Definition
Merger control captures the legal structure of evaluating and adjudicating mergers and acquisitions to check for market control restrictions. The Competition Act of 2002 outlines the regulations in India that control mergers and acquisitions. The Act, under Section 5 creates a combination that encompasses circumstances in which one business by either direct or indirect means takes over another business by way of the purchasing of shares, assets, voting rights, etc., as well as mergers and amalgamations of businesses as long as the turnover or asset value of the businesses exceeds the Act’s threshold limit.1 Combinations that result in or are likely to result in an Appreciable Adverse Effect on Competition (AAEC) in the relevant market are prohibited by Section 6 of the Act, which also requires the Competition Commission of India (CCI) to review the combination before it can be finalised.2 Merger control is therefore preventive rather than punitive in nature.3 Merger control as a concept is aimed not at the prohibition of restructuring, but at the avoidance of market concentration that may result in a reduction of competition, facilitation of monopolistic conduct, an increase in prices, a reduction in choice for consumers, an impairment of innovation, all of which are at the expense of efficiency and overall positive contribution to economic development.
Merger Control’s Economic Foundation
The concept of merger control stems from the recognition that mergers have both benefits and drawbacks. Mergers can provide productive efficiencies and scale benefits, and can provide new products and services to the marketplace. Conversely, mergers can lessen competition and create or augment market power. The first generation of competition laws responded to monopolistic conduct ex post facto. In contrast, merger control is an ex ante regulation designed to prevent anti-consumer market conduct that would create or augment a monopolistic market. The intent is to prevent the further erosion of market competitiveness; it is not the intent of merger control to prevent the organic growth of a business. Modern merger control, according to Kokkoris and Shelanski, strives to maintain competitive enterprise structures while allowing mergers that create greater efficiencies and consumer costs and risks as a result.4
There are different competition concerns for each type of merger. Merger transactions that are horizontal will create markets of greater concentration and will create or enhance the ability of one or more firms to control the market. Vertical mergers will usually create efficiencies but may eliminate competition in the marketplace. Finally, conglomerate mergers that are unrelated will typically create minimal competition concerns, but in certain instances may create concentration concerns.5
Statutory Framework and Regulatory Process
Similar to other countries, India has a mandatory merger control mechanism that requires notifications to be given prior to the completion of mergers that reach specific financial criteria. By enabling the competition authority to assess the anti-competitive risk before the merger’s completion, the pre-merger notification serves to prevent the financial and legal hardship of undoing a merger after it has been finalised. A threshold based pre-merger notification system is designed to offer a compromise whereby the competition authority is able to exercise some level of control without unnecessarily interfering with most normal business transactions. This approach, whereby a combination is notified before the merger takes place rather than allowing the merger to take place and be reviewed afterwards, is consistent with the recommendations of the High Level Committee on Competition Law and Policy (1999). The Committee’s recommendations were designed to reduce the social and economic costs of a merger while preserving a level of certainty for business.6
With the Competition Act of 2002, India established a legal merger framework. In 2011, measures for combinations were added, further solidifying the regime. The legal foundation for merger control in India is found in Sections 5 and 6., where Section 6 regulates combinations that would or are likely to have an AAEC in the Indian market, while Section 5 describes the asset and turnover thresholds for defining combinations.7
Thresholds for Notifiable Combinations
The jurisdictional criteria for determining whether an acquisition, merger, or amalgamation constitutes a notifiable combination are outlined in Section 5 of the Competition Act of 2002. The Act employs an objective threshold approach, taking into account the enterprise group’s assets and sales following the merger as well as the assets and sales of the parties involved in the transaction.8 These thresholds apply to acquisitions, acquisitions of control of competing enterprises, and mergers or amalgamations. The CCI is only required to assess transactions of substantial economic significance. While avoiding needless regulatory barriers to transactions that are unlikely to alter the market’s structure, the notification system aims to give the CCI an ex ante opportunity to assess transactions that might have an AAEC.9 The Competition (Amendment) Act, 2023 establishes the Deal Value Threshold (DVT) to give the CCI the authority to examine pertinent transactions even in cases where the conventional asset and turnover thresholds are not exceeded, in light of the limitations of the traditional financial thresholds in digital and innovation-driven markets.10 The statutory thresholds may be modified by the Central Government via notification in order to reflect the evolving economic environment.11
Jurisprudential Development and Comparative Perspective
India’s merger control mechanism has improved from a crude threshold-based notifications model to a system that resonates more with an international approach to competition policy. Notably, the Competition Act, 2002 incorporated asset and turnover thresholds. However, the Competition (Amendment) Act, 2023 established the DVT, which grants the CCI the authority to examine transactions of considerable value, regardless of the target enterprise’s asset or turnover size. Because of the nature of the digital and innovation-based market and the lack of readily apparent financial competitiveness, this amendment seeks to fill a policy gap with respect to the acquisition of substantial DVTs in these markets.12
Article 2 of the EU Merger Regulation contains the Significant Impediment to Effective Competition (SIEC) test, which is used in the EU to evaluate mergers. Based on unilateral or coordinated impacts, SIEC permits intervention in the establishment or reinforcement of a dominance that would otherwise lead to a significant overall reduction in competition.13 According to Section 7 of the Clayton Act, which describes merger control in the US, the Department of Justice and the Federal Trade Commission are required to assess whether a merger is likely to significantly reduce competition or create a monopoly.14 Although India’s merger control system is highly influenced by European ex ante merger control systems, its statutory test of AAEC positions itself uniquely against domestic competition law.
