OP Jindal Global

University

Jindal Global

Business School

Legal Aspects of Business

Cross-Border Mergers:
Implications of Competition
Law, 2002

Aadit Gupta

(21020176) &

Dishank

Agrawal

(2202007)

Prof. Satish Kumar

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 Contents

1. Abstract.............................................................................................................................03
2. Hypothesis........................................................................................................................04
3. Objective of the study.......................................................................................................04
4. Research Methodology.....................................................................................................04
5. Introduction.......................................................................................................................05
6. Factors of merger & acquisition......................................................................................07
7. Implications of cross-border mergers & acquisition......................................................12
8. Competition concerns relating to conduct of investors.................................................17
9. Present law and CCI’s jurisprudence...........................................................................22
10. Conclusion....................................................................................................................25
11. References.....................................................................................................................26

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 Abstract
The world of high technology companies is seen as a dynamic area with a rapid pace of creative
destruction. There is, hoIver, a class of industries where there are strong network effects, where
the market tends to collapse into a narrow set of players. After one burst of innovation where a
new online business is born, there is the possibility of entrenched market power with the
extraction of consumer surplus. Many firms, global and Indian, have resorted to the strategy of
making large losses by subsidising users, to obtain those net-work effects. This has created a
new class of concerns about predatory pricing, with unprecedented negative profit margins on a
sustained basis, being supported by equity capital infusions. In the short run, discounts are
popular, but recoupment is inevitable and market power will adversely affect consumers in the
future.
I argue that the existing competition law regime in India needs to be fine-tuned, for technology-
enabled markets with significant network effects, to address the possibility of new kinds of
abusive conduct. I offer a series of tangible proposals through which the Competition
Commission of India can better manage these emerging situations. I also investigate the role and
responsibilities of the investors who back these online businesses and the impact of their conduct
on competition in the underlying markets.

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 Hypothesis

Indian competition law needs to be revisited in some manner to suit the requirements of
competition assessment in the new economy.

OBJECTIVES OF THE STUDY

Following are the objectives of the study

 To examine the current trends of online business in India

 To analyze the impact of competition law on online business
 To study the Competition concerns relating to conduct of investors

RESEARCH METHODOLOGY

Researcher has used doctrinal method of research in this project. The study is based on
secondary data. Secondary data is collected from various publications, Journals, Insurance
Magazines, official websites, Company’s annual reports and newspaper.

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 CROSS-BORDER MERGERS AND ACQUISITIONS

Introduction-

The traditional definition of a merger is that 2 or more companies join to create a new entity

in the eyes of the law. This takes place when one company is acquired by another company

resulting in a merger and the growth of the company that is acquiring the other company. When this

concept is applied to companies that are from different countries those mergers are called cross-

border mergers. Mergers whether local or international results in transfer of control and power to

the new board of directors as formed or the new companies' owners. An Acquisition, on the other

hand, is defined as a process of selling one company to another.  It is important to realise that

mergers result only because of the combining of two companies within the same industry. Some of

the main reasons that company's merger or acquire other companies are gaining access to markets

that are hard to access for the parent company, gaining technical or manufacturing advantages that

they do not have available with them, or gaining an advantage to leverage in different markets.  

The assets and liabilities of the companies are changed as per depending upon the structing

of the company and financial model they follow. The state or country that the company that is

making the acquisition is situated in is called the home country/state while the state or country in

which the company that is being acquired is situated is called the host country/state. 

The different types of mergers include Horizontal merger, vertical merger, reverse merger,

conglomerate merger, and congeneric merger. There are two types of acquisitions- friendly and a

hostile takeover. Some examples of mergers include Zee Entertainment – Sony India Merger,

Vodafone and Idea Merger, Hindustan Unilever Ltd. And GlaxoSmithKline Consumer Healthcare

Ltd. Merger, Bank of Baroda, Vijaya Bank and Dena Bank Merger, Tata Group’s acquisition of Air

India, Tata Steel’s acquisition of Corus, Walmart’s acquisition of Flipkart, Zomato’s acquisition of

UberEATS India. 

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Factors to be considered while merging or acquiring-

One of the most important factors to be considered for a merger is that there are advantages

for available for both companies. Without those advantages or incentives, there would be little

reason for companies to merge. It is also important to note that both parties gain from the merger

and no one party is left dissatisfied with the merger. 

