APPRECIABLE ADVERSE EFFECT ON COMPETITION

While doing business in India, parties are prohibited from executing anti-
competitive agreements. Generally, the agreements which cause or are
likely to cause appreciable adverse effect on competition ("AAEC") are
anti-competitive agreements (Horizontal and Vertical) .The Competition
Act, 2002 ("Act") recognizes intellectual property rights and to facilitate
their protection, the Act permits reasonable restrictions imposed by their
owners. Similarly, the Act exempts agreements between exporters as
exports do not impact markets in India.
The Competition Commission of India ("CCI") has been given the
authority to direct any enterprise or person to modify, discontinue and
not re-enter into anti-competitive agreement and impose penalty, which
can be 10% of the average of the turnover for the last three years.

EXEMPTIONS TO ANTI COMPETATIVE AGREEMENTS (SECTION

3(5) )
Nothing contained in this section shall restrict—
(i) the right of any person to restrain any infringement of, or to impose
reasonable conditions, as may be necessary for protecting any of his
rights which have been or may be conferred upon him under—
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970);
(c) the Trade and Merchandise Marks Act, 1958 (43 of
1958) or the
Trade Marks Act, 1999 (47 of 1999);
(d) the Geographical Indications of Goods (Registration
and Protection)
Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi-conductor Integrated Circuits Layout-Design
Act, 2000 (37
of 2000);
(ii) the right of any person to export goods from India to the extent to
which
the agreement relates exclusively to the production, supply, distribution
or
control of goods or provision of services for such export.

FACTORS DETERMINING APPRECIABLE ADVERSE EFFECT ON

COMPETITION IN INDIA
According to section 19 (3) of the Competition Act, 2002, the following
factors shall be kept in mind by the CCI while determining Appreciable
Adverse Effect on Competition In India
(a) creating barriers to new entrants into the market;
(b) driving of existing competitors out of the market;
(c) foreclose competition by hindering entry into the market;
(d) accrual of benefits to consumers; (refer to the idea that competition
law can help ensure that consumers benefit from fair prices and
consumer welfare. This is because a competition law regime that
ensures firms can freely enter and exit markets helps to maintain fair
prices and consumer welfare)
(e) improvements in production or distribution of goods or provision of
services; or
(f) promotion of scientific, technical and economic development by
means of distribution or production of goods or provision of services.

Section 3(3) of the Competition Act provides that certain horizontal

agreements are presumed to cause an appreciable adverse effect on
competition, including cartels. However, such presumption is rebuttable
and the burden of proof to dislodge such presumption will fall upon the
person accused of entering into the agreement in question, this is rule
per se.
RULE PER SE-
Per se rule is simply when one person on whom are the offences or the
allegations which pertain to a specific issue is alleged in front of. any
court of law, such alleged person has the onus to prove that such
allegation is a falsified one. In regular cases, should there be an
allegation filed against a person, the courts would demand conclusive
evidence to prove and hold the accusation as admitted. - In these cases,
the accused person need not prove anything unless some form of
conclusive proof is held against them. Wherein, in the per se rule, the
accused person, from the moment of alleging, the burden to claim
innocence falls on them. This rule will be employed only in the horizontal
agreements as admitted under section 3(3) of the competition act, 2002.
This is also called the rule of presumption as the defendant party must
prove that there is no such arrangements made by them in the first place
Section 3(4) of the Competition Act prohibits vertical agreements, i.e.,
agreements between enterprises at different levels of the production
chain in different markets for goods or services. The standard of
assessment corresponds with the "rule of reason" method of analysing
anti-competitive agreements, which entails balancing the negative and
positive competition-related effects of an agreement, and on this basis,
concluding whether such agreement has, or is likely to have, an
appreciable adverse effect on competition. The Competition Act follows
an
"effects" based approach based on the potential or actual anti-
competitive effects of an agreement.
RULE OF REASON
The rule of reason is exactly opposite to the per se rule, that is, the
informant holds the onus of proving the information alleged by them or
any anti-competitive agreement claimed by them. Section 3 (1) of the act
might cause or likely may cause an appreciable adverse effect. • The
reason being the application of rule of reason where the onus on the
informant to prove the facts, it causes an appreciable adverse effect, as
there is the preponderance of probability as applied by the competition
commission of india. So, in section 3 (1), rule of reason is applied and
not per se rule. Similarly, in section 3 (4), in the vertical agreements, as
there are different

