In India, a competition act was enacted to prevent anti-competitive agreements, abuse of dominant position. So, with these two terms, the law of mergers & acquisitions started.
To understand in simple:
What is merger? Merger means two companies gets combined together.
What is acquisition? Acquisition means when a company acquire another company wholly or partly. Wholly includes operation and management or partly means only the assets.
On this topic, we will understand anti-competitive agreement and abuse of dominant position in light of mergers and acquisitions.
What will happen, when anti-competitive agreement gets initiated? If two companies come together with an agreement, which we basically call as “Merger” but due to this merger if market share is lightly to become monopoly or may bring adverse effects on the market. Then we can say that the agreement that was executed was anti-competitive.
What is abuse of dominant position and how it relates to merger and acquisition? On merger, if the merged companies share the market in monopoly and not allowing anyone to enter into the market or becoming obstacles for new comers then this could be said as abusing the dominant position. The same relates to acquisition, the acquirer company may abuse the position in the market.
So, with all this practices, the mergers and acquisitions law come into force. In Indian law, we called this as regulation of combinations means regulating the combinations or regulating the mergers or acquisitions.
Law of Mergers and Acquisitions
This topic covers the law of mergers and acquisitions. Section 5 & 6 of the Competition Act provides Combinations and Regulations of Combination and this is the only direct law for Mergers & Acquisitions. So, what’s the most important factor of mergers and acquisitions.
If we read section 6(2) of the act, it says that “any person or enterprise, who or which proposes to enter into a combination, give notice to the Commission, in the form as may be specified, and the fee which may be determined, by regulations, disclosing the details of the proposed combination, within thirty days”. So, the most important factor comes out after reading Section 6(2) of the act is that any merger or amalgamation needs to serve a notice to commission within thirty days in prescribed form along with fee determined. So, it is to make sure that this procedure must be followed then getting penalty at later stage.
Amount, Market and Form determination
The fee is 20 lakhs in Form 1 and 65 Lakhs for Form 2. Form 2 is for horizontal combinations where the market share is more than fifteen percent (15%) in the relevant market. Vertical companies market share is more than twenty five percent (25%). So, with these said all, if none of the market share crosses then FORM – 1 is the tool.
Whenever matters pertaining to mergers and acquisitions, the CCI (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011) must have to read in consonance with the principal Act. This is the only legal framework for M&A but when it comes to structure the deal, then taxation laws, Company Laws comes into play. In business point of view, while structuring before the deal, proper due diligence is also required to reduce risk. Meanwhile, it is also important to refer the eligibility of turnover under section 5(c) of the principal act.
Author by Hemdeep Moran
Associate at Ambient Alliance
Mail – firstname.lastname@example.org