ACKNOWLEDGMENT

First of all, I would like to acknowledge our Professor of Competition Law, Dr. Mayank
Pratap, for his interesting and comprehendible lectures, which imparted on me a good
understanding of the topic and hence, helped in preparing this project.

Thereafter, I would like to acknowledge my seniors, who helped me in clarifying my doubts

regarding the understanding of project topic.

Last, but not the least, I would like to acknowledge my classmates for providing me their
books, when I was in need of them, and for keeping me alert about the deadline of
submission of the project.

1
CONTENT

1. INTRODUCTION PAGE 03

2. SECTION 5 IN THE COMPETITION ACT, 2002 PAGE 04

3. AMENDMENTS PAGE 07

4. SCOPE PAGE 08

5. FORMS OF COMBINATION IN USA PAGE 10

6. MERGER UNDER SECTION 33(1) OF (ENGLISH) ENTERPRISE PAGE 11

ACT, 2002: TEST SUBSTANTIAL LESSENING OF
COMPETITION

7. CASE LAW PAGE 13

8. BIBLIOGRAPHY PAGE 16

2
INTRODUCTION
The Competition Act, 2002 (as amended), follows the philosophy of modern competition
laws and aims at fostering competition and protecting the Indian markets against anti-
competitive practices. The Act prohibits the anti-competitive agreements, abuse of dominant
position and regulates combinations (mergers and acquisitions) with a view to ensure that
there is no adverse effect on competition within India. The provisions of the Act relating to
regulation of combinations have been enforced with effect from 1st June, 2011.

Broadly, a combination under the Act means acquisition of control, shares, voting rights or
assets, acquisition of control by a person over an enterprise where such person has direct or
indirect control over another enterprise engaged in competing businesses.

Combinations are classified into horizontal, vertical and conglomerate combinations. If a

proposed combination causes or is likely to cause appreciable adverse effect on competition,
it cannot be permitted to take effect.

Horizontal combinations are those that are between rivals and are most likely to cause
appreciable adverse effect on competition. Vertical combinations are those that are between
enterprises that are at different stages of the production chain and are less likely to cause
appreciable adverse effect on competition. Conglomerate combinations are those that are
between enterprises not in the same line of business or in the same relevant market and are
least likely to cause appreciable adverse effect on competition.

The thresholds are specified in the Act in terms of assets or turnover in India and outside
India. Entering into a combination which causes or is likely to cause an appreciable adverse
effect on competition within the relevant market in India is prohibited and such combination
shall be void.

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SECTION 5 IN THE COMPETITION ACT, 2002
5. Combination.—The acquisition of one or more enterprises by one or more persons or
merger or amalgamation of enterprises shall be a combination of such enterprises and
persons or enterprises, if—
(a) any acquisition where—
i. the parties to the acquisition, being the acquirer and the enterprise, whose
control, shares, voting rights or assets have been acquired or are being acquired
jointly have,—
(A) either, in India, the assets of the value of more than rupees one thousand crore
or turnover more than rupees three thousand crore; or
(B) in India or outside India, in aggregate, the assets of the value of more than
five hundred million US dollars or turnover of more than fifteen hundred
million US dollars; or
ii. the group, to which the enterprise whose control, shares, assets or voting rights
have been acquired or are being acquired, would belong after the acquisition,
jointly have or would jointly have,—
(A) either in India, the assets of the value of more than rupees four thousand crore
or turnover of more than rupees twelve thousand crore; or
(B) in India or outside India, in aggregate, the assets of the value of more than
two billion US dollars or turnover of more than six billion US dollars; or
(b) acquiring of control by a person over an enterprise when such person has already direct
or indirect control over another enterprise engaged in production, distribution or trading of
a similar or identical or substitutable goods or provision of a similar or identical or
substitutable service, if—
i. the enterprise over which control has been acquired along with the enterprise
over which the acquirer already has direct or indirect control jointly have,—
(A) either in India, the assets of the value of more than rupees one thousand crore
or turnover of more than rupees three thousand crore; or
(B) in India or outside India, in aggregate, the assets of the value of more than
five hundred million US dollars or turnover more than fifteen hundred million
US dollars; or
ii. the group, to which enterprise whose control has been acquired, or is being
acquired would belong after the acquisition, jointly have or would jointly have,—

