Antitrust Regulations In M&A: Navigating The Legal Landscape

Introduction

Antitrust Laws also known as Competition Laws are formulated to promote fair competition between enterprises and prevent monopolistic practices, anti-competitive agreements and abuse of dominant position by enterprise. The main objective behind antitrust laws is to regulate the behavior of companies and obstruct activities like price-fixing, market allocation and merges that could reduce competition so as to protect consumers and maintain economic competition.

Mergers & Acquisitions are corporate events where one company combines with another company either by merging together and forming a new entity or by acquiring the business of the other company. These decisions are taken to expand market presence, diversify product offerings, to gain a competitive edge, improve efficiency leading to cost savings and financial gains.

The Mergers & Acquisitions in India are majorly governed by-

1. The Companies Act,2013
2. The Indian Contract Act, 1872
3. The Specific Relief Act, 1963
4. The Income Tax Act, 1961
5. The Competition Act, 2002
6. The Foreign Exchange Management Act, 1999

The Competition Act, 2002 regulates combination i.e. mergers and acquisitions of companies and prohibits anti-competitive agreements and abuse of dominant position.

Overview of Competition Laws

Monopolies and Restrictive Trade Practices Act 1969 was the first competition law to be enacted in India to prevent concentration of economic power in the hands of few people because it was unfair to consumers and thus prohibited any monopolistic and restrictive trade practices.

After the economic liberalization in 1991, The Competition Act 2002 replaced the MRTP Act and the enforcement authority named the Competition Commission of India was established. This Act was designed to regulate the conduct of enterprises and be responsive to the economic realities of the country. In 2007, 2009 and recently in 2023, the Competition Act was amended in order to provide additional powers to the Competition Commission of India to enforce competition laws effectively, streamline operations and foster a business friendly environment.

Antitrust Regulations regarding M&A

Section 3 of the Competition Act, 2002 covers anti-competitive agreements and Section 4 deals with abuse of dominant position. Other sections such as Section 5, 6, 20, 29, 30 and 31 deals with various types of combinations.

Section 5 provides that an acquisition of shares, voting rights, assets of or control over an enterprise, or a merger or amalgamation of enterprises, requires the prior approval of the Competition Commission of India (CCI) when certain prescribed asset or turnover thresholds are exceeded. The current thresholds are as follows:

Where the parties have domestic presence

1. a) At least INR 80 billion in terms of assets or INR 240 billion in terms of turnover on a group-wise basis, or
2. b) At least INR 20 billion in terms of assets or INR 60 billion in terms of turnover on an entity-wise basis

Where the parties have cross-border presence-

1. a) Globally, at least USD 4 billion with at least more than INR 10 billion in India in terms of assets or USD 12 billion with at least more than INR 30 billion in India in terms of turnover on a group-wise basis, or
2. b) At least USD 1 billion with at least more than INR 10 billion in India in terms of assets or USD 3 billion with at least more than INR 30 billion in India in terms of turnover on an entity-wise basis.

The Government has exempted an enterprise, whose control, shares, voting rights or assets is being acquired, has assets of the value of not more than INR 3.5 billion or turnover of not more than INR 10 billion in India from the provisions of section 5.

Section 6 provides that any transaction that meets the thresholds specified in Section 5 must be notified to the CCI and cannot be consummated without the prior approval of the CCI.In addition to this, the Competition Commission of India governs the manner in which the authority will regulate the combination that have caused or are likely to cause an appreciable adverse effect on competition in India.

Due to significant growth of Indian markets and a paradigm shift in the way businesses operate in the last decade, new amendments in the Competition Act are brought forth along with revised regulations proposed by CCI.

In 2023, the Competition Act, 2002 was amended and a comprehensive range of revisions were introduced in the Act which also included changes to the merger control regime as well as enforcement framework in the Act.

The concept of ‘deal value’ threshold was introduced in the 2023 amendmentin which a notification to the CCI will be triggered and a prior approval of CCI will be required in the cases where the value of the transaction (i.e. acquisition, merger or amalgamation) exceeds INR 2000 crore and the target enterprise in question has ‘substantial business operations in India’. This DVT is mainly meant for digital and new-age markets, where target entities may have minimal assets and turnover, but may possess significant potential in terms of data, technology, innovation, etc.

The other amendments brought forth in 2023 are as follows-

1. The definition of ‘control’ and ‘turnover’ were given wider scope.
2. Initially, all combinations satisfying the asset and turnover test (unless exempted) had to notify CCI within 30 days of the approval of the merger or execution of the agreement for acquisition but now this time period has been repealed and the CCI has to be notified any time before theconsummation of the combination.
3. Initially, no combination could come into effect until 210 days have passed from the date on which notice has been given to CCI or CCI has passed orders, whichever is earlier. But now, this timeline has been reduced to 150 days.
4. Initially, the Act exempted acquisitions by public financial institutions, foreign institutional investors, banks and venture capital funds from the requirement of seeking CCI’s prior approval if the acquisition is pursuant to any covenant of a loan agreement or investment agreement. However, these entities were required to notify about the combination within 7 days from the date of the acquisition. Now, the Act continues with the exemptions and also includes all category I alternative investment funds. However, the exempted entities will no longer be required to notify about the combination within 7 days from the date of the acquisition.
5. Certain changes in the procedures and processes have been introduced in relation to the investigation of combinations.
6. A number of changes were introduced regarding provisions dealing with the penalties imposed under this Act.

Conclusion

With the introduction of robust regulatory frameworks and increasing scrutiny by the Competition Commission of India (CCI), the landscape for mergers and acquisitions has evolved significantly. While these regulations may present challenges for enterprises, it ultimately ensures that the market remains competitive, preventing monopolistic practices and fostering a healthier and more vibrant economic environment in India. As the Indian economy continues to grow, the proper enforcement and adaptation of antitrust regulations will remain crucial for sustaining a dynamic and equitable marketplace.

Author : Saumya Tripathi,  in case of any queries please contact/write back to us via email to [email protected] or at IIPRD.