Mergers and Acquisitions in Banking Sector in India

8/14/2019 Mergers and Acquisitions in Banking Sector in India

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MERGERS AND ACQUISITIONS IN BANKING SECTOR IN INDIA

ACKNOWLEDGEMET

This project wou! "ot h#$e %ee" possi%e without the support o& '( )ui!e who h#s

)i$e" 'e his precious ti'e* $#u#%e e+perie"ce #"! p#tie"ce* )ui!i") 'e throu)hout '(

rese#rch, It h#s %ee" # wo"!er&u opportu"it( to wor- u"!er his )ui!#"ce, I wou! #so

i-e to th#"- &or pro$i!i") his $#u#%e i!e#s &or '( project report, I #' th#"-&u to the

Li%r#ri#"s &or hepi") 'e i" coecti") the ree$#"t '#teri# &or '( project report, L#st

%ut "ot the e#st i wou! i-e to e+te"! '( th#"-s who h#s e+te"!e! their hep, I wou!

#so i-e to e+press '( )r#titu!e to '( p#re"ts who h#$e )i$e" 'e their u"co"!itio"#

o$e #"! &or '#-i") 'e who I #' to!#(,

Ce"t#r# B#"-.RBI* i" I"!i#/

Co''erci# B#"-s

De$eop'e"tB#"-s

Speci#i0e! B#"-s. E1IM B#"-*SIDBI* NABARD/

T(pes o& %#"-s

2u%ic Sector B#"-s

2ri$#te Sector B#"-s

3orei)" B#"-s

Ce"tr# Co4oper#ti$eB#"-s

St#te Co4oper#ti$eB#"-s

2ri'#r( Cre!itSociet(

Co4oper#ti$eB#"-s


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Contents

CHAPTER 1 ABSTRACT . 5

CHAPTER 2- INDIAN BANKING INDUSTRY-AN OVERVIEW .. 6

CHAPTER 3- M&A IN BANKING SECTOR- RESTRUCTURING ........ 8

MOTIVES FOR MERGER ............... 1

NARASIMHAM COMMITTE REPORT............... 11

BENEFITS OF CONSO!IDATION........... 1"

CHAPTER " - MERGER IN INDIAN BANKS ........ 1#

CASE STUDY - PUN$AB NATIONA! BANK AND NEW BANK OF INDIA

MERGER% ..... 21

CHAPTER 5 COMPETITON ISSUES INVO!VED IN BANKING SECTOR

'OECD( ....... 23

CHAPTER 6 - REGU!ATIONS REGARDING MERGERS AND AC)UISITION IN

INDIA............... 25

A ( THE COMPANIES ACT* 1#56 ................................. 25

B( THE TAKEOVER CODE* 1##+ ...................... 28

C( BANKING REGU!ATION ACT* 1#"#..................... 33

CHAPTER + - COMPETITION COMMISSION OF INDIA,S RO!E IN MERGERS AND

AC)UISITION... 35

SA!IENT FEATURES OF THE COMBINATION

REGU!ATION*211 ............................ "

COMPARITIVE STUDY OF RBI AND CCI,S DISTINCTIVE RO!E ................ ""

CHAPTER 8 - BANKING !AW 'AMENDMENT ( BI!!*211 .................... "8

CHAPTER #- CONC!USION .................. 5

CHAPTER 1 -ANA!YSIS .............. 51


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CHAPTER 1 RECOMMENDATIONS.......... 52

CHAPTER 1 ABSTRACT

The purpose o& this report is to pro$i!e #" i"si)ht i"to the %#"-i") sector* #"! the i'p#ct

o& 'er)ers #"! #c5uisitio"s i" the %#"-i") sector o" the co"su'er #"! the co'petitio" o&

such e"tities i" the '#r-et #s !e&i"e! i" the co'petitio" #ct* 6776, Throu)h the report* we

#ppro#ch the pro%e' o& e+cusio" o& CCI &ro' i"$esti)#ti") #"( 'er)er* #c5uisitio"*

reco"structio"* tr#"s&er or restitutio" o& #"( %#"-i") e"tit(.s/, Such e+cusio"* #s

propose! i" the "ew #'e"!'e"t o& the %#"-i") re)u#tio"s #ct* 89:9* wou! pro$e to %e

!etri'e"t# to # he#th( eco"o'( #"! # he#th( '#r-et, To #rri$e #t # 'ore &ocusse!

soutio" to the pro%e'* we !iscuss $#rious %#"-i") e"tities* M;A i" the %#"-i") sector*

co'petitio" issues i"$o$e! i" %#"-i") sector* %#"-i") re)u#tio"s pert#i"i") to M;A i"

the s#'e* CCI


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CHAPTER 2- INDIAN BANKING INDUSTRY-AN

OVERVIEW

I"!i# h#s #" e+te"si$e %#"-i") "etwor-* i" %oth ur%#" #"! rur# #re#s, A #r)e I"!i#"

%#"-s #re "#tio"#i0e!* #"! # I"!i#" &i"#"ci# i"stitutio"s #re i" the pu%ic sector, The

Reser$e B#"- o& I"!i# is the ce"tr# %#"-i") i"stitutio", It is the soe #uthorit( &or issui")

%#"- "otes #"! the super$isor( %o!( &or %#"-i") oper#tio"s i" I"!i#8, It super$ises #"!

#!'i"isters e+ch#")e co"tro #"! %#"-i") re)u#tio"s* #"! #!'i"isters the )o$er"'e"t=s

'o"et#r( poic(, It is #so respo"si%e &or )r#"ti") ice"ses &or "ew %#"- %r#"ches, >?

&orei)" %#"-s oper#te i" I"!i# with &u %#"-i") ice"ses, The %#"-i") s(ste' h#s three

tiers, These #re the sche!ue! co''erci# %#"-s@ the re)io"# rur# %#"-s which oper#te

i" rur# #re#s "ot co$ere! %( the sche!ue! %#"-s@ #"! the cooper#ti$e #"! speci#

purpose rur# %#"-s, Co''erci# %#"-s #re c#te)ori0e! #s sche!ue! #"! "o"4sche!ue!

%#"-s* %ut &or the purpose o& #ssess'e"t o& per&or'#"ce o& %#"-s* the Reser$e B#"- o&

I"!i# c#te)ories the' #s pu%ic sector %#"-s* o! pri$#te sector %#"-s* "ew pri$#te sector

%#"-s #"! &orei)" %#"-s, There #re $#rious t(pes o& %#"-s which oper#te i" our cou"tr(

to 'eet the &i"#"ci# re5uire'e"ts o& !i&&ere"t c#te)ories o& peope e")#)e! i"

#)ricuture* %usi"ess* pro&essio"* etc, O" the %#sis o& &u"ctio"s* the %#"-i") i"stitutio"s i"

I"!i# '#( %e !i$i!e! i"to the &oowi") t(pes


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A) Central Bank

A %#"- which is e"truste! with the &u"ctio"s o& )ui!i") #"! re)u#ti") the %#"-i")

s(ste' o& # cou"tr( is -"ow" #s its Ce"tr# %#"-, Such # %#"- !oes "ot !e# with the

)e"er# pu%ic, It #cts esse"ti#( #s Go$er"'e"t


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!e$eop'e"t 'e#sures i-e su%scri%i") to the sh#res #"! !e%e"tures issue! %(

co'p#"ies* i" c#se o& u"!er su%scriptio" o& the issue %( the pu%ic, I"!ustri# 3i"#"ce

