Regulation of combinations under the Competition Act, 2002: Balancing growth and fair competition

Introduction

The Competition Act, 2002 is a crucial piece of legislation in India designed to promote and sustain fair competition in the market. It replaced the outdated Monopolies and Restrictive Trade Practices (MRTP) Act, shifting the focus from curbing monopolies to fostering a competitive marketplace. The Act aims to prevent practices that have an adverse effect on competition, promote and sustain market competition, protect the interests of consumers, and ensure freedom of trade. Through the establishment of the Competition Commission of India (CCI), the Act empowers this regulatory body to oversee practices that could harm competition, including abuse of dominant positions, anti-competitive agreements, and the regulation of mergers and acquisitions, known as "combinations."

What is a Combination?

Under the Competition Act, 2002, combinations refer to mergers, acquisitions, or amalgamations that could potentially impact competition in the relevant market.
As per Section 5 of the Act, a combination is defined based on certain asset and turnover thresholds. Specifically, any acquisition, merger, or amalgamation where the combined assets of the entities exceed ₹2,000 crores or the turnover exceeds ₹6,000 crores within India (or respective global thresholds of $1 billion in assets and $3 billion in turnover) must be notified to the Competition Commission of India (CCI)[1].
The thresholds help the CCI focus on larger transactions that are more likely to affect market dynamics. The Act ensures that combinations which may significantly affect competition are scrutinized, while smaller deals that are unlikely to impact the market are exempted from such regulatory oversight.

Importance of Regulating Combinations

Regulating combinations, whether mergers, acquisitions, and amalgamations, is essential to prevent the creation of monopolies or entities that could distort market competition.
In the absence of such regulation, large companies may merge or acquire smaller ones, leading to reduced competition, price manipulation, and a lack of innovation. By regulating combinations, the CCI seeks to ensure that these market activities do not hinder competition or harm consumers.
However, the challenge lies in balancing business growth with fair competition.
While mergers and acquisitions can drive economic expansion, innovation, and efficiency, they also risk creating dominant entities that could exploit their market position. Thus, the regulation of combinations requires a nuanced approach that promotes growth without compromising the competitive structure of the market.
This delicate balance is central to the objectives of the Competition Act, ensuring that business expansion aligns with the interests of a competitive and fair marketplace.

Regulatory Framework for Combination

The regulatory framework for combinations is primarily governed by Sections 5 and 6 of the Competition Act.
While Section 5 defines combinations, Section 6 prohibits combinations that cause or are likely to cause an appreciable adverse effect on competition (AAEC) within India. Additionally, Section 3(1) prohibits agreements that cause or are likely to cause an AAEC in India. This means that even if a combination meets the financial thresholds, it will only be blocked if it harms competition.
Section 6(2) mandates that any party involved in a combination must notify the CCI within 30 days of the final approval of the merger or acquisition agreement. Failure to notify can result in penalties under Section 43A, which provides for fines of up to 1% of the total turnover or assets of the combination, whichever is higher.
The CCI assesses combinations based on factors like market share, potential barriers to new entrants, and consumer impact, as provided in Section 20(4).

Role of the Competition Commission of India (CCI) in regulating Combinations

The CCI plays a critical role in reviewing and approving combinations to ensure that they do not negatively impact market competition.
Once notified, the CCI conducts a preliminary assessment, typically within 30 working days, as provided under Section 31(1), to determine whether the combination raises any competitive concerns.
If no concerns are found, the combination is approved. However, if the CCI suspects that the combination could cause an appreciable adverse effect on competition, a more detailed inquiry is initiated under Section 29(2).
The CCI’s decisions have shaped India's competition law jurisprudence, with landmark rulings such as the Holcim-Lafarge merger[2], where the CCI approved the global cement merger subject to divestment of assets in the Indian market to prevent market dominance, highlighting its role in maintaining a competitive balance.

