Competition Aspects – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions
Question 1.
“Anti-trust laws world over believe that the free trade benefits the economy and at the same time, the legislations are formulated to for- j bid several types of restraints of trade and monopolisation”. Justify the statement in the context of the provisions of Competition Act, 2002 with respect to mergers, demergers or reverse mergers.
Answer:
- Originally, anti-trust law in India was enacted through the Monopolies | and Restrictive Trade Practices Act, 1969. Later, the Competition Act, 2002 replaced the MRTP Act, 1969.
- Today, the Competition Act, 2002 is responsible to promote free trade as well as regulate trade and monopolization.
- Section 6 of the Competition Act, 2002 prohibits any person or enter-prise from entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.
- Any person or enterprise, who or which proposes to enter into any combination, shall notify the Commission and disclose details of the proposed combination (merger or takeover).
- Competition Act, 2002 is enacted with a view to promote the economic development of the country, to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interest of consumers and to ensure freedom of trade carried on by other participants in market in India.
Question 2.
What is the procedure for regulation of combinations by the Competition Commission of India? Which institutions are exempt from giving a notice to the Commission regarding the proposed combination?
Answer:
→ Combinations means acquiring control, shares, voting rights or assets by a person over an enterprise, where such person has control over another enterprise engaged in competing business. It includes mergers and amalgamations between such enterprises.
→ Section 6 of the Competition Act, 2002 prohibits any person or enterprise from entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.
→ Any person or enterprise, who or which proposes to enter into a combination, shall notify the Commission. No combination shall come into effect until 210 days have passed from the day on which notice has been given to the CCI or the CCI has passed orders, whichever is earlier
→ The CCI has the power to investigate the proposed combination and its effect on the relevant markets in India. Hence, this period of 210 days is extendable based on the number of information requests issued by the CCI. This means the actual approval duration can be a longer waiting period.
→ However, following transactions are exempted from notifying the
(a) Transactions that do no cross the threshold limits (as given by Section 6),
(b) Share subscription or financing facility or any acquisition, by a Public Financial Institution (PFI), Foreign Portfolio Investors (FPI), Bank or Venture Capital Fund (VCF), as per loan agreement or purely investment purposes.
(c) Mergers between holding company and its wholly owned subsidiary company or mergers between wholly owned subsidiaries by enterprises belonging to same groups.
(d) Cases of reconstitution, transfer of whole or any part thereof and amalgamation of nationalized banks, under the applicable Banking Laws.
(e) Regional Rural Banks, under Central Govt, notifications are exempted.
(f) Combinations involving Central Public Sector Enterprises (CPSE) operating in Oil and Gas sector.
Question 3.
Discuss the provisions and powers of Competition Commission of India to impose penalty for non-furnishing of information on combination under the Competition Act, 2002
Answer:
- Section 43A provides that if any person or enterprise who fails to give notice to the Commission, the Commission shall impose on such person or enterprise a penalty which may extend to –
- The above provisions imply that the Competition Commission of India (CCI) is empowered to levy penalties for non-compliance of combination regulations. However, it is well-settled that every discretion to impose penalty has to be exercised judicially.
- Section 43A of the Act gives discretion to the Commission to impose penalty in case a person or enterprise fails to give notice to the Com-mission under section 6(2) of the Act.
- Thus, the discretion available to the Commission is wide. The CCI may impose penalty of only a token amount or up to 196 of the turnover or assets of the combination.
- While exercising this discretion, the Commission has to keep into mind the conduct of the parties and the circumstance under which the parties failed to give notice to the Commission.
- In the case of SCM Soilfert Ltd. vs. CCI, the Appellate Tribunal held that Section 43A has no requirement of establishment of mens rea as the legislature has not used the phrase ‘wilful failure’. The imposition of penalty u/s 43A is due to breach of a civil obligation and once it is established that there was a failure to notify the proposed combination u/s 6(2) of the Act, the penalty has to follow.
Question 4.
Which transactions /institutions are exempt from notifying the CCI regarding their proposed combination?
Answer:
→ Combinations means acquiring control, shares, voting rights or assets by a person over an enterprise, where such person has control over another enterprise engaged in competing business. It includes mergers and amalgamations between such enterprises.