Corpor#tio" o& I"!i# .I3CI/ #"! St#te 3i"#"ci#

D) Co-operative Banks

2eope who co'e to)ether to joi"t( ser$e their co''o" i"terest o&te" &or' # co4

oper#ti$e societ( u"!er the Co4oper#ti$e Societies Act, Whe" # co4oper#ti$e societ(

e")#)es itse& i" %#"-i") %usi"ess it is c#e! # Co4oper#ti$e B#"-,

E) Specialised Banks

There #re so'e %#"-s* which c#ter to the re5uire'e"ts #"! pro$i!e o$er# support &or

setti") up %usi"ess i" speci&ic #re#s o& #cti$it(, E1IM B#"-* SIDBI #"! NABARD #re

e+#'pes o& such %#"-s, The( e")#)e the'se$es i" so'e speci&ic #re# or #cti$it( #"!

thus* #re c#e! speci#ise! %#"-s, Let us -"ow #%out the',

CHAPTER 4 - M&A IN BANKING SECTOR

Restructuri") c#" %e %ro#!( c#ssi&ie! i"to three t(pes

#/ 2ort&oio restructuri") 4 I& # &ir' is reshu&&i") its #ssets %( sei") so'e o& its e+isti")

pro!uctio" ciities or #c5uiri") so'e "ew ciities to pro!uce the &ee!i") r#w the '#i"

pro!uct* it is c#e! port&oio restructuri"),

%/ 3i"#"ci# restructuri") 4 I" &i"#"ci# restructuri") the co'positio" o& !e%t #"! e5uit(

#re shu&&e!,


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c/ Or)#"i0#tio"# restructuri") I" the process o& or)#"i0#tio"# restructuri")*

Or)#"i0#tio"# Structure is re$isite! #"! ch#")es #re '#!e,

DIAGRAM


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Types o !er"ers#

Whe" # co'p#"( #c5uires #"other co'p#"(* the #c5uiri") co'p#"( is c#e! the

Ac5uirer Co'p#"(


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6/ ertic# 'er)er? This is the 'er)er o& the corpor#te e")#)e! i" $#rious st#)es o&

pro!uctio" i" #" i"!ustr(, A $ertic# 'er)er .e"tities with !i&&ere"t pro!uct pro&ies/ '#(

hep i" opti'# #chie$e'e"t o& pro&it e&&icie"c(, Co"soi!#tio" throu)h $ertic# 'er)er

wou! ciit#te co"$er)e"ce o& co''erci# %#"-i")* i"sur#"ce #"! i"$est'e"t %#"-i"),

>/ Co")o'er#te 'er)erF4 A co")o'er#te 'er)er #rises whe" two or 'ore &ir's i"

!i&&ere"t '#r-ets pro!uci") u"re#te! )oo!s joi" to)ether to &or' # si")e &ir', A"

e+#'pe o& # co")o'er#te 'er)er is th#t %etwee" #" #thetic shoe co'p#"( #"! # so&t

!ri"- co'p#"(, The &ir's #re "ot co'petitors pro!uci") si'i#r pro!ucts .which wou!

'#-e it # hori0o"t# 'er)er/ "or !o the( h#$e #" i"put4output re#tio" .which wou!

'#-e it # $ertic# 'er)er/,

B) Ac+'isition,# This '#( %e !e&i"e! #s #" #ct o& #c5uiri") e&&ecti$e co"tro %( o"e

corpor#te o$er the #ssets or '#"#)e'e"t o& the other corpor#te without #"( co'%i"#tio"

o& %oth o& the', 3or e+#'pe rece"t( or#ce '#jor so&tw#re &ir' h#s #)ree! to #c5uire #

'#jorit( st#-e i" I"!i#" %#"-i") so&tw#re co'p#"( I4&e+ Soutio"s, It c#" %e

ch#r#cteri0e! i" ter's o& the &oowi")

#/ The corpor#te re'#i" i"!epe"!e"t,

%/ The( h#$e # sep#r#te e)# e"tit(,

C) Take over# U"!er the 'o"opoies #"! restricti$e tr#!e pr#ctices #ct* #-e o$er 'e#"s#c5uisitio" o& "ot ess th#" 6 o& $oti") powers i" # corpor#te,

MOTIVES FOR MERGER

A"( #c5uisitio" t#-es p#ce with # "u'%er o& 'oti$#tio"s cu'i"#ti") i" # positi$e

s("er)( .6H6 re#tio"ship/, This 'e#"s th#t the per&or'#"ce o& the co'%i"e! co'p#"(

is 'ore th#" the su' o& the per&or'#"ce o& erstwhie two i"!epe"!e"t co'p#"ies 87, A

stu!( co"!ucte! i" the U,S,A,* i!e"ti&ie! 86 'oti$es th#t pro'ote 'er)er #"! #c5uisitio"

#cti$it(, The( #re )i$e" %eow i" the or!er o& their priorit(

8/ T#-i") #!$#"t#)e o& #w#re"ess th#t # co'p#"( is u"!er$#ue!,

6/ Achie$i") )rowth 'ore r#pi!( th#" %( i"ter"# e&&ort,

>/ S#tis&(i") '#r-et !e'#"! &or #!!itio"# pro!uctsJser$ices,


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:/ A$oi!i") ris-s o& i"ter"# st#rt4ups o& e+p#"sio",

/ I"cre#si") e#r"i")s per sh#re,

?/ Re!uci") !epe"!e"ce o" # si")e pro!uctJser$ice,

F/ Ac5uiri") '#r-et sh#re or positio",

/ O&&setti") se#so"# or c(cic# &uctu#tio"s i" the prese"t %usi"ess,

9/ E"h#"ci") the power #"! presti)e o& the Ow"er* CEO* or M#"#)e'e"t,

87/ I"cre#si") utii0#tio" o& prese"t resources* i,e,* ph(sic# p#"t #"! i"!i$i!u#

s-is,

88/ Ac5uiri") outst#"!i") M#"#)e'e"t or Tech"ic# 2erso""e,

86/ Ope"i") "ew '#r-ets &or prese"t pro!uctsJser$ices,

A sur$e(* co"!ucte! i" 89* %( the U,S, 3e!er# Tr#!e Co''issio"* to &i"! out wh(

co'p#"ies choose the 'er)er #"! #c5uisitio" route* iste! se$e" '#jor %e"e&its o&

#c5uisitio" &or the #c5uiri") co'p#"(, The( #re

8/ G#i"i") #!!itio"# c#p#cit(

6/ G#i"i") e+te"!e! pro!uct i"es,

>/ Achie$i") !i$ersi&ic#tio" o& pro!uct %#se,

:/ G#i"i") ciities to pro!uce )oo!s purch#se! e#rier,

/ G#i"i") ciities to process or !istri%ute )oo!s so! e#rier,?/ G#i"i") #ccess to #!!itio"# '#r-ets,

F/ Other #!$#"t#)es such #s e'pt( p#"ts co"tro o& p#te"ts* etc,

NARASIMHAM COMMITTE REPORT

The N#r#si'h#' Co''ittee o" B#"-i") Sector Re&or' w#s set up i" Dece'%er* 899F,

This Co''ittee


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%#"-i") sector o$er the p#st si+ (e#rs* ch#rti") o& # pro)r#''e o& %#"-i") sector re&or's

re5uire! '#-i") the I"!i#" %#"-i") s(ste' 'ore ro%ust #"! i"ter"#tio"#( co'petiti$e

