Procedure for investigation of combinations in competition acts 2002

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The procedure for investigation into a combination is set out in section 29 of the CompetitionAct, 2002 and Regulation 19 of the Combination Regulations 2011. Merger control can bedivided into two phases:

Phase I: The Competition Commission of India must form a prima facie opinion as towhether a combination has caused or is likely to cause an appreciable adverse effect oncompetition within the relevant market in India within 30 working days of receipt of thenotification. The time period can be extended by 15 working days in cases where the partiesoffer to modify the terms of the combination. The CCI can either decide to approve thecombination within this period or subject it to further investigation. If the CCI forms a primafacie opinion that a combination is likely to cause, or has caused, an appreciable adverseeffect on competition, it initiates a detailed investigation (Regulation 19(1), CombinationRegulations 2011).

Phase II: The CCI can conduct the investigation itself or direct its Director General toconduct an investigation. It must take a final decision on whether to approve, modify or rejectthe combination within an additional working 180 day, failing which the combination willbe deemed to have approved (section 29(1A) and section 31(11) of the Competition Act,2002 and Regulation 28(6) of the Combination Regulations 2011). In forming its prima facie opinion, the CCI can (Regulations 19(2) and (3) of theCombination Regulations, 2011):

a. Ask parties to the combination to file additional information.

b. Accept modifications proposed by the parties.

c. Ask for information from any other enterprise in relation to a proposed combination.

If CCI is of a prima facie opinion that a combination is likely to cause appreciable adverseeffect on competition, it will issue a show cause notice to the parties to the combinationcalling on them to respond within 30 days of the receipt of the notice to explain why aninvestigation should not proceed [Section 29(1) of the Competition Act, 2002].

After receipt of the response to the notice to show cause from the parties, the CCI can decideto call for a report from the Director General (Regulation 20(1) of the CombinationRegulations 2011). Within seven working days of the receipt of the parties’ response orreceipt of the DG’s report (whichever is later), the CCI will direct the parties to publishdetails of the combination to the public within a further ten working days (Section 29(2) ofthe Competition Act, 2002).

The CCI can invite affected or likely to be affected parties or members of the public to filewritten objections to the combination within 15 working days from the date of publication ofdetails of the combination (Section 29(3) of the Competition Act, 2002).The CCI can call for additional information from the parties to the combination within 15working days of the expiry of the time for filing objections by affected parties or members ofthe public. The parties must file additional documents within a further 15 days (Section 29(4) and (5) of the Competition Act, 2002). Once it has received the requested information, the CCI must deal with the case within 45working days (Section 29(6) of the Competition Act, 2002).

In short: The procedure for investigating a Combination, comprise of three steps-

1. A relevant market is identified according to the definition accorded under the Act,this entails identifying both the relevant product market as well as the relevantgeographic market.

2. The Combination is scrutinised to determine whether the combination has an appreciable adverse effect on competition in the relevant market. The criteria for suchan analysis is laid down under Section 20(4) of the Act.

3. On the basis of (1) and (2), the Commission decides whether the combinationshouldbe approved, rejected or approved with modifications to the combination. Themodifications to the Combinations are made on the basis of how the anti-competitiveeffects could be minimised or eliminated.

Timelines: The Competition Act, 2002 provides a time period of 210 days to CCI to take adecision on a Combinations filing. Since time is a crucial element in Combination cases, a provision to reduce the time period to one hundred and eighty days on best endeavour basis has been included in the Combinations Regulations. The Commission has to form a primafacie opinion within thirty days as to whether the Combination is likely to cause anappreciable adverse effect on competition. In pursuance of this provision, most filings arelikely to be approved in this shorter time frame. Only few filings with serious competitionconcerns are likely to go beyond this period to the second stage of investigation. These willbe automatically cleared at the end of 210 days, if no order is passed.

As per section 2(r) of the Competition Act, 2002, “relevant market” means the market which may bedetermined by the Commission with reference to the relevant product market or the relevant geographic marketor with reference to both the markets.

As per section 2(t) of the Competition Act, 2002, “relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason ofcharacteristics of the products or services, their prices and intended use. As per section 2(s) of the Competition Act, 2002, “relevant geographic market” means a market comprisingthe area in which the conditions of competition for supply of goods or provision of services or demand of goodsor services are distinctly homogenous and can be distinguished from the conditions prevailing in theneighbouring areas.

Procedure for investigation of Combinations

Filing of Combination Notice Review of Notice Combination cleared within 30 days Detailed inquiry is launched Combination deemed to be cleared if no order passed within 210 days Inquiry Report Considered by the Commission Combination approved Combination approved with Modifications Combination not approved

Remarks: bCertain transactions that meet a specified financial threshold are referred to as combinationsand must be notified to the CCI and are subject to review by the CCI for possible adverseeffect on competition. Such transactions cannot be completed until the CCI has explicitlyapproved the transaction. The transactions referred to here may be in the nature of acquisitionof shares, voting rights, control over assets, mergers and de-mergers and amalgamations thatmeet the prescribed financial thresholds.For example: In March, 2013, the CCI approved British liquor company Diageo PLC’s offerto buy a majority share in United Spirits, an Indian company. The CCI said the relevantgeographic market was the whole of India. As to product market, the probe focused on wineand branded spirits. CCI observed that United Spirits and Diageo are mostly in differentprice/quality categories so there is little competitive overlap. In the whiskey market, wherethe two companies are close competitors, the CCI observed there are other players withmultiple brands effectively competing in the market.While the CCI has been relatively quick to review and approve mergers, failure to file hasresulted in penalties and many times of a considerable sum. CCI does take seriously instanceswhere companies fail to file or make a timely filing with the Commission. It is important forcompaniesdoing business in India or purchasing Indian assets (even indirectly) to be awareof the reporting thresholds. In fact, there are over 100 countries withcompetition agenciesand filing requirements, so careful consideration must begiven to worldwide filingrequirements.