At times, certain companies may not reveal their exact capabilities in the sense that they

may the tell the acquiring company that they have capabilities far beyond their real capabilities.

This could result in a catastrophic result for the party buying into the host company. This could

cause a rift between the two parties. This also gives a good reason for firms to be doing due

diligence on firms present in a market and the market itself before committing itself as it could

potentially cause the business a major loss and have no results to just that loss in the short run or

long run. Due diligence also helps to assess the political, economic, and social risks that are

involved.  

Implications of cross border merger and acquisitions: 

Some of the major implications of cross border mergers and acquisitions include: 

 Capital builds up: Cross border merger and acquisitions contribute to capital

accumulation on a long-term basis. Since companies are merging, it helps to grow the

capital proportionally as required by the companies.  

 Employment creation: Sometimes it is seen leads to employment gains in the long

term. When in the long run the businesses expand and becomes a successful it would

create new employment opportunities. This is done by cutting down costs in the form of

downsizing staff and reducing investment in places that require heavy investment on an

irregular basis and anywhere else that is possible. 

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  Technology handover: When companies across countries come together it sustains

positive effects of transfer of technology, sharing of best management skills and

practices and investment in intangible assets of the host country. 

Issues and challenges faced during mergers or acquisitions-

These are some of the major issues that must be dealt with when mergers or acquisitions are made: 

 Political concerns: Often, the political situation has a huge impact on how business is

conducted. This also extends cross border mergers and acquisitions especially in sectors

that are under the preview of the government. Also, it is not ideal to start a business or a

merger or acquisition process in a political environment that is not conducive to

business. 

 Cultural challenges: It is important to note the major cultural differences that are

present in a host country. There can be major differences in how cultures coexist in

different countries and the kind of social environment that it creates. Being able to adapt

to different cultures by using local business to understand the market sentiment and

introducing products through those local businesses to create opportunities for them

enter the market themselves. There have been companies in the past that have toppled

because they failed to adapt their business model to the culture present in the new

market they were entering. 

 Legal considerations: It is important to comply with the rules and regulations of the

country or new market that is being entered. The laws and regulations of a country

impact how business is conducted and regulate the prices in a market. In many instances,

companies have been forced to pay huge fines because their practices did not comply

with the law. In fact, these practices can cause a major problem when it comes to light

that these businesses do not have the interests of consumers at heart. Other than that,

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 laws and regulations are set in place to help a better and smoother entrances of

businesses into the market. 

 Due diligence: When entering a new market, it is important to put time and effort

into researching the new market or company that it is entering into a contract with. The

time and effort put into researching is called due diligence. It helps to paint a clearer

picture of the company and the market. It also helps the business to better understand

what position they will be entering in and how to help position themselves into a market

leader. With the time, effort and money put into due diligence, there can be major gains

that can be found. 

Competition act, 2002-

This act was introduced by the government in 2002 and came into effect in 2009 to help

protect consumer interests. The main reason that the competition act was enacted with the new rules

and definitions to promote and sustain and competition in markets, safeguard consumers interest’s

and ensuring that there is free competition in the market. It prohibits anti-competitive agreements,

abuse of dominant position by enterprises and regulation of mergers and acquisitions that may hurt

the competition in the market in India. 

Objective of Competition Act 2002-

The objective of this act is to ensure competition in markets and there are a variety of

products available from different companies across the different industries. It also helps to curb

anti-competitive business practices. The Act aims to prohibit monopolies and government’s

interference which is not necessary. 

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Important definitions under the Competition Act are- 

1. Acquisition: Acquisition is defined as the agreement to acquire shares, voting rights

or control of assets over any enterprise under Section 2(a) of the Act. 

2. Agreement: It includes any arrangement or understanding or action whether in

writing or informal and intended to be enforceable by legal proceedings under Section

2(b) of the Act. 

3. Cartel: A cartel is defined as an association of producers, sellers who limit control

distribution, sale, or promotions on goods through an arrangement previously made. It

has different types such as International Cartel, Import cartel and export cartel under

Section 2(c) of the Competition Act, 2002. 

4. Position: A dominant position means a position of power held by an enterprise in the

related market. It enables the enterprise to function freely and influence the market to its

directions. 