#"! &r#'i") o& !et#ie! reco''e"!#tio"s i" re)#r! to %#"-i") poic( co$eri")

i"stitutio"#* super$isor(* e)is#ti$e #"! tech"oo)ic# !i'e"sio"s, The Co''ittee

su%'itte! its report o" 6> Apri* 899 with the &oowi") su))estio"s

The Co''ittee reco''e"!e! &or 'er)er o& #r)e I"!i#" %#"-s to '#-e the'

stro") e"ou)h &or supporti") i"ter"#tio"# tr#!e,

The Co''ittee reco''e"!e! the use o& 'er)ers to %ui! the si0e #"! stre")th o&

oper#tio"s &or e#ch %#"-,

#r)e %#"-s shou! 'er)e o"( with %#"-s o& e5ui$#e"t si0e #"! "ot with we#-er

%#"-s

Two or three %#"-s with i"ter"#tio"# orie"t#tio"* ei)ht to 87 "#tio"# %#"-s #"! #

#r)e "u'%er o& oc# %#"-s,

Reh#%iit#te we#- %#"-s with the i"tro!uctio" o& "#rrow %#"-i"),

Co"&i"e s'#* oc# %#"-s to St#tes or # custer o& Districts,

Re$iew the RBI Act* the B#"-i") Re)u#tio" Act* the N#tio"#i0#tio" Act #"! the

St#te B#"- o& I"!i# Act,

Spee! up co'puteri0#tio" o& pu%ic sector %#"-s,

Re$iew the recruit'e"t proce!ures* #"! the tr#i"i") #"! re'u"er#tio" poicies o& 2SU %#"-s,

Depoiticis#tio" o& #ppoi"t'e"ts o& the %#"- CEOs #"! pro&essio"#i0#tio" o& the

%#"- Bo#r!s,

Stre")the" the e)# &r#'ewor- to #cceer#te cre!it reco$er(,

I"cre#se c#pit# #!e5u#c( to '#tch the e"h#"ce! %#"-i") ris-,

Bu!)et#r( support "o"4$i#%e &or rec#pit#i0#tio",

No #ter"#ti$e to the #sset reco"structio" &u"!,

e"ce* o"e o& the '#jor re#so"s &or %#"- 'er)ers w#s the N#r#si'h#' Co''ittee report

o" B#"-i") re&or's,


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Reasons or Bank !er"ers#

I" I"!i#* the 'er)er #"! t#-eo$er phe"o'e"o" i" the p#st w#s u"!erstoo! #r)e( #s o"e

o& the sic- u"its %ei") t#-e" o$er %( he#th( o"es, This is %ec#use o& the re#so" th#t Sec,

F6A o& the I"co'e T#+ Act* 89?8* pro$i!es &or the c#rr( &orw#r! o& osses,

The #!$#"t#)e th#t the 'er)i") corpor#tio"s )et is th#t the %oo- osses o& the sic-

corpor#tio" )et writte" o&& #)#i"st the &uture pro&its* thus s#$i") the pro&it#%e

corpor#tio"s so'e t#+ out&ow,

As r #s the B#"-i") sector is co"cer"e! &oowi") re#so"s #re 'ore ree$#"t

8/ .ro&t% &it% E/ternal Eorts With the eco"o'ic i%er#i0#tio" the co'petitio" i"the %#"-i") sector h#s i"cre#se! #"! he"ce there is # "ee! &or 'e)# %#"-s* which wi %e

i"te"se( co'peti") &or '#r-et sh#re, I" or!er to i"cre#se their '#r-et sh#re #"! the

'#r-et prese"ce so'e o& the power&u %#"-s h#$e st#rte! oo-i") &or %#"-s which cou!

%e 'er)e! i"to the #c5uiri") %#"-, The( re#i0e! th#t the( "ee! to )row st to c#pture

the opportu"ities i" the '#r-et, Si"ce the i"ter"# )rowth is # ti'e t#-i") process* the(

st#rte! oo-i") &or t#r)et %#"-s

6/ Dere"'lation With the i%er#i0#tio" o& e"tr( %#rriers* '#"( pri$#te %#"-s c#'e i"to

e+iste"ce, As # resut o& this there h#s %ee" i"te"se co'petitio" #"! %#"-s h#$e st#rte!

oo-i") &or t#r)et %#"-s which h#$e '#r-et prese"ce #"! %r#"ch "etwor-,

>/ Tec%nolo"y The "ew %#"-s which e"tere! #s # resut o& i&ti") o& e"tr( %#rriers h#$e

st#rte! '#"( $#ue #!!e! ser$ices with the hep o& their tech"oo)ic# superiorit(, The


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o!er %#"-s which c#""ot co'pete i" this #re# '#( !eci!e to )o &or 'er)ers with these

hi)h4tech %#"-s,

:/ 0e& Prod'ctsServices# New )e"er#tio" pri$#te sector %#"-s which h#$e !e$eope!

i""o$#ti$e pro!uctsJser$ices with the hep o& their tech"oo)( '#( #ttr#ct so'e o!

)e"er#tio" %#"-s &or 'er)er !ue to their i"c#p#cit( to ce these ch#e")es,

/ $ver Capacity# The "ew )e"er#tio" pri$#te sector %#"-s h#$e %e)u" their oper#tio"

with hu)e c#p#cities, With the prese"ce o& '#"( p#(ers i" the '#r-et* these %#"-s '#(

"ot %e #%e to c#pture the e+pecte! '#r-et sh#re o" its ow", There&ore* i" or!er to &u(

utii0e their c#p#cities these %#"-s '#( oo- &or t#r)et %#"-s which '#( "ot h#$e 'o!er"

!#( ciities,

?/ C'stomer Base I" or!er to utii0e the c#p#cit( o& the "ew )e"er#tio" pri$#te sector

%#"-s* the( "ee! hu)e custo'er %#se, Cre#ti") hu)e custo'er %#se t#-es ti'e, There&ore*

these %#"-s h#$e st#rte! oo-i") &or t#r)et %#"-s with )oo! custo'er %#ses, O"ce there is

# )oo! custo'er %#se* the %#"-s c#" se other %#"-i") pro!ucts i-e c#r o#"s* ousi")

o#"s* co"su'er o#"s* etc,* to these custo'ers #s we,

F/ !er"er o 2eak Banks# There h#s %ee" # pr#ctice o& 'er)i") we#- %#"-s with #he#th( %#"- i" or!er to s#$e the i"terest o& custo'ers o& the we#- B#"-, N#r#si'h#'

Co''itteeII !iscour#)e! this pr#ctice, Kh#" Group su))este! th#t we#- De$eop'e"t#

3i"#"ci# I"stitutio"s .D3Is/ '#( %e #owe! to 'er)e with the he#th( %#"-s,

/ I" the B#"-i") Sector o& #"( eco"o'(* the 'ost cruci# co"cer" is the Ris-

M#"#)e'e"t, B#"-s o& e$er( cou"tr( #re suppose! to '#-e # proper ris- #"#(sis i"

or!er to %##"ce the !eposit #"! cre!it port&oios, Mer)ers c#" !i$ersi&( these ris-s to #

si)"i&ic#"t e+te"t,

9/ Dr#stic i"cre#se i" '#r-et co'petitio"* i""o$#tio" o& "ew &i"#"ci# pro!ucts #"!

co"soi!#tio" o& re)io"# &i"#"ci# s(ste's #"! "#tio"# &i"#"ci# s(ste's #re the other

re#so"s* &or which %#"-s #re )oi") &or 'er)ers* #rou"! the wor!,


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87/ As the %#"-i") '#r-ets #re %eco'i") 'ore !e$eope! #"! co'petiti$e* i"cre#si")

