1

ICSI WIRCICSI WIRC

“Combinations” The Competition Act, 2002

4th May 2013

Surendra U. KanstiyaPractising Company Secretary.

2

IMPORTANT

* This presentation is in the nature of a support note for the speaker

* Slides on standalone basis may not be self-explanatory

3

THE COMPETITION ACT, 2002

4

COMPETITION AUTHORITIES

Competition Commission of India (CCI)

Competition Appellate Tribunal (COMPAT)

55

COMPETITION AUTHORITIESCOMPETITION AUTHORITIES

COMPETITION COMMISISON OF INDIA (CCI) A body corporate Chairperson + 6 membersCOMPETITION APPELLATE TRIBUNAL (COMPAT) A quasi-judicial body Chairperson + 2 members Appeals and compensation

6

ENTERPRISE Sec.2(h)ENTERPRISE Sec.2(h)

PERSON OR GOVT. DEPTT. engaged in activity relating to production, supply, distribution, acquisition, control of goods; services, of any kind.

PERSON: individual; firm; HUF; co.; AoP; corporation; body corp.; coop. soc.; local authority; other artificial juridical persons.

MAY BE EXCLUDED: Govt. Deptt. performing sovereign functions: atomic energy, currency, defence; space

7

ANTI COMPETITIVE AGREEMENTS

‘All anti-competitive agreements are void’

8

ANTI COMPETITIVEAGREEMENTS (ACA)

HORIZONTALRule of Law (4 cases)

VERTICALRule of reason

9

ABUSE OFDOMINANT POSITION

‘No enterprise or group shall abuse its dominant position’

Amendment Bill 2012: Jointly or severally

DOMINANT POSITION

DOMINANCE: Capacity to

- act independent of competitive presence OR

- affect appreciably the relevant market, competition and consumers.

No arithmetic figure for dominanceAAEC Test not needed

11

Abuse ofDominance

Exploitative(Costumers)

Exclusionary(Competitors)

12

COMBINATIONS

‘Certain combinations are regulated’

The Competition Commission of India (Procedure in regard to the transaction of business relating to

combination) Regulations, 2011 (Amended in 2012 and 2013)

13

COMBINATION

Acquisition of enterprise:acquisition of

Control, shares,

Voting rights,assets

Acquiring of Control: over an

enterprise engagedin same line of

Goods or services

Mergeror

amalgamation

14

THRESHOLDS FOR REGULATION

Assets / Turnover

15

COMBI. : NON-GROUPCOMBI. : NON-GROUP

ASSETSIN INDIA: over Rs.1500 Cr; ORGLOBAL: over US $750 Mn. (including

Indian assets Rs. 750 Cr)TURNOVER

IN INDIA: Rs.4500 Cr; ORGLOBAL:US $2250 Mn. (including Indian

turnover Rs.2250 Cr)

16

COMBI. : GROUPCOMBI. : GROUP

ASSETSIN INDIA: over Rs.6000 Cr ; ORGLOBAL: over US $3 Bn. (including

Indian assets Rs.750 Cr)TURNOVER

IN INDIA: over Rs.18000 Cr ; ORGLOBAL: over US $9 Bn. (including

Indian turnover Rs.2250 Cr)

17

GROUPGROUP

Means two or more enterprises which, directly or indirectly, are in a position to —

(i) exercise 50 % or more of the voting rights in the other enterprise; or

(ii) appoint more than 50% of the members of the board of directors in the other enterprise; or

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

ASSETS

Book value as shown, in the audited books of the enterprise, in the latest completed financial year, as reduced by any depreciation, and

include the brand value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered proprietor, registered trade mark, registered user, homonymous geographical indication, geographical indications, design or layout design or similar other commercial rights

TURNOVER

ACT: “Turnover” includes value of sale of goods or services

REGULATIONS: exclude indirect taxes, if any

AMDT BILL 2012: excluding the taxes, if any, levied on sale of such goods or provision of services

20

SEC.6(4) EXEMPTIONS SEC.6(4) EXEMPTIONS

Shall not apply to (i) share subscription (ii) financing facility (iii) any acquisition by:

Public financial institutionForeign institutional investorBankVenture capital fund pursuant to any covenant of a loan agreement

or investment agreement MUST FILE DETAILS IN 7 DAYS

21

EXEMPTION IN PUBLIC INTERESTEXEMPTION IN PUBLIC INTEREST

Central Government, in public interest, has exempted acquisition of the enterprise, whose control, shares, voting rights or assets are being acquired, if it has assets of the value of not more than Rs.250 crores in India or turnover of not more than Rs.750 crores in India.