5. Predatory pricing: Predatory pricing is where the price of goods and services is

reduced to well below the cost of production to eliminate competition or gain a foothold

into a new market or entrance by a new company. 

Salient Features: 

1. Anti-agreements: Anti-agreements mean that a business cannot enter into an

agreement or contract that will harm the competition in India as defined in the Section 3

of the Competition Act, 2002. 

2. Abuse of dominant position: This means that a business cannot use its dominant

position to gain profits, harm competition or force customers into positions which are

harmful to their interests as defined in the Section 4 of the Competition Act, 2002. 

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 3. Combinations and their regulation: As per the Section 5 of the act a combination is

defined as terms leading to acquisitions and mergers. The Act prohibits acquisitions,

mergers, etc. between enterprises which have or are likely to have an appreciable

adverse effect on competition in market(s) in India. If parties violate the limits of the

combination put forth in the Act, then the parties will be scrutinized by the Competition

Commission of India as defined in the Section 6 of the Competition Act, 2002. 

4. Competition commission of India: The competition commission of India was set up

by the government under the competition act, 2002. This was set up for a committee to

investigate all complaints against companies that would breach the act put in effect in

2009. This would allow people to file cases and reduce any dishonest business practices

allowing the government to protect consumer interests and competition in the market as

defined in the Section 7 of the Competition Act, 2002. 

Implications of Competitions act, 2002 

The biggest implication of the competitions act, 2002 was making a unified law that

protected the interests of the consumers and had a central body looking into any cases that violated

the competitions act, 2002. It allowed the government to replace the MRTP act that was introduced

in 1969 and have a law that better explains these details better. The government made it harder for

companies to find a loophole and get away with by establishing the competition commission of

India. The main purpose of the competition act 2002 is to give rise to competition. 

The Competition Act of 2002 is a measure taken by the government to keep up with

changing economic realities, and it is in line with new economic thinking of liberalisation,

privatisation, and globalisation. It demonstrates the country’s willingness to transition from a

command economy to a free-market economy, but with proper checks and controls in place. The

Act not only focuses on the regulatory aspect, but also incorporates the concept of “Competition
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Advocacy” as a social responsibility of the commission to promote competition, raise awareness,

and so on. 

The Commission has made its presence felt in the market from time to time by levying stiff

penalties against companies that engage in anti-competitive behaviour. The ultimate advantage of

such acts has gone to the consumer, who now benefits from healthy market competition and can

choose the cheapest and best alternative accessible to him. 

However, there are still some issues that the government and the Commission must explore

to improve the effectiveness of India’s competition law. As a latecomer, India’s competition law

has the advantage of incorporating some characteristics of other countries’ competition laws. 

However, analysts believe that Indian law has overlooked certain key parts of competition

law that may have yet to be included in the present Act. For example, settlement and plea

agreements, which are available in other countries, make the regulatory and adjudicatory process

faster and more effective, but India has chosen not to use them, which is one of the reasons for the

delays in receiving final decisions. Another issue that has recently surfaced is the vagueness of the

commission’s authority. 

A few cases before the Competition Appellate Tribunal have been dismissed because the

Commission failed to follow natural justice principles or committed other procedural errors. 

Another issue that the government must address is the growing backlog of cases due to a

staffing shortage. The function of competition laws in the overlap between intellectual property and

competition laws is another area where the Commission must reconsider. To achieve the desired

purposes for which the Competition Act was adopted, such problems must be handled seriously by

the relevant authorities. 

Before the introduction of the competitions act 2002, the MRTP act of 1969 did not have a

central body to help enforce the rules and could only be used in courts which were already being

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overwhelmed. It also did not define a lot of basic terms that did had a huge bearing on the economy.

In certain situations, it may have allowed a lot of mergers or actions that were taken to slip through

because nobody noticed therefore, hurting the competition in the country. The companies could not

be blamed either due to the restrictive policies that had been introduced by the government which

resulted in the creation of licence raj and other such situations which ended up harming the Indian

economy and having to lose many businesses who did not want to conduct business in India due to

these regulations and restrictive practices. 

Anti-Competitive Agreements- 

These agreements are made by two or more companies to use dishonest practices such as

reducing stock of product, or fixing prices to gain a big foothold or market share that is gained from

other companies. This more often than leads to harming of competition in the market and harms the

consumers interests. So, to protect those interests, all anti-competitive agreements were made illegal

under the new act.  