'#r-et sh#re or '#r)i"s is %eco'i") !i&&icut, I" this e"$iro"'e"t it is %eco'i") 'ore

i-e( th#t %#"-s wi see- to e+p#"! #"! cut costs %( w#( o& #c5uisitio"s #"! 'er)ers,

88/ Mer)er c#" %e pro$e! re#( use&u i" &i)hti") '#r-et co'petitio"* #s 'er)er h#s the

c#p#%iit( to )e"er#te eco"o'ies o& sc#e, These Eco"o'ies o& sc#e c#" hep the %#"-s

i" oweri") their ser$ici") cost #"! i" this w#( c#" pro$i!e # co'petiti$e e!)e to the' 8,

86/ Moreo$er* whe" Mer)ers h#ppe"* Tr#"s&er o& S-is t#-es p#ce %etwee" the two

%#"-i") or)#"i0#tio"s #"! this tr#"s&er o& s-is e#! to hi)her e&&icie"c( o" the p#rt o&

the 'er)e! %#"-,

8>/ B#"-i") Sectors o& e$er( eco"o'( o& the wor! #re %eco'i") )o%# soo"er or #ter,

This )o%#i0#tio" or eco"o'ic i%er#i0#tio" h#s e+erte! # )re#t i'p#ct o" the B#"-

Mer)ers,

BENEFITS OF CONSOIDATION

2%y !er"er in (anks- t%e (eneits

A 'er)er i"$o$es # '#rri#)e o& two or 'ore %#"-s, It is )e"er#( #ccepte! th#t 'er)ers

pro'ote s("er)ies, The %#sic i!e# is th#t the co'%i"e! wi cre#te 'ore $#ue th#" the

i"!i$i!u# %#"-s oper#ti") i"!epe"!e"t(,


15/56

Economies o scale re&er to the ower oper#ti") costs .per u"it/ #risi") &ro'

spre#!i") the &i+e! costs o$er # wi!er sc#e o& pro!uctio" #"! eco"o'ies o& scope

re&er to the utii0#tio" o& s-i #ssets e'po(e! i" the pro!uctio" i" or!er to

pro!uce!si'i#r pro!ucts or ser$ices, The resuti") co'%i"e! e"tit( )#i"s &ro'

oper#ti") #"!&i"#"ci# s("er)ies, I" # co'%i"e! e"tit(* the s-i use! to pro!uce

sep#r#te #"! i'ite! resuts wi %e use! to pro!uce resuts o" wi!er sc#e,

A!!itio"# &i"#"ci# s("er)ies re&er to the e&&ect o& # 'er)er o" the &i"#"ci#

#cti$ities o& the resuti")co'p#"(, The c#sh &ows #risi") &ro' the 'er)er #re

e+pecte! to prese"t opportu"ities i" respect o& the cost o& &i"#"ci") #"!

i"$est'e"t,

.reater eiciency

B#"-s o&te" #re #%e to oper#te 'ore cost e&&ecti$e( %( i"cre#si") their si0e, The

costs o& '#"( &u"ctio"s !o"=t !ou%e whe" the sc#e o& oper#tio" !ou%es, As #

resut* 'er)ers #re o"e w#( to -eep costs #"! prices !ow",

3evera"in" tec%nolo"y

B#"-s #"! their custo'ers h#$e %eco'e i"cre#si")( #ccusto'e! to the

#!$#"t#)es o& "ew #"! e+pe"si$e tech"oo)ies, M#"( o& these tech"oo)ies #re

too e+pe"si$e u"ess costs c#" %e spre#! o$er # #r)e "u'%er o& custo'ers,

Mer)ers #re o&te" "ecess#r( to #ow %#"-s to i"tro!uce #"! '#i"t#i" the

tech"oo)ies custo'ers i"cre#si")( !e'#"!,

C%an"in" la&s

L#ws which h#! pre$e"te! '#"( %#"-s &ro' oper#ti") i" 'ore th#" o"e st#te

rece"t( h#$e %ee" re'o$e! or o$erri!!e", The #!$e"t o& i"terst#te %#"-i") #"!

%r#"chi") 'e#"s 'ore opportu"ities &or %#"-s oper#ti") i" !i&&ere"t st#tes to

'er)e with e#ch other,


16/56

Diversiication

O"e e&&ecti$e 'etho! o& co"troi") ris-s i"here"t i" %#"- e"!i") is to !i$ersi&(

oper#tio"s #cross !i&&ere"t )eo)r#phic re)io"s #"! !i&&ere"t t(pes o& custo'ers,

Mer)ers c#" hep !i$ersi&( such ris-s,

Broader array o prod'cts

Mer)ers '#( )i$e %#"-i") i"stitutio"s #" opportu"it( to o&&er # %ro#!er #rr#( o&

ser$ices, A 'er)er o& two %#"-s with !i&&ere"t e+pertise c#" resut i" #

co'%i"#tio" 'ore to the i-i") o& custo'ers oo-i") &or o"e4stop shoppi"),


17/56

2H4 C$S$3*DAT*$0 *0 *0D*A0 BA05*0. *0D6STR43i"#"ci# Sector Re&or's set i" 'otio" i" 8998 h#$e )re#t( ch#")e! the ce o& I"!i#"

B#"-i"), The %#"-i") i"!ustr( h#s 'o$e! )r#!u#( &ro' # re)u#te! e"$iro"'e"t to #

!ere)u#te! '#r-et eco"o'(, The p#ce o& ch#")es )#i"e! 'o'e"tu' i" the #st &ew

(e#rs, Go%#i0#tio" wou! )#i" )re#ter spee! i" the co'i") (e#rs p#rticu#r( o" #ccou"t

o& e+pecte! ope"i") up o& &i"#"ci# ser$ices u"!er WTO,

Banks in *ndia are "rad'ally "oin" or-

1) Consolidation o players t%ro'"% mer"ers and ac+'isitions7

8) .lo(ali9ation o operations7

:) Development o ne& tec%nolo"y and

;) 6niversalisation o (ankin"


18/56

With the i"ter"#tio"# %#"-i") sce"#rio %ei") !o'i"#te! %( #r)er %#"-s* it is

i'port#"t th#t I"!i# too shou! h#$e # ir "u'%er o& #r)e %#"-s* which cou!

p#( # 'e#"i")&u roe i" the e'er)i") eco"o'ics, A'o") the top twe"t( %#"-s

i" the e'er)i") eco"o'ics* I"!i# h#s o"( o"e* where#s Chi"# h#s &i$e %#"-s #"!