Objectives of Regulating Combinations

1. Preventing Market Monopoly and Abuse of Dominance

Unchecked combinations or especially mergers and acquisitions can result in the creation of monopolistic entities that hold an unfair market advantage, leading to abuse of dominance. When companies combine to form larger entities, they can eliminate competitors, reduce competition, and eventually control pricing, distribution, and other market conditions.
This can harm smaller businesses that are unable to compete with the newly-formed dominant player, often leading to market exit or reduced innovation. Additionally, consumers can be adversely impacted through higher prices, fewer choices, or lower-quality products and services.
The Competition Act, 2002, through Section 6, seeks to prevent combinations that would lead to the creation of monopolies or entities that can abuse their dominant market position. A dominant position, as defined under Section 4 of the Act, refers to a situation where an enterprise can operate independently of competitive forces or affect its competitors, consumers, or the market in its favor. One landmark case illustrating this is the CCI’s ruling in the Jet-Etihad deal[3], where the CCI approved the acquisition with strict conditions to ensure the merged entity did not gain an unfair advantage in the Indian aviation sector.
Unchecked combinations can eliminate competition, creating monopolies.
Abuse of dominance harms consumers and small businesses.
The CCI prevents combinations that lead to monopolistic market structures, ensuring competition remains fair.

2. Promoting Economic Efficiency and Consumer Welfare

While preventing monopolies is crucial, another core objective of regulating combinations is to promote economic efficiency and consumer welfare. Combinations, when done properly, can drive economies of scale, reduce production costs, and increase operational efficiency. These benefits often translate into lower prices for consumers, better-quality products, and improved services.
The CCI encourages combinations that foster innovation, enhance efficiency, and result in overall economic growth, without compromising the competitive nature of the market. For example, in the Sun Pharma-Ranbaxy merger[4], the CCI approved the merger after requiring the divestment of certain overlapping products. This allowed the two pharmaceutical giants to combine resources and improve efficiency while ensuring that competition was maintained in specific product segments.
The CCI's objective is to create a balance where businesses can grow and combine to enhance their capabilities, provided that such growth does not lead to anti-competitive practices.
CCI encourages combinations that increase efficiency and reduce costs.
Economic growth and consumer benefits are promoted through healthy mergers.
Regulatory oversight ensures that efficiency gains do not lead to reduced competition.

Conclusion

The regulation of combinations under the Competition Act, 2002 plays a pivotal role in ensuring a fair and competitive marketplace in India. By defining and scrutinizing mergers and acquisitions, the Act seeks to prevent the emergence of monopolies and the abuse of dominant positions that can harm both consumers and smaller businesses. The Competition Commission of India (CCI) acts as a guardian of market integrity, balancing the need for economic growth with the imperative of maintaining competitive dynamics.
Through its regulatory framework, the CCI not only prevents anti-competitive practices but also promotes combinations that enhance efficiency and foster consumer welfare. Landmark cases demonstrate the delicate interplay between encouraging business growth and protecting market competition, showcasing the CCI’s commitment to a balanced approach.
As the economic landscape evolves, the ongoing challenge will be to adapt regulatory mechanisms that continue to foster innovation and growth while safeguarding the principles of fair competition. The CCI must remain vigilant and responsive to ensure that the benefits of combinations translate into real value for consumers and the broader economy, thereby achieving the ultimate objective of the Competition Act: to create a fair, transparent, and competitive market environment.

[1] Ministry of Corporate Affairs revises threshold limits for value of Assets and Turnover for purposes of combination filings under Competition Act, 2002 as a step towards ‘Ease of doing Business’
[2] Holcim and Lafarge complete merger to create LafargeHolcim (10 July 2015)
[3] Notice Given by Etihad Airways and Jet v. Unknown on 12 November, 2013.
[4] Matter of Sun Pharmaceutical Industries Ltd., Ranbaxy Laboratories Ltd., and Daiichi Sankyo Co., Ltd.

#CompetitionAct2002 #combinations #CCI #CompetitionCommissionofIndia #monopolies #Marketregulation #dominantposition #Faircompetition #Mergersandacquisitions #AAEC #AppreciableAdverseEffectonCompetition #economicgrowth #CompetitionPolicy #marketintegrity #CorporateMergers #SunPharma-RanbaxyMerger #Holcim-LafargeMerger #Jet-EtihadDeal