Consolidation of domestic firm with foreign firm and for which approval of appropriate government is needed where the resulting company intends to be registered. With the expansion of economy and globalization firms either acquire or merge with other company to maximize profit and wealth. So, when a merger is done through foreign investment it is called cross borders merger. Such type of merger help firms to capture substantial market power.
Types of Merger
Merger can be either inbound merger or outbound merger.
In an inbound merger, generally, the resultant entity can transfer or issue securities to any person resident outside India provided the transfer takes place as per the entry routes, pricing guidelines, sectoral caps/investment limits and reporting requirements issued by RBI.
In outbound merger a person resident in India can acquire or hold securities of the resultant foreign company in accordance with relevant RBI regulations. Once the merger is approved, the guarantees or borrowings of the Indian company become liabilities of the resultant foreign company who must, consequently, repay them in accordance with approved merger scheme.
Cross borders merger are permitted in India subject to Companies Act and Competition Act. One famous example of cross borders merger is Tata Steel Company acquiring Corus, a U.K based company for $ 13.70 Billion.
Need for Regulation
The structure and the organic growth of every society is different from the other and thus law is needed to regulate economic growth, for instance, protecting small domestic merchant and markets from monopolistic trade practices. The Competition Act, 2002 has been enacted with the purpose of providing a competition law regime that meets and suits the demands of the changed economic scenario in India.
Competition Act, 2002 reviewing cross border merger
On August 2009 the Ministry of Corporate Affairs issued a notification pursuant to which the Monopolies and Restrictive Trade Practices Act, 1969 was repealed and replaced by the Competition Act, 2002 with effect from September 2009.
Need for Competition Act
The globalization and radical changes in economy have expanded worldwide competition and has created a requirement for an undeniably coordinated and developing legal framework. Thus, it is the duty of the Competition Commission to make its best efforts in eliminating the practices, which might have an adverse effect on the competition and consumers in order to protect such competition and ensure freedom of trade in the market.
As per Competition Act requirement of assets and turnover for company to merge
Section 5 in the Competition Act, 2002
For enterprise created as a result of the amalgamation:
An individual has combined assets in India of value of more than rupees one thousand crore or combined turnover more than rupees three thousand crore; or an individual having combined worldwide assets of more than US$5hundred million or combined worldwide turnover of more than US$15 hundred million.
The group has assets in India of more than 40 billion rupees or turnover in India of 120 billion rupees; or the group has worldwide assets of value more than of US$2 billion or worldwide turnover of value more than of US$6 billion.
Other Legal Aspect
Section 6(1) of the Competition Act 2002 deals with probations on combinations which may cause adverse effects in India. Section 6(2) of the same act makes it a mandatory for the parties entering into combination, to give a formal notice to the competition commission, which contains the relevant details of the intended combination within a limited time of 30 days of the specified events in relation to the pending combination.
To initiate investigation with reference to Section 5 that do the merger has any adverse effect on market, procedure for it should be in accordance to Section 20 of the same act. [Note: such an initiative is to be be taken before completion of 1 year of merger.] The inquiry starts with notification to competition commission and after getting notice and fees paid, the commission has to make opinion about the impact of combination on market and then pass order accordingly as per Section 31 of the Act. A total of 210 days is given to competition commission to pass an order under section 31.Section 32 of the Competition Act explicitly allows the Competition Commission to examine a combination and pass order accordingly if it has adverse impact on marketing environment.
In addition, the Competition Commission has the power to compel parties to publish the details of a proposed combination to enable any person from the public to raise objections to such combination.
Competition Commission of India (CCI) exercises powers under Section 43-A of the said 2002 Act to impose penalty for non-furnishing of information on relevant combinations to the CCI. For instance, the CCI imposed a penalty of 50 million rupees on Piramal Enterprises for failing to notify previously closed interconnected steps of a transaction. The COMPAT upheld both penalties and the notify previously closed interconnected steps of a transaction. The COMPAT upheld both penalties and the Supreme Court of India upheld the penalty imposed in the SCM Soilfert case.
Time frame for appeal or judicial review:
Section 53B(5) of the Competition Act provides that appeals before the NCLAT shall be dealt with Section 53B(5) of the Competition Act provides that appeals before the NCLAT shall be dealt with expeditiously and the NCLAT shall endeavour to dispose of appeals within six months. Appeals of merger expeditiously and the NCLAT shall endeavour to dispose of appeals within six months. Appeals of merger decisions have generally been completed within this period.
The globalization and radical changes in economy have expanded worldwide competition and have created a requirement for an undeniably coordinated and developing legal framework. Thus, the introduction of Competition Act has put limitation on the flooding of investing in order to protect the domestic market and enabling fair competition. But, hardly surprising that merger regulation with the intent of ensuring competitive markets and consumer welfare has attracted scathing criticism from economists and legal scholars worldwide. Therefore, there is a need to strike the right balance between proper regulation and over-regulation and perhaps learn from and draw upon the experiences of its own regulatory authorities as well.
- India’s Cross Borders Merger Regulations, 2018: An Overview – Resham Jain
- Ravi Pratap Singh, “Implications Of Cross Border Mergers Under Indian Competition Law – A Comparative Analysis With US & EC Jurisdictions”.
- Competition Law and Cross border merger – Shikha Tripathi
- Merger control in India – Lexology
This Article Written by Niharika Singh, Student of GIBS, Rohini.