Br#0i h#! si+ %#"-s,

The per&or'#"ce o& %#"-s i" I"!i# i"!ic#tes th#t cert#i" per&or'#"ce

ch#r#cteristic is "ot restricte! to # p#rticu#r %#"-, There&ore* co"soi!#tio" o&

%#"-i") i"!ustr( is critic# &ro' se$er# #spects, M#i"(* the re#so"s &or 'er)ers

#"! #c5uisitio"s c#" i"cu!e 'oti$es &or $#ue '#+i'i0#tio"s we "o"4$#ue

'#+i'i0#tio", The ctors i"cu!i") 'er)ers #"! #c5uisitio"s usu#( i"cu!e

tech"oo)ic# pro)ress* e+cess c#p#cit(* e'er)i") opportu"ities* co"soi!#tio" o&

i"ter"#tio"# %#"-i") '#r-ets #"! !ere)u#tio"s o& )eo)r#phic* &u"ctio"# #"!

pro!uct restrictio"s, 2oic( i"!uce'e"ts such #s the )o$er"'e"t


19/56

'er)er %etwee" e5u#s, It is #so o%ser$e! &ro' p#st e+perie"ces th#t i& the

'er)er &oows %usi"ess #i!e! %( #ppropri#te! tech"oo)( #"! !i$ersi&ie! pro!uct

r#")e* it cou! e#! to )re#ter )#i"s &or the %#"-i") i"!ustr( #s # whoe, Si'i#r(*

co"soi!#tio" i"cre#ses the '#r-et power #"! !oes "ot c#use #"( !#'#)e to the

#$#i#%iit( o& ser$ices to s'# custo'ers,

E$#u#tio" o& %#"-s c#rrie! out %( i"!i$i!u# %#"-s re$e# th#t hi)her c#pit#

#!e5u#c( #"! ower "o"per&or'i") #ssets e+p#i" to # )re#ter e+te"t the )rowth*

2ro&it#%iit( #"! pro!ucti$it( o& %#"-s si"ce i"cre#se i" c#pit# #"! steep

re!uctio" i" "o"4per&or'i") #ssets c#""ot %e e"tire( e&t to the i"!i$i!u# %#"-s

i" the prese"t sce"#rio, Co"soi!#tio" i" the %#"-i") i"!ustr( is o& )re#t ree$#"ce

to the eco"o'(,

A !i#)"ostic per&or'#"ce e$outio" stu!( wou! re$e# out i'port#"t #spects o&

!i$er)e"ce i" the per&or'#"ce o& the !o'estic %#"-i") i"stitutio"s, A hi)h !e)ree

o& $#ri#tio"s is &ou"! i" the per&or'#"ce o& $#rious )roups o& %#"-s, Si"ce* pu%ic

sector %#"-s #ccou"t &or the #r)e sc#e o& %#"-i") #ssets #"! the ower

per&or'#"ce r#tio re&ect the e"tire %#"-i") i"!ustr(* it is co"si!ere! i'port#"t

th#t suit#%e co"soi!#tio" process '#( %e i"iti#te! #t the e#riest* so th#t* the

e&&icie"c( )#i" '#!e %( the #r)e "u'%er o& %#"-s o& other )roups wi %e

re&ecte! which cou! e#! to # positi$e i'p#ct o" the i'#)e o& %#"-i"),

Co"soi!#tio" c#" #so %e co"si!ere! critic# &ro' the poi"t o& $iew o& 5u#"tu'

o& resources re5uire! &or stre")the"i") the #%iit( o& %#"-s i" #ssets cre#tio", It

i"!ic#tes th#t restructuri") i" I"!i#" %#"-i") '#( "ot %e $iewe! &ro' the poi"t o&

p#rticu#r )roup r#ther it c#" %e e$o$e! #cross the %#"- )roups,

I"!i#"s %#"-s h#$e u"i5ue ch#r#cter i" !isp#(i") si'i#r ch#r#cteristics o&

per&or'#"ce !espite co"sisti") o& !i&&ere"t si0e #"! ow"ership, This tre"! &urther

su%st#"ti#tes the scope &or co"soi!#tio" #cross %#"-s )roup,

As per the Qu#"tit#ti$e I'p#ct Stu!( pu%ishe! %( B#se Co''ittee i" M#(677>* there wou! %e i"cre#se i" c#pit# re5uire'e"ts %( 86 &or %#"-s i"

!e$eopi") cou"tries o" the i'pe'e"t#tio"s o& the B#se II Accor!, Mer)ers

#'o") the %#"-s wi %e o"e o& the w#(s to i"cre#se '#r-et power #"! there%(

i"cre#se the re$e"ue )e"er#tio" o& the B#"-s,

The Reser$e B#"- o& I"!i# .ce"tr# %#"-/ h#s set up #" e+perts co''ittee to

i'pe'e"t B#se II #ccor! %( 677? to stre")the" the &i"#"ci# he#th o& %#"-s %(


20/56

#!opti") )o%#( #ccepte! "or's &or c#pit# #!e5u#c(, The RBI #so w#"ts #

%#"-s i" I"!i# to h#$e # capital base of Rs 300 crore (Rs 3 billion) o$er the "e+t

three (e#rs, This wi %ri") #%out "u'%er o& #c5uisitio"s i" the %#"-i") i"!ustr(,

O$er the #st two (e#rs* the RBI h#s stoppe! issui") %r#"ch ice"ses to

cooper#ti$e %#"-s* #&ter the u"%ri!e! )rowth o& co4oper#ti$e %#"-s !uri") the

#st !ec#!e, 3or cooper#ti$e %#"-s to e+p#"! there is "o #ter"#ti$e to )o &or

'er)er #" #'#)#'#tio", The Mu'%#i4%#se! S#r#sw#t Co4oper#ti$e B#"- is "ow

poise! to t#-e o$er M#h#r#shtr# %#se! M#r#th# M#"!ir Co4oper#ti$e B#"- which

is i" trou%e, This cou! '#r- the %e)i""i") o& $ou"t#r( 'er)ers o& cooper#ti$e

%#"-s #&ter the Reser$e B#"- o& I"!i# .RBI/ u"$eie! &or 'er)ers #"!

#'#)#'#tio"s #'o") ur%#" co4oper#ti$e %#"-s, The other suitor &or M#r#th#

M#"!ir w#s 2u"e4%#se! Cos'os Co4oper#ti$e B#"-,

L#st %ut 'ost i'port#"t re#so" &or co"soi!#tio" i" #"( i"!ustr( is t#+ s#$i") #"!

this thi") is true &or the %#"-i") i"!ustr( #so,


21/56

CHAPTER ! - MERGER IN INDIAN BANKS

I" the 897s #"! 89?7s there were i"st#"ces o& pri$#te sector %#"-s* which h#! to %e

rescue! or cose! !ow" %ec#use the( h#! $er( ow c#pit# #"! were 'ost( oper#ti")

with other peope


22/56

Tar"et .ro'p o Banks or !/ I" the thir! c#te)or(* #re '#-e %#"-s he#!e! %( CEOs who were !e"ie! opportu"ities

to he#! %i) %#"-s #"! #re %eie$e! to %e t#-i") the i"iti#ti$e to #c5uire other %#"-s so

th#t the( c#" pro$e their e#!ership 5u#ities,

:/ I" the &ourth c#te)or( is # we#- #"! s'# %#"-* which "ee!s to %e t#-e" o$er %(

#r)er to re'#i" $i#%e, These c#" %e the pote"ti# t#r)ets o& &orei)" %#"-s #"! i"$estors,

O$er 97 perce"t o& pri$#te sector %#"-s h#$e # c#pit# %#se o& ess th#" Rs 877 crore .Rs8 %iio"/, So'e o& the' e$e" !o "ot h#$e # "et worth o& Rs >77 crore, L#r cooper#ti$e

%#"-s #re i" trou%e #"! oo-i") &or t#-e h#s %ee" oo-i") #t 44 which h#s # soi!