4
 (A) either in India, the assets of the value of more than rupees four thousand crore
or turnover of more than rupees twelve thousand crore; or
(B) in India or outside India, in aggregate, the assets of the value of more than
two billion US dollars or turnover of more than six billion US dollars; or
(c) any merger or amalgamation in which—
i. the enterprise remaining after merger or the enterprise created as a result of the
amalgamation, as the case may be, have,—
(A) either in India, the assets of the value of more than rupees one thousand crore
or turnover of more than rupees three thousand crore; or
(B) in India or outside India, in aggregate, the assets of the value of more than
five hundred million US dollars or turnover of more than fifteen hundred
million US dollars; or
ii. the group, to which the enterprise remaining after the merger or the enterprise
created as a result of the amalgamation, would belong after the merger or the
amalgamation, as the case may be, have or would have,—
(A) either in India, the assets of the value of more than rupees four thousand crore
or turnover of more than rupees twelve thousand crore; or
(B) in India or outside India, the assets of the value of more than two billion US
dollars or turnover of more than six billion US dollars.
Explanation.—For the purposes of this section,—
(a) “control” includes controlling the affairs or management by—
i. one or more enterprises, either jointly or singly, over another enterprise or group;
ii. one or more groups, either jointly or singly, over another group or enterprise;
(b) “group” means two or more enterprises which, directly or indirectly, are in a position
to—
i. exercise twenty-six per cent. or more of the voting rights in the other enterprise;
or
ii. appoint more than fifty per cent. of the members of the board of directors in the
other enterprise; or
iii. control the management or affairs of the other enterprise;
(c) the value of assets shall be determined by taking the book value of the assets as shown, in
the audited books of account of the enterprise, in the financial year immediately preceding
the financial year in which the date of proposed merger falls, as reduced by any depreciation,
and the value of assets shall include the brand value, value of goodwill, or value of copyright,
5
patent, permitted use, collective mark, registered proprietor, registered trade mark,
registered user, homonymous geographical indication, geographical indications, design or
layout-design or similar other commercial rights, if any, referred to in sub-section (5) of
section 3.

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AMENDMENTS
Section 5 was amended by the Competition (Amendment) Act, 2007 for the reasons stated in
clause 4 of the competition (Amendment) Bill, 2007 which is given below:

CLAUSE 4- This clause seeks to amend section 5 of the Competition Act, 2002
relating to combination.

Under the existing provisions of section 5, there is no specific provision there is no

local nexus for foreign entities which are parties to the combinations.

It is proposed to substitute item (B) is sub-clause (i) and item (B) in sub-clause (ii) of
the clause (a) of section 5 to provide for local nexus for combinations involving
foreign entity and an Indian entity. A threshold value of local assets and operations
in terms of asset value of at least rupees 500 crores and turnover of at least rupees
1500 crores, is proposed for operations in India in addition to the existing global
asset or turnover limits provided in the act.

This section has been further amended by the Competition (Amendment) Act, 2012. The
relevant portion is given below:

Amendment of section 5- In section 5 of the principal Act, in the Explanation, in

clause (b), in sub-clause (b), in sub-clause (i), for the words “twenty-six percent.”,
the words “fifty percent.” shall be substituted.

7
SCOPE OF SECTION 5
Section 5 of the Competition Act, 2002 deals with combination which may create adverse
effect on competition in the relevant market in India. The acquisition of one or more
enterprises by one or more persons or merger or amalgamation of enterprises shall be such
combination under the following circumstances:

(1) Where parties to the acquisition acquire control shares, voting rights or assets of an
enterprise assets will be more than rupees one thousand crores or turnover more than rupees
three thousand crores: or (b) in India or outside India the aggregate value of the assets is
morethan five hundred million US dollars, including at least rupees five hundred crores in
India or turnover more than fifteen hundred million US dollars, including at least rupees
fifteen hundred crores in India.1

(2) Where the group acquires an enterprise whose control, shares, assets or voting rights
would belong after acquisition jointly (a) either in India in which case the value of the assets
is more than rupees four thousand crores or turnover more than rupees twelve thousand
crores; (b) in India or outside India the aggregate value of the assets is more than two billion
US dollars, including at least rupees five hundred crores in India, or turnover more than six
billion US dollars, including at least rupees fifteen hundred crores in India.

(3) Where acquiring control by a person over an enterprise, such person has already direct or
indirect control over another enterprise engaged in production, distribution or trading of a
similar or identical or substitutable goods or provision of a similar or identical or
substitutable services if (a) the enterprise has direct or indirect control jointly (i) either in
India the assets the valuation of which is more than rupees one thousand crores of turnover
more than rupees three thousand crores; or (ii) in India or outside India the aggregate value of
the assets is more than five hundred million US dollars including at least rupees five hundred
crores in India or turnover is more than fifteen hundred million US dollars including at least
rupees fifteen hundred crores in India.