→ Section 6 of the Competition Act, 2002 prohibits any person or enter-prise from entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.
→ As per section 6 of Competition Act, 2002, certain combinations shall be notified to CCI for getting their approval. However, following transactions are exempted from notifying the CCI –
(a) Transactions that do no cross the threshold limits (as given by Section 6),
(b) Share subscription or financing facility or any acquisition, by a Public Financial Institution (PFI), Foreign Portfolio Investors (FPI), Bank or Venture Capital Fund (VCF), as per loan agreement or purely investment purposes.
(c) Mergers between holding company and its wholly owned subsidiary company or mergers between wholly owned subsidiaries by enterprises belonging to same groups.
(d) Cases of reconstitution, transfer of whole or any part thereof and amalgamation of nationalized banks, under the applicable Banking Laws.
(e) Regional Rural Banks, under Central Govt, notifications are exempted.
(f) Combinations involving Central Public Sector Enterprises operating in Oil and Gas sector.
Question 5.
“Advocate may accompany a person summoned by the Director General in investigation under Competition Act, 2002.” Briefly offer comments.
Answer:
As per the Competition Commission of India (General) Amendment Regulation, 2018, an advocate is authorized to accompany the person summoned by the Director General in investigation under the Competition Act, 2002. As per Regulation 46A, following conditions shall be satisfied –
- Such Advocate is not permitted unless a prior request in writing together with vakalatnama or power of attorney is made.
- He will not sit in front of the summoned person. During examination on oath, he shall neither be in a hearing distance nor shall interact, consult, confer.
- There shall not be any misconduct on the part of such advocate.
Question 6.
The Competition Commission of India has received a complaint that the combination proposal of Tina Ltd. and Meena Ltd. is going to have an appreciable adverse effect on competition. Explain the factors to be considered to evaluate the effect of Combination under the Competition Act, 2002.
Answer:
→ The Competition Commission may inquire into the appreciable adverse effect caused or likely to be caused on competition in India as a result of combination. Such enquiry may be done either upon its own knowledge or information (suo motu) or upon receipt of notice.
→ It is mandatory for the Commission to inquire whether the combination referred to in that notice, has caused or is likely to cause an appreciable adverse effect on competition in India. CCI shall verify whether the benefits of combination are more/less than the adverse effects.
→ Factors to be considered by the Commission while evaluating appreciable adverse effect of Combinations on competition in the relevant market are as follows –
(a) actual and potential level of competition;
(b) extent of barriers to entry into the market;
(c) level of combination in the market;
(d) degree of countervailing power in the market;
(e) chances that the combination would result increases prices or profit margins;
(f) extent of effective competition likely to sustain in a market;
(g) potential market share, in the relevant market;
(h) chances that combination would result in the removal of strong and effective competitor(s);
(i) nature and extent of vertical integration in the market;
(j) nature and extent of innovation;
(k) relative advantage, through the contribution to the economic development; and
(l) whether the benefits of the combination exceed the adverse effects of such combination.
Question 7.
The CCI has power to initiate investigation for any combination and there is set procedure for the same u/s 29 of the Competition Act, 2002. Mention the procedure for the investigation of a combination.
Answer:
The procedure for investigation by the Commission involves the following stages
- Firstly, the Commission has to form a prima facie opinion that a combination is likely to cause, or has caused an appreciable adverse effect on competition within the relevant market in India. Once, such a conclusion is arrived at, the CCI shall issue a SCN to parties to the combination, about why an investigation in respect of such combination should not be conducted.
- Upon receipt of the response of the parties to the combination, the Commission may call for the report of the Director General.
- If the Commission is, prima facie, of the opinion that the combination is likely to cause an appreciable adverse effect on competition in relevant market, it shall, within 7 days, direct the parties to publish within 10 working days, the details of the combination, to the public and persons likely to be affected by such combination.
- The Commission may invite any persons affected or likely to be affected by the said combination, to file their written objections within 15 working days of the public notice.
- The CCI may, within 15 working days of filing of written objections, call for such additional information from parties and such information must be furnished by the parties within 15 days.