B#")#ore* is i"tereste! i" pic-i") up # "orther" %#"-, North '#-e4%eie$e M;As th#t

#re pure( perso"#it(4!ri$e", These #re L#r)e "u'%ers o& ur%#" t#-e4o$erJ#c5uisitio" to

sur$i$e,

dia"ram

0'mero's st'dies %ave assessed t%e

Eiciency o (anks= and

Eiciency "ains rom mer"ers amon"st (anks and inancial instit'tions

E&&icie"c( is 'e#sure! or !e&i"e! #s the !e&i"itio" #"! choice o& the i"puts #"! outputs

use! &or 'e#suri") the e&&icie"c( o& %#"-s !epe"!s o" the speci&ic #ppro#ch use! to


23/56

'o!e the %#"-i") %usi"ess, #rious #ppro#ches h#$e %ee" use! &or 'e#suri") the %#"-

e&&icie"c(, Two '#jor #ppro#ches #re

2ro!uctio"*

I"ter'e!i#tio"*

Prod'ction approac% The pro!uctio" #ppro#ch $iews %#"-s #s pro!ucers o& $#rioust(pes o& #ccou"ts i" &or' o& !eposits #"! o#"s %( i"curri") cost o& pro!uctio", The i"put

is 'e#sure! %( the cost o& pro!uctio" #"! e+cu!es the i"terest e+pe"ses, Cost o&

pro!uctio" i"cu!es the costs o& ph(sic# c#pit# #"! #%our, The output is 'e#sure! i"

ter's o& "u'%er o& #ccou"ts ser$ice!@ #"! "ot 'e#sure! i" ter's o& the curre"c( $#ue o&

!eposits,

*ntermediation Approac% This #ppro#ch co"si!ers %#"-s #s i"ter'e!i#r( o& &i"#"ci#

ser$ices, It #ssu'es th#t %#"-s coect &u"!s .!eposits #"! purch#se! &u"!s/ #"!

tr#"s&or' these i"to o#"s #"! other #ssets %( i"curri") the cost o& pro!uctio", I"puts #re

the !eposits #"! the cost o& pro!uctio", Costs #re !e&i"e! to i"cu!e %oth i"terest e+pe"se

#"! tot# costs o& pro!uctio", Output is the $ou'es o& e#r"i") #ssets,

CASE STUDY - PUN"AB NATIONA BANK AND NEW BANK OF

INDIA MERGER#

I" (e#r 89F7 &ourtee" %#"-s i"cu!i") 2NB were "#tio"#i0e!, I" 897 si+ 'ore %#"-s

i"cu!i") New B#"- o& I"!i# were "#tio"#i0e!, Both these %#"-s were 'er)e! i" 899>

%( the Ce"tr# Go$er"'e"t, The New B#"- o& I"!i# w#s i"curri") osses #"! %( the (e#r

8998496* its &i"#"ci# positio" h#! %eco'e so %#! th#t its c#pit# #"! !eposits co'pete(

stoo! ero!e!, 2u"j#% N#tio"# B#"- co''e"ce! its oper#tio"s o" Apri 86*89 &ro'

L#hore with #" #uthori0e! c#pit# o& Rs, 6 #-hs #"! wor-i") c#pit# i'it o& Rs, 67*777J4

, The B#"- h#s 'ore th#" 877 (e#rs o& histor( #"! h#s ce! '#"( &i"#"ci# #"! other

crises i" the I"!i#" &i"#"ci# s(ste' o$er these (e#rs6>, New B#"- o& I"!i# w#s #

co'p#r#ti$e( s'# %#"- #'o") the "#tio"#i0e! %#"-s, It h#! #rou"! ?77 %r#"ches #o$er the cou"tr( with 86*:77 e'po(ees #"! w#s h#$i") 6*77 crores o& !eposits #"!

#!$#"ces Rs, 9F7 crores, The 2NB #"! NBI 'er)er h#s "ot %ee" # '#rri#)e o&

co"$e"ie"ce, It h#! the see!s o& o") ter' !etri'e"t# e&&ect to the he#th o& 2NB, The

'ost tic-ish pro%e' which the #'#)#'#te! e"tit( ce! w#s the co'pete #%sorptio"

o& the si0e#%e NBI wor-&orce i"to its ow" wor- cuture, The NBI w#s "otorious &or

r#'p#"t i"!iscipi"e #"! i"ter'itte"t


24/56

!isoc#tio" o& wor- !ue to &ierce i"ter4u"io" ri$#ries,

CHAPTER ! $ COMPETITON ISSUES INVOVED IN

BANKING SECTOR %OECD

OECD h#s i"!ic#te! # "u'%er o& co'petitio" issues i" %#"-i")

I, Muti4'#r-et co"t#cts %#"-s th#t co'pete i" '#"( '#r-ets reco)"i0e the

"ee! to co4e+ist r#ther th#" co'pete

II, B#rriers to e"tr( Co"test#%e '#r-ets #re hi)h( co'petiti$e, owe$er* e"tr(

restrictio"s e+ist i" the &or' o&

Re)u#tor( %#rriers 'i"i'u' c#pit# re5uire'e"ts@ restr#i"ts o" i"es o&

%usi"ess@ ice"si") o& %r#"ches or su%si!i#ries@ restrictio"s o" e"tr( o&

&orei)" %#"-s etc,

Su%st#"ti# st#te ow"ership o& %#"-s wou! 'e#" th#t &orei)" &ir's c#""ot

t#-e o$er !o'estic %#"-s o& #"( su%st#"ce

E+it %#rriers i" the &or' o& 'e#sures to pre$e"t %#"- i"so$e"cies*

especi#( the too %i) to i ctor

III, Access to co'petitor


25/56

I"cu'%e"t %#"-s h#$e se$er# reput#tio"# #"! i"&or'#tio"# #!$#"t#)es

o$er the "ew e"tr#"t, I"cu'%e"ts '#( "ot sh#re cre!it ris-s with "ew

e"tr#"ts,

I, E&&icie"cies Especi#( i" 'er)er c#ses e&&icie"cies #rise, O"e e+#'pe is th#t

%( cosi") re!u"!#"t %r#"ches, owe$er* &ro' co'petitio" poic( poi"t o&

$iew this '#( %e #t the cost o& co'petitio" i" the ree$#"t )eo)r#phic '#r-et,

II, Re'e!ies Mer)ers th#t 'i)ht i"iti#( %e prohi%ite! wi e$e"tu#( %e

per'itte! su%ject to cert#i" co"!itio"s* which wou! e"sure co'petitio" i" the

'#r-ets .Beh#$iour# #"! Structur#/

O%t#i" co''it'e"ts to restr#i" the e+ercise o& '#r-et power

O%t#i" co''it'e"ts to i"!irect( ciit#te "ew e"tr( or stre")the"

e+isti") co'petitors

Re5uire steps i"te"!e! to !irect( tr#"s&er '#r-et sh#re i,e, !i$est p#rt o&

%usi"ess usu#( %r#"ches or i"es o& #cti$ities

A"other OECD !ocu'e"t o" co'petitio" issues i" %#"- 'er)ers i"!ic#tes th#t

The i'p#ct o& eectro"ic %#"-i") !e$eop'e"ts o" proper '#r-et !e&i"itio" #"!

#ssess'e"t o& %#rriers to e"tr( 'ust %e c#re&u( co"si!ere! i" %#"- 'er)er c#ses@

Co'petitio" pro%e's i" %#"- 'er)ers #re 'ost co''o"( e"cou"tere! #s

re)#r!s o#"s to s'# #"! 'e!iu' si0e! %usi"esses@

B#rriers to e"tr( i" %#"-i") cou! we %e hi)h e"ou)h to pre$e"t # su&&icie"t(

r#pi! "eutr#i0#tio" o& #"( #"ti4co'petiti$e e&&ects th#t '#( %e e+pecte! &ro'

%#"- 'er)ers i" su&&icie"t( co"ce"tr#te! '#r-ets,

E&&icie"cies cou! %e ree$#"t i" %#"- 'er)ers* %ut co'petitio" o&&ici#s shou!