Power to impose lesser penalty

 According to section 46 of the Act, The CCI may, if satisfied that any
producer, seller, trader, service provider or distributor is/are included in
any cartel, which is alleged to be in violation of section 3, has made true
and full disclosure in respect of the alleged violations, then the CCI may
impose upon such persons a lesser penalty, than prescribed under this
Act or the rules or the regulations.
Provided that CCI shall not impose lesser penalty in cases where the
report of investigation has been directed under section 26.
On receipt of a reference from the Central Government or a State
Government or a statutory authority or on its own knowledge
information received under section 19, if the Commission is of the
opinion that there exists a prima facie case, it shall direct the Director
General to cause an investigation to be made into the matter:
Provided that if the subject matter of an information received is, in the
opinion of the Commission, substantially the same as or has been
covered by any previous information received, then the new information
may be clubbed with the previous information.
If no prima facie case appears then the commission will close the case
and give the report and give orders.
If the report of the Director General referred to in sub-section
recommends that there is no contravention of the provisions of this Act,
the Commission shall invite objections or suggestions from the Centra
government or the State Government or the statutory authority or the
parties concerned, as the case may be, on such report of the Director
General.
CASE LAWS
Varca Druggist & Chemist & Others v/s Chemist & Druggists Association,
Goa (“Varca Drug”)
Maruti Suzuki India Ltd vs. Another’s

ABUSE OF DOMINACE OF POWER

In simple terms 'dominant position' means something in a superior
position as compared to others based on some factors. However,
staying in a better-off position doesn't harm anyone, unless an individual
is exploiting such power. Therefore having a dominant position cannot
be considered bad per se. However, abusing such a position based on
its superiority is considered inadequate.

Section 4 of the Competition Act, 2002 provides for prohibition of abuse

of dominant position.
It is interesting to note that the provision of section 4 of the Competition
Act, does not have the word 'dominance' but the 'dominant position'.
The Act defines 'dominant position' in terms of strength enjoyed by an
enterprise, in the relevant market in India, which enables it to
• Operate independently of the competitive forces prevailing in the
relevant market;
• affects it's competitors or consumers or the relevant market in its
favour.
ELEMENTS:

There are two important elements of section 4.

• First, there must be a dominant position.
• Second, the existence of clearance is not sufficient for a prohibition
to be invoked; it is also necessary that the position is abused.
CONSEQUENCES OF ABUSE OF DOMINANCE:

The Competition Commission, after an inquiry into the abuse of

dominant position, may pass all or any of the following orders under
section 27 of the Competition Act:

• direct an enterprise with dominant position involved in abuse of

such dominant position to discontinue such abuse;
• impose penalty not exceeding ten percent of the average of the
turnover for the last three preceding financial years, upon each of such
person or enterprises which are parties to such abuse;
• direct the enterprises concerned to abide by such other orders as
the Commission may pass and comply with the directions, including
payment of cost, if any.
In addition to the aforesaid orders, the Competition Commission has the
power to order division of enterprise enjoying dominant position to
ensure that it does not abuse its dominant position under section 28 of
the Competition Act.

CASE LAW- Ajay Devgn Films vs. Yash Raj Films Pvt. Ltd. & Ors. (2012)

COMBINATIONS ( SECTION 5,6)

Combination within the Competition Law is the merger between two or
more enterprises or firms or the business sector acquisitions (such as
companies or firms) by other business enterprises. 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 persons or
enterprises.
Combination includes merger or amalgamation, joint ventures,
Acquisition, value of Assets, Turnover

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 persons or enterprises.

TYPES OF COMBINATION
1. horizontal combinations
2. Vertical combinations
3. Conglomerate Combinations-Conglomerate combinations involve
firms or enterprises in unrelated business fields. Such combination
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. It also facilitates the expansion of
products and services to tap into new markets
Example-
• Disney and Pixar,
• Amazon and Whole Food The merger allowed Amazon to expand
its grocery offerings and increased the benefits provided to its Prime
members.
• Vodafone and idea.

Section 5- The acquisition, merger, or amalgamation of enterprises is

considered a combination if:

1. Acquisition Criteria:
- The acquiring parties jointly have:
- In India: Assets over ₹1,000 crores or turnover over ₹3,000 crores.
- Globally (including India): Assets exceeding $500 million (with at
least ₹500 crores in India) or turnover over $1.5 billion (with at least
₹1,500 crores in India).

- The group to which the acquired enterprise will belong post-

acquisition jointly has:
- In India: Assets over ₹4,000 crores or turnover over ₹12,000 crores.
- Globally (including India): Assets exceeding $2 billion (with at least
₹500 crores in India) or turnover over $6 billion (with at least ₹1,500
crores in India).

2. Control Acquisition:
- If a person acquires control over an enterprise and already has
control over another similar enterprise:
- The combined assets or turnover of the enterprises must meet the
same criteria as stated above for acquisition.
A merger or amalgamation is considered significant if:

1. Post-Merger/Amalgamation Criteria:
- The resulting enterprise has:
- In India: Assets exceeding ₹1,000 crores or turnover over ₹3,000
crores.
- Globally (including India): Assets over $500 million (with at least
₹500 crores in India) or turnover over $1.5 billion (with at least ₹1,500
crores in India).

- The group to which the resulting enterprise belongs has:

- In India: Assets exceeding ₹4,000 crores or turnover over ₹12,000
crores.
- Globally (including India): Assets over $2 billion (with at least ₹500
crores in India) or turnover over $6 billion (with at least ₹1,500 crores in
India).