- After receipt of all information and within 45 days from expiry of period for filing additional information, the CCI shall proceed to deal with the case.
Question 8.
“Events taking place outside India but having an effect on competition in India is also subject to jurisdiction of Competition Commission of India.” Comment on extra territorial jurisdiction provided under Competition Act, 2002.
Answer:
As per section 32, the Commission shall have jurisdiction to enquire and pass orders in accordance with the provisions of the Act into an agreement or dominant position or combination, which is likely to have, an appreciable adverse effect on competition in relevant market in India. The above powers are irrespective of the following:
- an agreement has been entered into outside India; or
- any party to such agreement is outside India; or
- any enterprise abusing the dominant position is outside India; or
- a combination has taken place outside India; or
- any party to combination is outside India.
Thus, it is absolutely clear that any actions/agreements taking place outside India but having an effect on competition in India will be subject to the jurisdiction of Commission. The Commission will have jurisdiction even if both the parties to an agreement are outside India, but only if the agreement, dominant position or combination entered into by them has an appreciable adverse effect on competition in the relevant market of India. Such deals are observed in e-commerce businesses.
Question 9.
SAM Ltd. and MAS Ltd. are public companies operational in India. The combined enterprise will have total assets of ₹ 600 crores and combined turnover of ₹ 2000 crores. Examine whether the proposed amalgamation shall be notified to the Competition Commission of India.
Answer:
- Combinations means acquiring control, shares, voting rights or assets by a person over an enterprise, where such person has control over another enterprise engaged in competing business. It includes mergers and amalgamations between such enterprises.
- Sections 5 and 6 of the Competition Act, 2002 deal with the combination of enterprises. The Act provides for certain threshold limits for notifying the Competition Commission of India.
- Section 6 of the Competition Act, 2002 prohibits any person or enter- H prise from entering into a combination which causes or is likely to z cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.
- Following are the thresholds for companies operating only in India –
(a) Combined assets of more than ₹ 2000 crores or
(b) Combined turnover more than ₹ 6000 crores; or - Hence, in the given case, the proposed amalgamation of SAM Ltd. and MAS Ltd. will not attract the provisions of the Competition Act, 2002 as they have total assets of value of ₹ 600 crore and combined turnover of ₹ 2000, which are less than the threshold specified under the provisions.
Question 10.
Certain ambiguities are cleared with the notification of Competition Commission of India (Procedure in regard to transactions of business relating to Combinations) Amendment Regulations, 2018 on 9th October 2018 – Briefly comment.
Answer:
- The Competition Act, 2002 declares anti-competitive agreements as void; prohibits the abuse of dominant position, and regulates large combinations. Sections 5 and 6 of the Competition Act, 2002 regulate combinations.
- There were certain ambiguities regarding notifying the Competition Commission of India (CCI) and getting their approval for the combinations.
- CCI (Procedure in regard to transactions of business relating to combinations) Amendment Regulations, 2018 clarified computation of 210 days for a notified transaction that could be extendable based on number of CCI requests, including voluntary modifications by applicant.
- The CCI can appoint agencies to supervise the implementation of modifications directed by the Commission.
- The parties need not to wait for the CCI to order modification after a long-drawn review process. This would result in speedier resolution of the Competition Commission of India’s concern according quicker approvals in line with international practices.
Question 11.
Compliance of the Competition Act, 2002 in relation to merger and amalgamation
Answer:
- Combinations means acquiring control, shares, voting rights or assets by a person over an enterprise, where such person has control over another enterprise engaged in competing business. It includes mergers and amalgamations between such enterprises.
- Section 6 of the Competition Act, 2002 prohibits any person or enter-prise from entering into a combination which causes or is likely to cause an appreciable adverse effect on competition within the relevant market in India and if such a combination is formed, it shall be void.
- Any person or enterprise, who or which proposes to enter into a combination, shall notify the Commission. No combination shall come into effect until 210 days have passed from the day on which notice has been given to the CCI or the CCI has passed orders, whichever is earlier.
- The CCI has the power to investigate the proposed combination and its effect on the relevant markets in India. Hence, this period of 210 days is extendable based on the number of information requests issued by the CCI. This means the actual approval duration can be a longer waiting period.
Question 12.
