Section 6 of the Competition Act, 2002 focuses on preventing anti-competitive business practices. It makes sure that mergers, amalgamations and acquisitions do not adversely affect market competition, protecting consumers and promoting fair trade. This section mandates that any proposed combination must be notified to the CCI within seven days of approval or agreement, and it cannot take effect until 210 days have passed or the CCI approves, whichever comes first. There are exceptions for financial institutions like banks and venture capital funds under specific conditions, with detailed reporting requirements. Section 6 helps in maintaining a competitive market environment by regulating combinations which is important for economic growth along with consumer welfare in India.
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Background and Context
The Competition Act, 2002, was enacted by the Parliament of India and received presidential assent in January 2003, with subsequent amendments in 2007, 2009, and most recently in 2023 which replaced the Monopolies and Restrictive Trade Practices Act, 1969, aiming to foster a competitive market environment, protect consumer interests and ensure freedom of trade. The Competition Commission of India (CCI), established under this act, is tasked with enforcing its provisions, including the regulation of combinations under Section 6.
The need for this legislation arose because of economic liberalization in the 1990s, particularly under the Vajpayee government, to address the growing complexity of business consolidations and their potential for competition distortion. Section 6 specifically addresses combinations defined broadly to include mergers, amalgamations, acquisitions, and control over enterprises that could have an appreciable adverse effect on competition within the relevant market in India.
Detailed Provisions of Section 6
Section 6, titled "Regulation of Combinations," is detailed in the official text of the Competition Act, 2002, available through the CCI's legal framework. Below is a breakdown of its subsections:
Section 6(1): It is illegal for anyone or any business to form a combination (like a merger or acquisition) that significantly harms competition in the relevant Indian market. Such combinations are considered void.
Section 6(2): Anyone or any business planning a combination must inform the Competition Commission of India (CCI) within seven days of:
(a) Board approval for a merger/amalgamation, or
(b) Signing an agreement for acquisition or gaining control.
Section 6(2A): A combination cannot take effect until either:
210 days after notifying the CCI, or
The CCI issues an order under section 31, whichever comes first.
Section 6(3): The CCI will process the notifications as per sections 29, 30, and 31, which detail the steps for inquiry, investigation, and issuing orders.
Section 6(4): Certain actions, like share purchases or financing by public financial institutions, foreign institutional investors, banks, or venture capital funds, are exempt from these rules if they are part of loan or investment agreements.
Section 6(5): Exempted institutions must still report details of their acquisitions to the CCI within seven days, including:
(a) Information about share subscriptions or financing, and
(b) Details of control acquisition, including what happens if the agreement is violated.
Explanation
"Foreign institutional investor" and "venture capital fund" are defined as per the Income-tax Act, 1961, for clear legal understanding.
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Practical Implications and Examples
To illustrate, consider a merger between two large telecommunications companies, Company A and Company B, as referenced in legal analyses. Under Section 6(1), if their merger is likely to lead to higher prices for consumers or exclude competitors, it could be deemed to have an appreciable adverse effect on competition and thus be void. The companies must notify the CCI under Section 6(2) within seven days of board approval, and the merger cannot proceed until the 210-day period under 6(2A) elapses or the CCI approves under section 31.
For financial institutions like banks acquiring shares under a loan agreement, Section 6(4) exempts them from notification but they must still report to the Competition Commission of India within seven days under Section 6(5) to ensure transparency.
Summary
Section 6 of the Competition Act, 2002, regulates combinations to prevent anti-competitive effects while providing exemptions for financial transactions. Its detailed provisions ensure a balanced approach to market regulation, supported by the CCI's enforcement powers. This article is based on official and authoritative sources which provides a comprehensive understanding for legal and economic stakeholders.
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Section 6 of Competition Act: FAQs
Q1. What is a "combination" under Section 6 of the Competition Act, 2002?
A combination refers to mergers, amalgamations, acquisitions, or gaining control over an enterprise, as defined under Section 5 of the Act, which could potentially harm competition in the relevant market in India.
Q2. What does Section 6 prohibit?
Section 6(1) prohibits any combination that causes or is likely to cause an appreciable adverse effect on competition (AAEC) within the relevant market in India. Such combinations are considered void.
Q3. Who needs to notify the Competition Commission of India (CCI) about a combination?
Any person or enterprise proposing a combination, as specified under Section 5, must notify the CCI within seven days of board approval for a merger/amalgamation or execution of an acquisition/control agreement, as per Section 6(2).
Q4. What happens if a combination is not notified to the CCI?
Failure to notify the CCI can lead to penalties under Section 43A of the Act, which may include fines up to 1% of the total turnover or assets of the combination, whichever is higher.
Q5. How long does it take for a combination to take effect after notification?
As per Section 6(2A), a combination cannot take effect until 210 days from the date of notification to the CCI or until the CCI passes an order under Section 31, whichever is earlier.
