6 deal with the regulations pertaining to mergers, acquisitions and amalgamations.


    Section 5 of the Competition Act 2002 defines the term “Combination” as acquisition of one or more enterprises by one or more persons or merger, or amalgamation of enterprise shall be combination of such enterprise. In broader terms, it means acquisition of control, shares, voting right or asset by a person over an enterprise where such person has direct or indirect control over another enterprise engaged in a competing business, and mergers and amalgamations between or amongst enterprises when the combining parties exceed the thresholds set in the Act. The thresholds are specified in the Act in terms of assets or turnover in India and abroad. The statutory provisions as enumerated under Sections 5 and 6 of the Act primarily envisage that any merger or acquisition (M&A) taking place within the Indian Sub-continent has to be examined under the Competition Act, 2002 by the Competition Commission of India.

    The CCI endeavours to do the following –

    • Make the market work towards the benefit and welfare of the consumer;
    • efficient competition policies for the utilization of economic resources;
    • ensures smooth alignment of sectoral regulatory laws in tandem with competition law;
    • carry out competitive advocacy and spread the information on benefit of competition among the stakeholder.


    Merger refers to the process of amalgamation or merging of two companies to form a new company whereas acquisition takes place when one company is taken over by another company. but there are certain mergers which lead to adverse effects that is, reduction of competition in the market, increase in price of goods and low quality of services.



    Horizontal Merger or Combination refers to merger of two companies at the same level of production or distribution in the relevant market. It is recognized as a form of corporate restructuring having the potential to curtail competition in the market.

    Impact of Horizontal Merger on Competition

    From the point of view of Competition Policy, it is horizontal mergers that are generally the focus of attention. For instance, the Commission in the case of acquisition of Monsanto by Bayer recognized that both the parties to the proposed combination were active in the downstream market for commercialization of Bt. Cotton Seeds in India, thereby resulting in horizontal overlap. Thus, the Commission assessed that the horizontal overlap in the proposed combination could result in portfolio effects in the form of exclusion of competitors.


     A vertical merger joins together a firm/company that produces an input with a firm that uses it in return to produce the output. Vertical merger thus is an arrangement between the enterprises at different stages or levels of production chain and therefore, in different markets.

    Impact of Vertical Mergers on Competition

    According to the SVS Raghavan Committee generally, vertical agreements are treated more leniently than horizontal agreements as, prima facie, a horizontal agreement is more likely to reduce competition than an agreement between firms in a buyer-seller relationship. However, Jeffrey Robert Church in his paper on Vertical Mergers, remarks that, vertical mergers can be anti-competitive if they result in either foreclosure or enhanced coordination.


    If the merger is neither horizontal nor vertical, it may be a conglomerate merger. Conglomerate merger operates in different product markets and are said to be a facture of any acquisition between the companies that are sufficiently diversified.

    Impact of Conglomerate Merger on Competition

    SVS Raghavan Committee in this context remarks that there is sufficient evidence to suggest that as per factor highlighted in conglomerate mergers do not pose any threat to competition


    The Competition Act envisages appreciable adverse effects on combination in the relevant market in India as the critter on for regulation of combinations. The Commission has to evaluate the combination as per factors highlighted in Sub Section 4 of Section 20 of the Act . The factors to be considered, in this regard, by the commission while evaluating the AAEC in the relevant market, are –

    i.) Actual and potential level of competition through imports in the market;

    ii.) Extent of barrier to entry into the market;

    iii.) Level of concentration in the market;

    iv.) Degree of countervailing power in the market;

    v.) Likelihood that the combination would result in parties to the combination being able to significantly and sustainably increase prices or profit margins;

    vi.) Extent of effective competition likely to sustain in a market or extent to which substitutes are available or likely to be available in market;

    vii.) Market share in the relevant market, of the persons or enterprise in a combination, individually and as a combination;

    viii.) Likelihood that the combination would result in the removal of a vigorous and effective competitor or competitors in the market;

    ix.) Nature and extent of vertical integration in the Market;

    x.) Possibility of a failing business;

    xi.) Nature and Extent of innovation

    In the case Haridas Exports v. All India Float Glass Manufacturers Association[i], it was held, the words “adverse effect on competition” embraces acts, contracts, agreements or combinations which operate to the prejudice of the public interests by unduly restricting competition or unduly obstructing due course of trade. Public interest is the first consideration. It does not necessarily mean interest of the industry.


    Section 4(2) of the Act prevents following acts that result in promoting “Abuse of dominant position” (7) –

    • Impose unfair or discriminatory condition or price in sale and purchase of goods or services;
    • Limit or restrict production of goods or services;
    • Technical or scientific development relating to goods or services to the prejudice of consume

    In the case of Shri Neeraj Malhotra, Advocates V. North Delhi Power Ltd.[ii] the Competition Commission of India (CCI) observed that Section 4 of the Act does not prohibit an enterprise from holding a dominant position in a market. It does place a special responsibility on such enterprises, in requiring them not to abuse their dominant position. The actions, practices conduct of an enterprise in a dominant position have to be examined in view of the facts and circumstances of each ease to determine whether or not the same constitutes an abuse of dominance in terms of Section 4 of the Act.


    ‘Relevant market’ is one of the primary concerns while determining dominant position as well as abuse of dominant position by an enterprise.

    Section 2(r) of the Act renders an exclusive definition for the term ‘relevant market’. It states that it means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both markets.

    Relevant product market is defined as a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.

    Relevant geographic market refers to a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from the conditions prevailing in the neighboring areas.

    In the case of M/s Saint Gobain Glass India Ltd. v. M/s Gujrat Gas Company Limited[iii] to determine geographical market, take note of factors like – physical characters tics, endues of goods, price of goods or services, consumer preferences, exclusion of in house production, classification of industrial products etc. in terms of the provisions of section 19(6) contained in section 19(7) of the Act.


    Combinations are the practices common to the business entities and the purpose of the combination is to accelerate economic growth and enhance trade practices which in turns benefit the consumers. Combinations are not always beneficial and might cause socio-economic implications on the competition as today’s competition may be tomorrow’s dominance. The competition commission of India enjoys enormous power under the act. The main duty of the commission is to eliminate any adverse practices which are detrimental to the interest of the consumers.

    It is also empowered to conduct investigation if he forms a prima facie opinion that the combination is or are likely to cause appreciable adverse effect on the competition. It may also pass several orders for different mergers after considering several factors and to impose penalty which can exceed 1% of the total turnover or assets of the combination. Henceforth it can be concluded that Merger has both positive and negative effect. In order to ascertain the true nature of merger it is necessary to study the objectives behind merger.

    [i](2002) 111 Comp cases 617 SC

    [ii] Shri Neeraj Malhotra, Advocate v. North Delhi Power Ltd. & Ors., Case No. 6/2009 decided on 05.11.2011

    [iii]M/s Saint Gobain Glass India Ltd. v. M/s Gujrat Gas Company Limited Case No. 20 of 2013