The Competition Act, 2002 defines anti-competitive agreements as such in section 3 where

it states, “No enterprise or association of enterprises or individuals or association of individuals

may enter into an agreement regarding production, supply, distribution, storage, acquisition or

control of goods or provision of services which may adversely affect the competition in the Indian

market”.       

Having this as part of a section of the competition act allowed for better understanding of

the practice that many companies indulged in to gain profits or an advantage in the market. This

also allowed the Competition commission of India to investigate cases where companies may have

entered into such agreements and give them appropriate penalties as stated in the act. 

Abuse of Dominant Position- 

An abuse of dominant position may consist of: - 

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 1. Directly or indirectly imposing unfair or discriminatory conditions in the purchase or

sale of goods or services or setting prices in the purchase or sale (including predatory

pricing) of goods or services. 

2. Limiting or restricting the production of goods or provision of services or market;

therefore, limiting technical or scientific development relating to goods or services to the

prejudice of consumers. 

3. Indulging in practice or practices resulting in the denial of market access. 

4. Making conclusion of contracts subject to acceptance by other parties of

supplementary obligations which have no connection with the subject of such contracts. 

5. Utilisation of a dominant position in one market to enter, or protect, another market. 

The Act’s section 4 tries to give insight into such kind of malpractices performed by

companies or businesses. So, it addresses the prevention of such curbs by stating that no company

or firm should take advantage of its dominant position which it acquired by impacting the market,

competitors, consumers, or the relevant market independently. 

Combinations and their regulations- 

Combinations under the Act means- 

 acquisition of control, shares, voting rights or assets of a new company 

 acquisition of control by a person over an entity where such person has direct or

indirect control over another company engaged in competing businesses,  

 mergers & amalgamations between or amongst companies within India or between

India and foreign company when the combining parties exceed the threshold limit set in

the Competition Act.  

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 There are specific thresholds which are specified in the Act in terms of assets or turnover in

India and abroad which are set in limits when a merger or acquisition of two companies occur to

regulate the norms in the Competition Act by the Competition Commission of India. The Act

provides sufficient high thresholds for mandatory notification to the Commission which gets revised

by the government in every two years after consulting the Commission using notification based on

changes in Wholesale Price Index (WPI) or alternations in exchange rates of currency. The current

thresholds for the combined assets/turnover of the combing parties are as follows: 

If the combining parties are being looked individually for merger or acquisition - 

1. If the combined assets of enterprises within India value more than 1,000 crore or the

combined turnover of enterprises within India value more than 3,000 crore. 

2. If the combined assets of enterprises of Indian company and foreign company value

more than 500 million US dollars including at least 500 crores in India or the combined

turnover of enterprises Indian company and foreign company value more than 1500

million US dollars including at least 1500 crores in India 

If the combining parties going into merger or acquisition belonging to a group are being

looked upon- 

1. If the assets have value more than 4000 crores or the turnover as being 1200 crores

being in India. 

2. If the group has presence in India and in foreign as well, then if assets have value

more than 2 billion US dollars having at least 500 crores in India or the turnover as

being 6 billion US dollars having at least 1500 crores in India. 

These thresholds tell that if the total assets/turnover of combined parties/ group increase

more than the above-mentioned values, then they come under combinations and must follow their

regulations as given by the CCI. Entering a combination which causes or is likely to cause an

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appreciable adverse effect on competition within the relevant market in India, which is prohibited,

and such combination shall be considered as void. If any person/enterprise proposes to enter such

combination, then he shall be intimated by the Competition Commission of India. 

Now, acquisition of control simply means that controlling the affairs or management of-  

 1 or more enterprises by 1 or more than 1 group 

 1or more groups by 1 or more than 1 enterprise 

Two enterprises belong to a “Group” if one is in position to exercise at least 26% voting rights or

appoint at least 50 % of the directors or controls the management/affairs in the other. The turnover

shall be determined by considering the values of sales of goods or services. 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. The value of assets shall include the brand

value, value of goodwill, or value of copyright, patent, permitted use, collective mark, registered

proprietor, registered trademark, registered user, homonymous geographical indications, design or

layout-design, or similar other commercial rights, if any. 