(4) Where acquiring control by a group over an enterprise which wou belong after the
acquisition jointly, it would have (i) either in India, the assets the value of which is more than
rupees four thousand crores or turnover is more than six billion US dollars including at least
rupees fifteen hundred crores in India.2

(5) Where the enterprise after merger or amalgamation may have (i) either in India the assets
of the value of more than rupees one thousand crores; or (ii) in India or outside India the
aggregate value of the assets is more than five hundred million US dollars including at least
rupees five hundred crores in India, or turnover is more than fifteen hundred million US
dollars, including at least rupees fifteen hundred crores in India.

1
Competition Act, 2002, section 5(a)
2
Competition Act, 2002, section 5(b)

8
(6) Where the group after merger or amalgamation would belong to the enterprise and it
would have (i) either in India the assets of the value of more than rupees four thousand crores
or turnover more than rupees twelve thousand crores; or (ii) in India or outside India the
aggregate value of the assets is more than two billion US dollars, including at least rupees
five hundred crores in India or turnover is more than six billion US dollars including at least
rupees fifteen hundred crores in India.3

For the purposes of section 5 of the Competition Act, 2002 certain terms used therein have
been defined by way of Explanation. A. Control. The word "control" has been defined to
include the controlling affairs or management by (i) one or more enterprises, either jointly or
singly over another enterprise or group; (ii) one or more groups, either jointly or singly, over
another group or enterprise. This definition is inclusive. Generally, the word "control" is
synonymous with superintendence, management or authority to direct, restrict or regulate.
Control is exercised by a superior authority in exercise of its supervisory power.4

B. Group. The word "group" means two or more enterprises which, directly or indirectly, are
in a position to (i) exercise twenty-six percent or more of the voting rights in the other
enterprise; (i) appoint more than fifty percent of the members of the board of directors in the
other enterprise; or (iii) control of the management or affairs of the other enterprise. This
definition is exclusive.

Determination of Value of Assets.5 The value of assets is to be determined by taking the book
value of the assets as shown in the audited books of account of the enterprise, in the financial
year immediately preceding the financial year in which the date of proposed merger falls as
reduced by depreciation. The value of assets shall include the brand value, value of goodwill
or value of copyright, patent, permitted use, collective mark, registered proprietor, registered
trade mark, registered user, harmonious, geographical indication, design or layout-design or
similar other commercial rights, if any, referred to in sub-section (5) of section of this Act.

3
Competition Act, 2002, section 5(c)
4
Shamrao Vithal Co-op. Bank Ltd. v. Kasargode Panduranga Mallya, AIR 1972 SC 1248: (1972) 2 SCR 162:
(1972) 4 SCC 600.
5
See Explanation (c) to section 5, Competition Act, 2002.

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FORMS OF COMBINATION IN USA
In USA the form of the combination or contract is immaterial in determining its validity
under the Anti-trust laws. It is not necessary to show that the members of the combination
expressly bound themselves each with the other to establish and maintain a monopoly, but it
is sufficient if it is shown that they acted together in pursuance of a common object.6
Corporate inter-relationships are not determinative of the applicability of the antitrust laws.
The fact that competition allegedly restrained is that between affiliated corporations does not
negative a violation of the act where the affiliation is assertedly one of the means of
effectuating the illegal conspiracy not to compete.7 Integration, whether vertical or horizontal
or both, is not per se unlawful under the Sherman Anti-Trust Act. "Horizontal integration" is
a combination under one management of a number of similar industries on same
level;"vertical integration" is a combination under one management of different business
functions at more than one level.8

Horizontal Combinations: involve the merging of enterprises or firms with identical level of
production process, with substitute goods and are competitors. The horizontal combination is
primarily a friendly merger between companies, although it can be a takeout of one by the
other. Of course the synergy formed by this combination enhances the business performance,
financial gains and shareholder value in the long run. The cost efficiency with the staff cut-
offs leads to the increased margins of the company. However this tends to pave way for
reduced competition as a monopolist agenda emerges from the combinations of powerful
enterprises, along with the unemployment that follows which has a very drastic and adverse
effect on the economy of the country. It is also bad for the consumers as the reduced
competition gives the companies a “higher pricing power.” Therefore these merges are the
chief focus and are often scrutinised by the Competition Law Authority for the above given
reasons.

Vertical Combination/merging: is “combining of business firms engaged in different

phases of the manufacture and distribution of a product into an interacting whole”. This leads
to increased competitiveness, a greater process control, wider market share, a better supply
chain co-ordination and decline in cost as this sort of integration is the structuring of supply
chain of companies under a particular company.