Discuss the origin and preamble of the Competition Act, 2002.
Answer:
Prior to Competition Law, the MRTP Act, 1969 regulated mergers and acquisitions in India. However, after the economic reforms of 1991 and the changing international economic scenario, it was felt that the MRTP Act, 1969 has become obsolete. Hence, there was a need to promote competition rather than restraining monopolies.
In view of the above developments, a ‘High Level Committee on Competition Policy and Law’ was constituted by the Central Government under the Chairmanship of Mr. Raghavan, which submitted its report in May 2002. Based on the recommendations of the Raghavan Committee, the Competitions Act, 2002 was passed to replace the MRTP Act, 1969.
The preamble of the Competition Act, 2002 states the purpose of the Statute which is –
- the economic development of the country;
- the establishment of CCI to prevent practices which hamper competition;
- to promote and sustain competition in markets;
- to protect the interest of the consumers; and
- to ensure freedom of trade and fair competition in the markets.
Question 13.
What are the Regulatory Authorities under the Competition Act, 2002?
Answer:
The Competition Act, 2002 provides for establishment of a market regulator known as the Competition Commission of India (Commission / CCI). The CCI is a statutory body, established under the Act with legislative powers as mentioned in Preamble. The CCI is vested with powers to investigative, regulatory, adjudicatory and advisory jurisdiction.
The Act also provided for the establishment of Competition Appellate Tribunal (COMPAT) which was in operation till May 2017. Later, COMPAT has been merged with National Company Law Appellate Tribunal (NCLAT) constituted under the Companies Act, 2013 and the NCLAT has been designated as the Appellate Authority under the Act.
Question 14.
Discuss the thresold limits as defined by the competition Act, 2002
Answer:
In case of mergers or acquisitions or control, where the target company being acquired have assets of not more than ₹ 350 crores in India or turnover of not more than ₹ 1000 crore in India, arc exempt from section 5 of the Act for a period of 5 years. These are known as De Minimis exemption.
Question 15.
What are the types of combinations?
Answer:
Based on the economic activities being carried out by the parties, combinations may be classified into:
(a) Horizontal combinations involve the joining together of two or more enterprises engaged in producing the same goods, or rendering same services. They may be termed as competitors to each other. They result in reduction in competition and may create a dominant enterprise.
(b) Vertical combinations involve the joining together of two or more enterprises where one of them is an actual or potential supplier of goods or services to the other. They involve enterprises operating at different levels of the production and supply chain. The object may be to ensure a source of supply or an outlet for products or to enhance the efficiency.
(c) Conglomerate combinations involve the combination of enterprises not having horizontal or vertical connection. These enterprises are engaged in unrelated activities and may be affected with an objective to diversify into new areas by the acquiring enterprise.
Based on the geographical location of the enterprises, the combination may be classified into
- Domestic combinations involve the joining together of two or more enterprises located in India only.
- Cross-border combinations involve the joining together of two or more enterprises where one or more of them are operating from other countries. In such combinations, the combination needs to be approved by the Commission only if the overseas enterprises satisfy the local nexus test, as stated in section 5 of the Act.
Question 16.
Discuss the ‘Lesser Penalty’ regulations under Competition Act, 2002.
Answer:
Section 46 of the Competition Act, 2002 and the Lesser Penalty Regulations give the CCI power to impose lesser penalties on an entity that:
(a) makes a ‘vital disclosure’ by submitting evidence of a cartel; or
(b) provides ‘significant added value’ to the evidence already in possession of the CCI.
CCI recognizes leniency applicants who provide valuable inputs (‘markers’) in the CCI investigation. Such leniency is granted to only 3 leniency applicants, in order of priority –
- the first leniency applicant could receive up to 100% immunity from penalty,
- the second leniency applicant up to 50% reduction in penalty and
- the third leniency applicant up to 30% reduction in penalty.
In the case of Indian Railways tenders for supply of Brushless DC Fans (2013), CCI published its first leniency decision granting a 75% reduction in penalty to a leniency applicant who came forward after the CCI commenced investigation of the anti-competitive conduct.
The Lesser Penalty Regulations provide incentives for companies and individuals to pro-actively assist in cartel enforcement.