Competition Commission of India- 

The Competition Commission of India is an independent body with the powers to enter

contracts and should the contracts be broken; they can sue the parties involved. It consists of a

maximum of 6 members who are tasked with sustaining and promoting the interests of consumers

to foster an ideal environment for economic competition. It is duty bound to protect the interests of

free and fair competition (including the process of competition), and as a result, protect the interests

of consumers.  

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The functions of the CCI are: 

1. Ensuring that the benefit and welfare of the customers are maintained in the Indian

Market. 

2. An accelerated and inclusive economic growth through ensuring fair and healthy

competition in the economic activities of the nation. 

3. Ensuring the efficient utilization of the nation’s resources through the execution of

competition policies.  

4. The Commission also undertakes competition advocacy.  

5. It is also the antitrust ombudsman for small organizations. 

6. The CCI will also scrutinize any foreign company that enters the Indian market

through a merger or acquisition to ensure that it abides by India’s competition laws – the

Competition Act, 2002. 

7. CCI also ensures interaction and cooperation with the other regulating authorities in

the economy. This will ensure that the sectoral regulatory laws are agreeable with the

competition laws.  

8. It also acts as a business facilitator, by ensuring that a few firms do not establish

dominance in the market and that there is a peaceful co-existence between the small and

the large enterprises. 

The CCI faces multiple challenges while implementing the Competition Laws. The

challenges can be both internal and external. Some of the challenges faced by CCI are- 

1. The constant and continuous change in the way businesses is undertaken and the

evolving antitrust issue is proving to be a significant challenge for the CCI.  

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 2. The emerging business models are based on a digital economy and e-commerce.

This proves to be a problem for the CCI as the current competition laws talk only of

assets and turnovers. 

3. The number of benches of the CCI must be increased to pronounce judgments more

speedily on the competition cases.  

4. The inclusion of parameters in the competition and antitrust laws such as data

accessibility, network effects, etc. is important to ensure that the Competition laws are

relevant in a digital economy.  

The Competition Act, 2002 is a comprehensive law and the intent of the legislation is to promote

fair competition, catch up with the global economy, safeguard the interest of the consumers and

ensure a stable market for India.

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 References

1. M, R. (2019, March 4). Critical Analysis of Cross-Border Mergers and Acquisitions.

Tax Guru. Retrieved October 7, 2022, from https://taxguru.in/corporate-law/critical-

analysis-cross-border-mergers-acquisitions-global-regional-

perspective.html#:~:text=Cross%2Dborder%20acquisition%20is%20when,acquirer

%20and%20the%20acquired%20company. 

2. K. (2020, February 11). Competition Act 2002 - Competition Act History, Objective,

Scope & Features. Khatabook. Retrieved October 7, 2022, from

https://khatabook.com/blog/competition-act-2002/ 

3. C. (2021, April 19). Competition Act 2002. Competition Act 2002. Retrieved

October 7, 2022, from https://cleartax.in/s/competition-act-2002 

4. Shikha-Tripathi_SALER.pdf (thelawbrigade.com) 

5. Foundation, L. (2015, July 19). Implications of Competition Act, 2002 on Cross-

border Mergers and Acquisitions - LexQuest Foundation. LexQuest Foundation.

Retrieved October 11, 2022, from https://www.lexquest.in/implications-of-competition-

act-2002-on-cross-border-mergers-and-acquisitions/ 

6. DOMINANT POSITION & IPR: THE IMPLICATIONS OF SECTION 4A OF

COMPETITION (AMENDMENT) BILL,2020. (2020, July 11). Indian Review of Adv.

Retrieved October 11, 2022, from https://www.iralr.in/post/dominant-position-under-

competition-act-and-intellectual-property-rights-implications-of-section-4a 

7. M. (n.d.). Articles – Manupatra. Articles – Manupatra. Retrieved October 11, 2022,

from https://articles.manupatra.com/article-details/Mergers-Acquisitions-Under-the-

Competition-Act-2002 

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 8. P. (2021, October 29). Competition Act, 2002 | Objectives of the Competition

Act,2002. LegalRaasta Knowledge Portal. Retrieved October 11, 2022, from

https://www.legalraasta.com/blog/competition-act-2002/#:~:text=The%20Act%20aims

%20to%20establish,as%20well%20as%20trade%20freedom 

9. combination (cci.gov.in)

10. Material as provided by Professor Satish Kumar 

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