22

CCI COMBI. REGULATIONSCCI COMBI. REGULATIONS

Categories of combinations that are ordinarily not likely to cause an appreciable adverse effect on competition in India and hence notice need not normally be filed.

23

PRIOR

NOTIFICATION

(Filing of Form)

24

MANDATORYMANDATORY

A notice must be given by enterprise to CCI about combination within 30 days from execution of agreement / resolution

CCI to pass order within 210 (180 days) from the date of notice to CCI failing which combination to be deemed as approved.

FAILURE: Penalty, may extend to 1% of the total turnover or the assets, whichever is higher.

25

FORMSFORMS

Form I - Regulation 5(2) combinations Form II - Regulation 5(3) combinations Form III - For exempt acquisition by FII etc Form IV – Advertisement

FILING FEE Form I: Rs.10 Lacs Form II: Rs.40 Lacs NOW CO SECRETARY MAY SIGN FORMS

26

FORM IIREGULATION 5(3)

Combinations to be to be notified through notified through

Form IIForm II

27

FORM II iFORM II i

HORIZONTAL COMBINATION: COMBINED MARKET SHARES : OVER

15% Parties to the combination - are engaged similar or identical or

substitutable goods or provision of similar or identical or substitutable services and

28

FORM II iiFORM II ii

VERTICAL COMBINATION: INDIVIDUAL OR COMBINED MARKET

SHARE – MORE THAN 25% IN THE RELEVANT MARKET

The parties to the combination - are engaged at different stages or levels of the production chain in different markets

29

COMBINATIONS MAY BECOMBINATIONS MAY BE

Pro-competitive Competitively neutral Anti-competitive

30

VOID COMBINATION

a combination which causes or is likely to cause an

APPRECIABLE ADVERSE EFFECT ON COMPETITION

(AAEC)WITHIN RELAVANT MARKET

IN INDIA

31

Relevant Market

Product Market:Close substitutes

Geographic Market:Area where product

is available at same price

32

COMPETITION TEST COMPETITION TEST

Competition through imports Entry barriers Countervailing power Availability of substitutes Likely increase in price/profits Risk Innovation Market share Failing business

33

CONSULTATION PRIOR TO FILINGCONSULTATION PRIOR TO FILING

The facility of informal and verbal consultation with the staff of CCI prior to the filing of notice to a proposed combination is available at CCI.

The advice would be given as an additional assistance facility, and would not be deemed to be the opinion of the CCI in any manner whatsoever or binding on the CCI.

34

INVESTIGATION, ORDERAND APPEAL

35

INVESTIGATIONINVESTIGATION

Cooling period of 210 days classified in:

(I) Inquiry phase

(II) Decision phase

(III) Modification phase

36

ORDERS iORDERS i

CCI to:

a. approve the combination; or

b. reject the combination; or

c. propose modifications to the combination. The parties may propose amendments to

modifications within 30 working days If CCI does not accept amendments, further period

of 30 working days to accept modifications

37

ORDERS iiORDERS ii

If not accepted: combination shall be deemed to have appreciable adverse effect on competition

Combination shall not take effectCCI may frame a scheme to implement its

order

38

OTHER PROVISIONS

39

EXTRA-TERRITORIAL JURISDICTIONEXTRA-TERRITORIAL JURISDICTION

Agreements entered into outside India; abuse of dominant position outside India; combinations taking place outside India; if it has or is likely to have appreciable adverse effect on competition in India.

with permission of CG, CCI can enter MOU with foreign competition agency.

40

CCI AND STATUTORY CCI AND STATUTORY AUTHORITY (SA)AUTHORITY (SA)

SA may make reference to CCI CCI to give opinion within 60 days

CCI may make reference to SA SA to give opinion within 60 days

41

THANK YOU ALL

kanstiyask@rediffmail.com