Regulation of Combinations

The Regulation of Combinations in India refers to the framework under the Competition Act, 2002 that governs mergers, amalgamations, and acquisitions which may have an adverse effect on market competition. The objective is to ensure that such combinations do not lead to the creation of monopolies or dominance that restricts fair trade practices, consumer welfare, or economic efficiency. The provisions are administered and enforced by the Competition Commission of India (CCI), which is the principal authority responsible for promoting and sustaining competition in markets.

Background and Legislative Context

The need for regulating combinations arose from the transition of the Indian economy from a controlled regulatory regime under the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, to a liberalised market economy post-1991. The MRTP framework primarily focused on curbing monopolistic tendencies but was inadequate for evaluating mergers from a competition perspective.
To address this, the Competition Act, 2002 was enacted, replacing the MRTP Act. The Act introduced a modern framework aligning with global competition principles, particularly those followed by jurisdictions such as the United States and the European Union. The provisions related to combinations came into force on 1 June 2011, marking a significant step in India’s competition law regime.

Meaning of Combinations

Under Section 5 of the Competition Act, 2002, a combination refers to:

1. Acquisition of control, shares, voting rights, or assets by one or more enterprises over another enterprise;
2. Merger or amalgamation between or among enterprises, where such transactions meet the prescribed financial thresholds; and
3. Joint ventures in certain cases that may result in substantial influence over market structure.

These transactions are assessed to determine whether they lead to an Appreciable Adverse Effect on Competition (AAEC) in the relevant market in India.

Thresholds and Notification Requirements

To prevent unnecessary regulatory intervention in smaller transactions, the Act specifies financial thresholds for mandatory notification to the CCI. These thresholds are revised periodically by the Central Government.
As per the current framework, combinations require prior notification to the CCI if:

• The combined assets of the enterprises in India exceed ₹2,000 crore, or their combined turnover exceeds ₹6,000 crore; or
• The combined global assets exceed US$1 billion (including at least ₹1,000 crore in India), or their combined global turnover exceeds US$3 billion (including at least ₹3,000 crore in India).

Similar thresholds apply to group-level combinations, ensuring that both domestic and cross-border transactions that may impact Indian markets come under regulatory scrutiny.
The Competition (Amendment) Act, 2023, has introduced additional flexibility, including the concept of deal value thresholds, where transactions exceeding ₹2,000 crore in value must be notified to the CCI if the target enterprise has significant business operations in India, even if asset or turnover criteria are not met.

Procedure for Combination Assessment

The process for regulation of combinations under the CCI involves several stages:

1. Notification: Parties to the combination must file a notice with the CCI within 30 days of board approval or execution of the agreement, as applicable.
2. Prima Facie Review (Phase I): The CCI undertakes an initial examination within 30 working days to determine if the combination is likely to cause AAEC. If not, the combination is approved.
3. Detailed Investigation (Phase II): If the CCI suspects potential adverse effects, it conducts a detailed investigation, calling for information, inviting objections, and evaluating competitive dynamics.
4. Decision: The CCI may approve the combination, approve it with modifications, or block it entirely if it deems the combination detrimental to market competition.

Failure to notify a combination that crosses the prescribed thresholds can attract penalties of up to 1% of the total turnover or assets, whichever is higher.

Factors Considered in Assessing AAEC

While evaluating whether a combination causes an Appreciable Adverse Effect on Competition, the CCI considers several factors, including:

• Market share of the merging entities;
• Level of market concentration and potential for dominance;
• Barriers to entry for new competitors;
• Countervailing buyer power;
• Potential for innovation and technological development;
• Impact on consumers, prices, and choice;
• Extent of vertical integration and elimination of competition between parties.

The analysis aims to maintain a balance between allowing business growth through consolidation and preserving competition in the marketplace.

Notable Cases and Examples

Several landmark cases illustrate the CCI’s approach to regulating combinations:

• Sun Pharma–Ranbaxy Merger (2014): Approved subject to divestiture of certain overlapping brands to avoid market concentration in specific therapeutic segments.
• PVR–DT Cinemas Merger (2016): Approved with conditions to prevent excessive dominance in the multiplex cinema sector.
• Holcim–Lafarge Merger (2015): Global cement giants were required to divest certain assets in India to maintain competitive balance.
• Zee Entertainment–Sony Pictures Merger (2023): Examined for potential anti-competitive effects in the media and entertainment sector, highlighting CCI’s growing scrutiny of digital markets.

These cases underscore CCI’s commitment to ensuring that large mergers do not harm competition or consumer interests.

Role of the Competition Commission of India

The Competition Commission of India acts as the watchdog for anti-competitive practices and merger control. Its powers include:

• Reviewing and approving or rejecting proposed combinations;
• Issuing guidelines for notification and filing procedures;
• Conducting market studies to identify emerging competition risks;
• Imposing penalties for non-compliance;
• Promoting competition advocacy and awareness.

The CCI operates with a pro-business yet pro-competition approach, ensuring that combinations leading to efficiency, technological advancement, or consumer benefit are permitted.

Recent Developments and Reforms

The Competition (Amendment) Act, 2023, has introduced several reforms to modernise merger control:

• Reduction of review timelines from 210 days to 150 days for faster clearances.
• Introduction of the “deal value” threshold to capture digital and data-driven acquisitions.
• Exemption for certain transactions with minimal competitive overlap.
• Introduction of a Green Channel Route, allowing automatic approval for combinations with no horizontal or vertical overlaps.

These changes align Indian competition law with international best practices, promoting efficiency while maintaining robust oversight.

Importance of Regulating Combinations

Regulating combinations is vital for sustaining a competitive, innovation-driven economy. The key objectives include:

• Preventing formation of monopolies and abuse of dominance;
• Ensuring fair access and entry opportunities for new businesses;
• Protecting consumer interests through choice and fair pricing;
• Encouraging economic efficiency and innovation;
• Maintaining stability and integrity of markets.