6
Corpus Juris Secundum, Vol. 58, P- 40.
7
U.S. v. Yellow Cab Co., 67 S ct 1560.
8
U.S. v. New York Great Atlantic and Pacific Tea Co., DC III, 67 F Supp 626.

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 Merger under Section 33(1) of (English) Enterprise Act,
2002: Test Substantial Lessening of Competition
In the Office of Fair Trading v. IBA Healthcare,9 a company engaged in the supply of
software and systems to the healthcare applications market offered to acquire the issued share
capital of another such company which had the effect of the merger provisions of the
(English) Enterprise Act, 2002. The offer was notified to the Office of Fair Trading (the
OFT). Section 33(1) of the said Act, 2002 provided that the OFT was to make a reference to
the Competition Commission if it believed that it is the case that (a) arrangements were in
progress which would result in the creation of a merger situation, and (b) such situation "may
be expected to result in a substantial lessening of competition within any market or markets
in the United Kingdom for goods or services. A third company engaged in the same market
complained to the OFT about the effect of the anticipated merger. The OFT initiated an
investigation and concluded that the creation of the proposed merger situation would not fall
within section 33(1) (b) of the said 2002 Act. It did not, therefore, refer the proposed merger
to the Competition Commission. The third company applied to the Competition Appeal
Tribunal for a review of the decision of the OFT under section 120 of the said 2002 Act. The
tribunal quashed the decision of the OFT and remanded the matter to the OFT for
reconsideration by applying the right test. The OFT and the merger companies appealed to
the Court of Appeal on the points of law on the interpretation of section 33(1) of the said
2002 Act. The court of Appeal in dismissing the appeal held that the relevant belief for the
test imposed by section 33(1) of the said 2002 Act was that the merger may be expected to
result in a substantial lessening of competition, not that the Commission may in due course
decide that the merger may be expected to result in a substantial lessening of the competition.
The belief of the OFT is to be reasonable and objectively justified by relevant facts.

In UniChem Ltd. v. Office of Fair Trading10, the Competition Tribunal said in the course
of giving judgment on the application of UniChem Ltd. (UniChem) for a review under
section 120 of the Enterprise Act, 2002 of the decision of the OFT made on December 17,
2004 not to refer the proposed acquisition by Phoenix Healthcare Distribution Ltd. (Phoenix)
of East Anglican Pharmaceuticals Ltd., to the Competition Commission under section 33(1)
of the said 2002 Act that the OFT's submission in the context of the Office of Fair Trading v.
IBA Healthcare had quite the right emphasis. First, it is a common ground that section 33(1)
of the said 2002 Act imposes a duty and not a power. There must therefore be a limit as to the
evaluation of facts. The OFT's "belief" under section 33(1) must be objectively justified.
Secondly, the IBA Healthcare case is not concerned with policy or political issues but with a
judgment of facts. The Competition Commission accepted UniChem's point that in the IBA
Healthcare case Sir Andrew Morritt VC did not use the "discretion" of the OFT. He was not
implying that the OFT had a wide discretion but had referred only that the degree of
likelihood of a substantial lessening of competition would vary widely depending on the
circumstances.

9
(2004) 4 All ER 1103 (CA)
10
(2005) All ER 440.

11
Pay-TV company acquired shares in free-to-air broadcaster. Secretary of state referred
acquisition to Competition Commission on basis of public interest requirement. Commission
found merger situation would lead to substantial lessening of competition, Commission did
not find that acquisition was operating against public interest having regard to media
plurality. Pay TV Company applied for review of commission decision to Competition
Appeal Tribunal. Tribunal dismissed the applications for review. In appeal to the courts of
appeal it was held that the appeal would be allowed in past inter alia on the ground that
competition Appeal Tribunal required to exercise greater than normal intensity of review in
interpreting the expression “sufficient plurality of persons with control of…… media
interprises.11

11
B. Sky B. v. Competition Commission, (2010) 2 All ER 907 (CA)

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 Jet Airways (India) Limited and Etihad Airways PJSC
(LANDMARK CASE LAW)
Parties to the Combination:

1. Jet Airways (India) Ltd. (Jet)

2. Etihad Airways PJSC (Etihad)

Facts of the Case:

The Government of India (GoI) liberalised its FDI Policy and set a 49% cap for foreign
investments in Civil Aviation Sector in India. In 2013, Etihad, a company incorporated in the
United Arab Emirates (UAE), a national airline of UAE, proposed to acquire 24% in Jet, a
listed company incorporated in India. Etihad is wholly owned by the Government of Abu
Dhabi and is primarily engaged in the business of international air passenger transportation
services, commercial holiday services and cargo services. It is also stated to hold 29.21
percent equity in Air Berlin; 40 percent equity in Air Seychelles; 10 percent equity in Virgin
Australia and 2.9 percent equity in Aer Lingus. Jet on the similar lines, is primarily engaged
in the business of providing low cost and full service scheduled air passenger transport
services to/from India along with cargo, maintenance, repair & overhaul services and ground
handling services.