Case Laws
Judicial rulings have played a key role in understanding merger control. In Continental Can v Commission (1973)15, the European Court of Justice stated that mergers which lead to dominance have the potential to distort competition. Thus, the case provided the basis for understanding today’s merger regulation.
Furthermore, in Airtours plc v Commission (2002)16, the General Court specified the standard in proving collective dominance and stated that a sound economic rationale must be provided in order to prevent merger.
Subsequently, in Tetra Laval BV v Commission (2005)17, the Court stated that the assessment of potential anti-competitive practices should be based on sound economic rationale, and that the potential for a negative impact on competition for conglomerate mergers should be based on solid evidence.
In the case of Sun Pharmaceutical Industries Ltd. and Ranbaxy Laboratories Ltd.18, the CCI found that there will be a reduction in competition in various therapy segments due to the merger. The deal was permitted after mandating the divestment of specific products in order to demonstrate its preference for dismemberment over rejection of a merger.
In Holcim Ltd. and Lafarge SA19, which is among the largest mergers of India, the CCI cleared the merger but mandated the sale of cement manufacturing plants and other assets within India to avoid concentration in adjacent market(s). This demonstrates the Commission’s attempt to preserve competition amid mergers.
The CCI approved the acquisition of Walmart Inc. and Flipkart Pvt Ltd20 on the grounds that, given its size and ability to impact India’s e-commerce sector, the merger is not anticipated to have a significant negative impact on competition. The decision explains the rationale for establishing the DVT under the Competition (Amendment) Act, 2023 and the Commission’s continued use of the effects-based approach.
In Bayer AG and Monsanto Company (2018)21 with the acquisition of Bayer and Monsanto, the Commission had to evaluate not only the current overlap between their products, but also the effects of consolidation on future innovations and competition in agro-biotech markets.
Conclusion
Merger control today has moved from a narrow definition based on dominance in the market and has evolved into a complex and sophisticated balance of managing economic efficiency, while safeguarding competitive market structures. Merger control within India today, and in particular post the implementation of the Competition (Amendment) Act, 2023, has incorporated within itself, a value threshold in order to manage the potential issues of large deals in the digital market. With the ever-changing market, a concrete merger control framework will balance the maintenance of market competition and the encouragement of business.
Author Details: Dr. A. Sridhar, Assistant Professor, NALSAR University of Law, Hyderabad
Ms. Aprichida Marak, Assistant Professor, St. Joseph’s College of Law, Bengaluru
Competition Act 2002, s 5 (as amended by the Competition (Amendment) Act 2023)↩︎
Competition Act, 2002, Sec. 6.↩︎
Neha Vyas, Competition Law (EBC Publishing 2021).↩︎
Ioannis Kokkoris and Howard Shelanski, EU Merger Control: A Legal and Economic Analysis (OUP 2014) ch 1.↩︎
Ibid↩︎
High Level Committee on Competition Law and Policy, Report of the High Level Committee on Competition Law and Policy (1999).↩︎
Competition Act 2002, ss 5–6.↩︎
Competition Act 2002, s 5 (as amended by the Competition (Amendment) Act 2023); Ministry of Corporate Affairs Notification No SO 1130(E) (7 March 2024). A combination is notifiable where: (i) the parties to the transaction have assets exceeding ₹2,500 crore in India or turnover exceeding ₹7,500 crore in India; or worldwide assets exceeding US1billion, includingatleast₹1, 000croreinIndia, orworldwideturnoverexceedingUS3 billion, including at least ₹3,000 crore in India; or (ii) the group to which the enterprise would belong after the transaction has assets exceeding ₹10,000 crore in India or turnover exceeding ₹30,000 crore in India; or worldwide assets exceeding US4billion, includingatleast₹1, 000croreinIndia, orworldwideturnoverexceedingUS12 billion, including at least ₹3,000 crore in India.↩︎
Competition Act 2002, s 20(4).↩︎
Competition Act 2002, s 5(d) (inserted by the Competition (Amendment) Act 2023); Competition Commission of India (Criteria of Combination) Rules 2024, r 4. A combination is also notifiable where the value of the transaction exceeds ₹2,000 crore and the target enterprise has substantial business operations in India, irrespective of whether the asset or turnover thresholds under s 5 are met.↩︎
Competition Act 2002, s 20(3). The Central Government may revise the jurisdictional thresholds prescribed under s 5 by notification, in consultation with the Competition Commission of India, having regard to changes in the Wholesale Price Index or fluctuations in exchange rates.↩︎
Competition Act 2002, s 5 (as amended); Competition (Amendment) Act 2023.↩︎
Council Regulation (EC) 139/2004 on the control of concentrations between undertakings (EU Merger Regulation) [2004] OJ L24/1, art 2.↩︎
Clayton Act 1914, 15 USC § 18.↩︎
Case 6/72 Europemballage Corporation and Continental Can Co Inc v Commission [1973] ECR 215.↩︎
Case T-342/99 Airtours plc v Commission [2002] ECR II-2585.↩︎
Case C-12/03 P Commission v Tetra Laval BV [2005] ECR I-987.↩︎
Sun Pharma/Ranbaxy (Competition Commission of India, Combination Registration No C-2014/05/170, 5 December 2014).↩︎
Holcim/Lafarge (Competition Commission of India, Combination Registration No C-2014/07/190, 30 March 2015).↩︎
Walmart/Flipkart (Competition Commission of India, Combination Registration No C-2018/05/571, 8 August 2018).↩︎
Bayer/Monsanto (Competition Commission of India, Combination Registration No C-2017/08/523, 14 June 2018).523↩︎