Definitions:
1. -Control: The power to control the management or affairs of an
enterprise or group, either jointly or singly.
2. Group: Two or more enterprises that:
• -Have at least 26% voting rights in each other.
• Can appoint more than 50% of the board members.
• Control the management or affairs of the other.

3. Asset Value: Determined by the book value in the audited

accounts of the financial year preceding the proposed merger, including
intangible assets like brand value, goodwill, copyrights, patents,
trademarks, etc.

SECTION 6-
No person or enterprise can enter into a combination that causes or is
likely to cause a significant adverse effect on competition in the relevant
market in India. Such a combination will be considered void.

Key Points:

1. Notification to the Commission:

- Any person or enterprise proposing a combination must notify the
Commission within 30 days of:
- The board's approval of a merger or amalgamation.
- The execution of an agreement for acquisition or acquiring control.

2. Effectiveness of Combination:
- A combination will not take effect until 210 days have passed since
the notice was given to the Commission or until the Commission issues
an order under Section 31, whichever comes first.

3. Review Process:
- Upon receiving the notice, the Commission will review the
combination according to the provisions in Sections 29, 30, and 31.

4. Exemptions:
- The notification requirement does not apply to share subscriptions,
financing facilities, or acquisitions by public financial institutions, foreign
institutional investors, banks, or venture capital funds under a loan or
investment agreement.

5. Reporting Exempted Acquisitions:

- The exempted entities must file details of the acquisition with the
Commission within seven days, specifying control details, circumstances
for control exercise, and potential consequences of default.
ACQUISITIONS MERGERS
Meaning
An acquisition is a cycle wherein one organisation assumes or takes
over the responsibility for another organisation. A merger is a cycle
wherein more than one organisation’s approach functions as one.
Issuance of Shares
No new shares are issued in case of acquisitions. New shares are
issued in case of mergers.
Mutual Consent and Decisions
The choice of acquisitions is probably not shared, or of mutual consent
in nature; in the event that the acquiring organisation assumes control
over one more venture without the acquired company’s assent, it is
named an unfriendly takeover or hostile takeover. A merged business
entity is settled upon by common assent and mutual consent of the
involved organisations. Rather it is a planned and friendly one.
Company’s Name
The obtained or acquired organisation, for the most part, works under
the name of the parent organisation. Sometimes, nonetheless, the
previous company can hold its original name, assuming the parent
organisation permits it. The merged business entity works under another
name or a new name.
Stature, by Comparison
The acquiring organisation is independently stronger in terms of financial
capability than the acquired business. The merged companies are of
similar stature, operations, size, and scale of business.
Power or Authority over the Other
The acquired company has no say in terms of power or authority by the
acquiring company. There is harmony when it comes to merged
companies.
Examples
Tata Motors acquisition of Jaguar Land Rover Merging of Glaxo
Wellcome and SmithKline Beecham to GlaxoSmithKline

Recent Mergers and Acquisitions in India

A few recent mergers and acquisitions in India are provided below.

Tata Group acquired Air India

Tata Group acquired Air India, the nationalised airline, in 2022. Tata
announced the merger of Air India with Vistara, a joint venture between
Singapore Airlines and Tata Sons. Air India had been struggling in
business, and the travel restriction during the COVID-19 pandemic
added more struggles. However, Tata is trying to restore Air India to its
former glory.

PVR merger with INOX

India’s two leading cinema franchises, INOX and PVR, merged in 2022
to establish the largest multiplex chain with over 1500 screens
nationwide. The COVID-19 pandemic was tough on the film industry and
theatres. The INOX and PVR merger will result in reduced rental costs,
advertising revenues and convenience fees for the merged entity, called
PVR-INOX.
Zomato acquired Blinkit

Indian food aggregator platform, Zomato acquired Blinkit, the quick

commerce company, for Rs.4,447 crore. Zomato operates in the food
delivery and restaurant hosting businesses, but with the acquisition of
Blinkit, it will also be able to enter the quick commerce field.
AMALGAMATION AND MERGER
The main difference between amalgamation and merger is the legal
status of the original companies involved:
• Amalgamation: One or more companies are absorbed into an
existing company, which continues to operate under its original legal
status. The absorbing company takes on the assets and liabilities of the
other companies.
• Merger: The original companies cease to exist and are replaced by
a new entity.
Here are some other differences between amalgamation and merger:
Purpose
Amalgamations are often used to create a new entity with better
operational efficiency and competitive capabilities. Mergers can be used
to enter new markets, sell new products, improve management, and
more.
Integration
Amalgamations are more often used for vertical integration, while
mergers are often used for horizontal integration.
Process
Amalgamations can only be used by incorporated associations in the
same state or territory. Mergers are not based on a legislative process
and are more customizable.
Some examples of amalgamations include Maruti Suzuki Limited and
Tata AIG Life Insurance