The proposal got approved by the Security Exchange Board of India (SEBI), the Foreign
Investment Promotion Board (FIPB) and Cabinet Committee of Economic Affairs (CCEA).

Thereafter the Investment Agreement, Shareholders Agreement and a Commercial Co-

operation Agreement between Jet and Etihad were submitted to CCI for its approval. This has
been considered as a landmark case in the aviation sector, as CCI examined the details of the
impact caused by the deal on air passenger services and consequently on competition in
India.

Issues Involved

Whether or not such transaction between Jet and Etihad has an Appreciable Adverse Effect
on Competition (AAEC) in India?

Decision of CCI

A relevant market in this case was concluded to be the market of international passenger air
transport based on the point of origin or point of destination (O&D). Thus, each such O&D
constituted a different route, and hence each different route, constituted a different relevant
market. To ascertain relevant market following points were considered:

1. Direct and Indirect flights between O&D being substitutable.

2. Indirect flights by competitor between O&D being substitutable.

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3. Different classes of passengers, and inflight services rendered to different classes, being
substitutable.

4. Time and price sensitive passengers (Business/Holidays).

5. Etihad being not operating in domestic (Indian) aviation sector and India‟s open skies
policy in respect of international air cargo transportation.

Appreciable Adverse Effect on Competition (AAEC)

Now that the relevant market was defined, CCI ventured into ascertaining, whether or not
there would be any AAEC pertaining to such routes. CCI stressed upon the relevancy of
trans-boundary competition, as routes were international, while ascertaining AAEC through
this proposed combination. It was observed that there were 38 routes to/from India to other
destinations where Etihad and Jet fly and there was atleast one competitor on each of such
route. Except 7 destinations, where Jet and Etihad had a combined share of more than 50
percent, rest all destinations had less combined share. Also of these 7 destinations, on 3
routes, the share of one was more than 50 percent and of the other less than 5 percent. Thus,
post transaction change in the market share was observed, not to marginally alter the
competition dynamics.

Analysis of the Order

As mentioned, this case has been a first by CCI, wherein it examined the combination
arrangement between two airlines. CCI decision has primarily been based upon the
observation that there has been sufficient competition in the relevant market and therefore it
is not likely that there would be AAEC in those markets. This approach has been said to be
inspired from the decision in the merger between British Airways and Iberia, wherein,
European Commission held that the said merger will not affect competition till the time
effective and credible competitors are there in the relevant market.

As already mentioned the proposal was approved by SEBI, FIPB and CCEA and different
approval was sought under FEMA. The case involved many regulators, including CCI,
looking in to various aspects of this deal. Furthermore, this particular case has been the case
where, CCI decided upon AAEC without getting into investigation and basing its conclusion
majorly upon the information/details provided by the parties. And therefore re-emphasizing
the idea that where the material available is sufficient to form opinion for the purpose to
ascertain the issue in a combination case, investigation is not necessary. However, the
dissenting ruling asserted the need for investigation for giving approval to the proposed
combination. It should be noted that the decision has been clear, that in case of any incorrect
information or in case of any modification in the proposed combination, fresh approval would
be sought by the parties.

Having said that, post its decision, CCI has imposed Rs.1 crore penalty under section 43 of
the Act on Etihad for consummating parts of the deal without getting its approval. Etihad in
February this year purchased three Heathrow airport slots of Jet Airways for $70 million and

14
leased it back to the Indian airline ahead of the deal. Despite the matter being pending for
approval, the two parties entered into an agreement which was not disclosed to CCI.

However, the said penalty will have no bearing on previous approval of the Jet-Etihad deal by
CCI. Meanwhile, Competition Appellate Tribunal has admitted a plea challenging CCI‟s
approval for the said deal.

15
BIBLIOGRAPHY

1. TEXTBOOK ON COMPETITION LAW, DR. H.K. SAHARAY

2. COMETITION LAW BY AVTAR SINGH
3. http://circ.in/pdf/Case_Study_18.pdf
4. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Compe
tition_Law_in_India.pdf
5. COMPETITION CONTROL: STRENGTHENING THE REGULATORY
FRAMEWORK OF COMPETITION COMMISSION OF INDIA; BY TANYA
SANYAL AND SOHINI CHATERJEE (MANUPATRA)

16