%e sceptic# o& c#i's i"-e! to suppose! eco"o'ies o& sc#e especi#( i" !e#i")

with 'er)ers where # the p#rties #re su&&icie"t( #r)e th#t e#ch h#s pro%#%(

e+h#uste! $irtu#( # #$#i#%e eco"o'ies o& sc#e@


26/56

Whe" ce! with #"ti4co'petiti$e %#"- 'er)ers* co'petitio" #)e"cies shou!

co"si!er propos#s to '#-e #ppropri#te ch#")es i" the tr#"s#ctio"* %ut shou!

)e"er#( #$oi! Pre'e!ies re5uiri") o")oi") 'o"itori") #"! e"&orce'e"t@

There is itte i"here"t pote"ti# &or co"&ict %etwee" co'petitio" #)e"cies #"!

pru!e"ti# re)u#tors@ #"! The )e"er# co'petitio" #w shou! %e #ppie! to %#"- 'er)ers %( the )e"er#

co'petitio" #)e"c(, It is #so esse"ti# to &oster co4or!i"#tio" #"! co4oper#tio"

%etwee" pru!e"ti# re)u#tors #"! co'petitio" #)e"cies,

CHAPTER ' - REGUATIONS REGARDING MERGERS

AND AC(UISITION IN INDIA

Mer)er co"tro re5uire'e"ts i" I"!i# #re curre"t( )o$er"e! %( the pro$isio"s o& the

Co'p#"ies Act* 89? .the PCo'p#"ies Act/ #"! the Securities #"! E+ch#")e Bo#r! o&

I"!i# .Su%st#"ti# Ac5uisitio" o& Sh#res #"! T#-eo$ers/ Re)u#tio"* 899F .the PT#-eo$er

Co!e/ &r#'e! %( the Securities #"! E+ch#")e Bo#r! o& I"!i# .PSEBI/, Aso* i"


27/56

e+ercise o& the powers co"&erre! %( su%4sectio" .8/ #"! c#uses .%/* .c/ #"! .&/ o& su%4

sectio" .6/ o& sectio" ?: re#! with su%4sectio"s .6/ #"! ./ o& sectio" ? o& the

Co'petitio" Act* 6776 .86 o& 677>/* the Co'petitio" Co''issio" o& I"!i# h#s

i"tro!uce! # "ew re)u#tio" &or 'er)er co"tro* The Co'petitio" Co''issio" o& I"!i#

.2roce!ure i" re)#r! to the tr#"s#ctio" o& %usi"ess re#ti") to co'%i"#tio"s/ Re)u#tio"s*

6788 .the PCo'%i"#tio" Re)u#tio"/, Moreo$er* e$er( sector h#s # sector4 speci&ic

e)is#tio"* &or e+#'pe* i" c#se o& %#"-i") sector* #ppro$# is re5uire! &ro' the Reser$e

B#"- o& I"!i# .the PRBI/ u"!er the B#"-i") Re)u#tio" Act* 89:9,

A THE COMPANIES ACT) *+!'

U"!er the co'p#"ies Act* prior #ppro$#s #re re5uire! i" re#tio" to the tr#"s&er or

#c5uisitio" o& sh#res #"! #'#)#'#tio" #"! 'er)er o& co'p#"ies, 3ii")s with re)#r! to

#c5uisitio" or tr#"s&er o& sh#res #re o"( i" re#tio" to !o'i"#"t u"!ert#-i")s, Do'i"#"t

u"!ert#-i")s Ac5uisitio" o& sh#res is su%ject to re5uire'e"t o& #ppro$# &ro' ce"tr#

)o$er"'e"t o"( where the #c5uirer is # !o'i"#"t u"!ert#-i") or wou! %eco'e #

!o'i"#"t u"!ert#-i") #s # resut o& such #c5uisitio" o& sh#res, Si'i#r(* i" c#ses o&

tr#"s&er o& sh#res* the i"ti'#tio"s to the ce"tr# )o$er"'e"t is re5uire! to %e )i$e" o"(

where the tr#"s&eror or tr#"s&eree is # !o'i"#"t u"!ert#-i"), Do'i"#"t u"!ert#-i") h#s

"ot %ee" !e&i"e! i" the Co'p#"ies Act, owe$er* Sectio" 6.!/ o& the Mo"opoies #"!

Restr#i"t Tr#!e 2r#ctices Act* 89?9 .PMRT2 Act/ !e&i"es # !o'i"#"t u"!ert#-i") #s

o"e which %( itse& or to)ether with its i"terco""ecte! u"!ert#-i")s pro!uces* suppies*

!istri%utes or co"tros o"e &orth o& #"( )oo!s or co"tros o"e4&orth o& #"( ser$ices*

ctors such #s $#ue* cost* price* 5u#"tit(* or c#p#cit( o& the )oo!s or ser$ices #re to %e

t#-e" i"to co"si!er#tio", Deter'i"#tio" o& !o'i"#"ce is to %e !o"e %( co'puti") the

#$er#)e #""u# 5u#"tit( o& such )oo!s suppie!* !istri%ute! or co"troe! i" I"!i# &or the

pre$ious > c#e"!#r (e#rs, owe$er* #"( )oo!s e+porte! out o& I"!i# #re e+cu!e! &or the

purpose o& co'puti") the #$er#)e #""u# 5u#"tit(,


28/56

T%res%old re+'irements#

Where #"( #c5uisitio" o& e5uit( sh#res* .t#-e" to)ether with the pre$ious sh#reho!i")/

e+cee!s 6 o& the p#i! up e5uit( sh#re c#pit# o& the t#r)et co'p#"(* the #c5uirer .s/

.#"( i"!i$i!u#* &ir'* )roup* co"stitue"t o& # )roup* %o!( corpor#te or %o!ies corpor#te

u"!er the s#'e '#"#)e'e"t/ is re5uire! to o%t#i" prior #ppro$# o& the ce"tr#

)o$er"'e"t %e&ore #c5uiri") or #)reei") to #c5uire such sh#res, owe$er* the

re5uire'e"t o& o%t#i"i") #ppro$# o"( #rises whe" sh#res o& # pu%ic co'p#"( or pri$#te

co'p#"(* which is "ot # su%si!i#r( o& # pu%ic co'p#"(* !oes "ot re5uire prior #ppro$#,

The #ppro$# o& the ce"tr# )o$er"'e"t is re5uire! o"( i& the tot# #c5uisitio"* to)ether

with the prior sh#reho!i") i" the t#r)et co'p#"( #re e+cee!s 6, Aso* the re5uire'e"t

o& o%t#i"i") #ppro$# #ppies o"( i" c#ses o& #c5uisitio" o& e5uit( sh#res, No #ppro$# is

re5uire! whe" #"( pre&ere"ce sh#res #re #c5uire! whether or "ot such sh#res h#ppe"s to

posses $oti") ri)hts, Aso* such #ppro$# o& the ce"tr# )o$er"'e"t is re5uire! e$e"

where there is o"( #" #)ree'e"t to #c5uire such sh#res, The A"!hr# 2r#!esh i)h Court

i" K#r#'s#! I"$est'e"t Lt! $s, Nie Lt!#s he! th#t the e+pressio" P#)ree to #c5uire

h#s re&ere"ce to #" #)ree'e"t %etwee" so'e o& the perso"s to joi"t( #c5uire the sh#res

o& # co'p#"(* #"! "ot to #" #)ree'e"t %etwee" the prospecti$e purch#ser #"! seer,

Such !ecisio" to #c5uire 6 o& the sh#res shou! %e %rou)ht to "otice o& the ce"tr#)o$er"'e"t, The re#so" &or such stipu#tio" is th#t e$e" # !ecisio" to #c5uire sh#res i"

