Much has been said about the notification empowering the Competition Commission with its full merger control powers (as usual, I am late in publishing this post. I really must learn to be more punctual with this blog). To summarise, “the Central Government hereby appoints the 1st day of June, 2011 as the date on which Sections 5, 6, 20, 29, 30 and section 31 of the said Act shall come into force.”

However, the same notification also exempts, “in public interest”, the “group” exercising less than fifty percent of voting rights in the other enterprise from the provisions of Section 5 of the Act for a period of five years. At the same time, the Central Government has also again, “in public interest”, exempted an enterprise, whose control, shares, voting rights or assets are being acquired has assets of the value of not more than 250/- crores or turnover of not more than 750/- crores from the provisions of Section 5 of the said Act for a period of five years.

While what construes as “public interest” is subject to interpretation by the reader, what is not subject to interpretation is the fact that the exemptions more or less render the notification of the above mentioned sections, particularly Sections 5 and 6, worthless and as good as not having been notified at all. In fact, when read carefully, it is evident that the exemptions are in fact, clearly NOT in public interest.

Firstly, looking at the exemption of groups, it is evident that consequent to the exemption, any such “group” as defined in the act can effectively acquire voting rights in an enterprise through stock purchase, thus controlling the company. Since the term “group” has been used under Section 5(b)(ii) of the Act, the purpose of this part, i.e., to prevent combinations of or among enterprises engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, remains unfulfilled in preventing horizontal mergers inhibitory to competition in the market and the growth of a dominance of a single group in the relevant market.

Secondly, the exemption relating to acquired enterprises in even more disastrous in consequences than the previous one. It blatantly allows a larger enterprise and one endowed with considerably large pool of resources (which most large enterprises without a doubt have) to buy out any other comparatively smaller venture which has the potential to or is already building up a competitive position in the market. The acquired enterprise having been exempted, such acquisitions cannot fall under the regulatory jurisdiction of the CCI.

An argument may be raised that any such merger or acquisition would still be subject to the procedure of approval under the Companies Act, 1956. However, with all frankness, taking into account real practice, the procedure laid down under the above act under Section 372 is not an effective mechanism to check or determine the effect of an acquisition or merger on competition in the markets. Sanctions are usually granted with little objection, and the procedure relates more to internal formalities within the companies rather than regulatory external control.

On a sarcastic note, maybe “public interest” means not the interest of the citizens of India and the Indian market, but rather the “public” government.