%u- wou! h#$e # serious e&&ect o" the stoc- '#r-et #"! i& i'pe'e"te! wou! h#$e

serious i'p#ct o" the '#"#)e'e"t o& the t#r)et co'p#"( #"! i" so'e c#ses e$e" o" the

co''u"it( #t #r)e !epe"!i") o" the "#ture o& the i"!ustr( ru" %( the t#r)et co'p#"(,

Si'i#r(* the tr#"s&er o& sh#res %( # %o!( corpor#te or %o!ies corpor#te u"!er the s#'e

'#"#)e'e"t which ho! 87 or 'ore o& the e5uit( sh#res o& #"( other co'p#"( 'ust %e

i"ti'#te! to the ce"tr# )o$er"'e"t #"! the s#'e is su%ject to the !irectio"s o& the ce"tr#

)o$er"'e"t, This pro$isio" #ppies o"( where the e5uit( sh#res o& #"( co'p#"( #re

%ei") tr#"s&erre!, Ce"tr# Go$er"'e"t #ppro$# is o"( "ee!e! i" c#ses o& tr#"s&er o&

e5uit( sh#res o& # co'p#"( #"! "ot pre&ere"ce sh#res, The pro$isio" #so #pp( to #"(

%o!( corpor#te


29/56

tr#"s&erri") e5uit( sh#res o& # &orei)" co'p#"( th#t h#s #" est#%ishe! p#ce o& %usi"ess

i" I"!i# to #"( I"!i#" citi0e" or co'p#"( i"corpor#te! i" I"!i#, Such tr#"s&er c#" o"( %e

)i$e" e&&ect to #&ter prior4i"ti'#tio" to the Ce"tr# Go$er"'e"t,

Appro$# Sectio" >984>9? o& Co'p#"ies Act pro$i!e the '#chi"er( &or the

#'#)#'#tio" o& co'p#"ies to %e #ppro$e! %( the co'p#"( court #"! Ce"tr#

Go$er"'e"t, These sectio"s !e# with the ri)ht o& # co'p#"( to e"ter i"to # co'pro'ise

or #)ree'e"t %etwee" .#/ itse& #"! its cre!itors or #"( c#ss o& the'* or .%/ itse& #"! its

'e'%ers or #"( c#ss o& the', The ter's use! i" Sectio" >98 #re P#rr#")e'e"t #"!

Pco'pro'ise o& # co'p#"(,

The ter's co'pro'ise #"! #rr#")e'e"ts #re wi!e e"ou)h to i"corpor#te #"(

#rr#")e'e"t o& the co'p#"( i"cu!i") #'#)#'#tio" #"! 'er)ers, I" S"e#th , #e(

Go! Lt!,* it w#s he! th#t there cou! %e "o co'pro'ise u"ti such ti'e #s there is #

!ispute, The wor! Pco'pro'ise there&ore presupposes the e+iste"ce o& so'e !ispute,

PArr#")e'e"ts is wi!er th#" Pco'pro'ise #"! i'pies #" #rr#")e'e"t o& ri)hts or

i#%iities with or without e+iste"ce o& #"( !ispute, The ter' P#'#)#'#tio" is use!

where two or 'ore co'p#"ies #re #'#)#'#te! or where o"e is 'er)e! with #"other or

t#-e" o$er %( #"other, I" I"#"! Ste#' N#$i)#tio" Wor-ers U"io" $s, R,S, N#$i)#tio"

Co'p#"( Li'ite!* it w#s o%ser$e! th#t I c#ses o& #'#)#'#tio"* the ri)hts #"! i#%iities

#re #'#)#'#te! i"to #"other so th#t the tr#"s&eree co'p#"( %eco'es $este! with #ri)hts i#%iities o& the tr#"s&eror co'p#"(,

D*A.RA!

B) THE TA5E$>ER C$DE7 1?

The re)u#tio"s #pp( to the co'p#"ies re)istere! u"!er the Co'p#"ies Act #s we #s to

corpor#tio"s est#%ishe! %( Acts o& 2#ri#'e"t %( $irtue o& isti") #)ree'e"ts, It is &or

this re#so" th#t correspo"!i") "ew %#"-s i"cre#si") c#pit# %( issue o& sh#res to the

pu%ic #re re5uire! to co'p( with SEBI re)u#tio"s i" spite o& the ct th#t the other

pro$isio"s o& the co'p#"ies Act i" re)#r! to issue o& sh#res etc, !o "ot #pp( to the

correspo"!i") "ew %#"-s, I" $iew o& this positio" i" respect o& #c5uisitio"s #"! 'er)ers

o& #"( %#"-i") i"stitutio"s whose sh#res #re iste! #t the Stoc- E+ch#")es wi %e


30/56

re5uire! to co'p( with # the ree$#"t re)u#tio"s o& SEBI, I" I"!i# t#-e4o$er #re

re)u#te! %( SEBI


31/56

Reser$e B#"- o& I"!i# #ppro$#

I" ter's o& sectio" 89 o& 3ERA* 89F> Reser$e B#"- o& I"!i# per'issio" is re5uire! whe"

the #'#)#'#te! co'p#"( issues sh#res to the "o" resi!e"t sh#reho!ers o& the

#'#)#'#ti") co'p#"( or #"( c#sh optio" is e+ercise!, Reser$e B#"- #ppro$# is #so

re5uire! i" c#se o& 'er)ers i"$o$i") # %#"-i") e"tit(, The E$outio" o& the T#-eo$er

Co!e

8997 The Go$er"'e"t #'e"!s c#use :7 o& the isti") #)ree'e"t #ccor!i") to which*

thresho! #c5uisitio" e$e re!uce! &ro' 6 to 87 @ ch#")e i" '#"#)e'e"t co"tro to

tri))er pu%ic o&&er


32/56

No$e'%er 899 T#-eo$er p#"e #'e"!s the t#-eo$er co!e to i"corpor#te %u(%#c-

o&&ers %( co'p#"ies, The co''ittee !eci!es to #ow t#-eo$er o&&ers to %e '#!e whe" #

%u(%#c- o&&er is ope" #"! $ice $ers#,

Dece'%er 899 ustice 2,N, Bh#)w#ti critici0es SEBI &or u"i#ter#( i"cre#si") the

tri))er i'it &or '#-i") # pu%ic o&&er &ro' 87 to 8, The Bh#)w#ti Co''ittee #so

reco''e"!s th#t o"ce #" #c5uirer #c5uires F o& sh#res or $oti") ri)hts i" # co'p#"(*

he shou! %e outsi!e the pur$iew o& the T#-eo$er Re)u#tio"s,

#"u#r( 6777 SEBI #)#i" proposes th#t # ope" o&&ers '#!e %( pro'oters &or

co"soi!#ti") their ho!i") i" # co'p#"( wi h#$e to %e &or # 'i"i'u' o& 67 o&

e5uit(, E+e'ptio" to the 'i"i'u' 67 re5uire'e"t shou! %e )i$e" o"( i" the c#se o&

such co'p#"ies i" which pro'oters ho! o$er F, The SEBI


33/56

M#rch 6778 with i"$estor protectio"< #s its pi$ot, The '#i" o%jecti$e o& the "ew co!e

wou! %e to e"sure th#t #c5uiri") co'p#"ies #re pro'pt i" i"&or'i") the stoc-

e+ch#")es whe" the( cross the prescri%e! i'its o& ho!i") # co'p#"(97 to >9?# o& the Co'p#"ies Act* 89?* )o$er" 'er)ers #"!

#c5uisitio"s,

Si'i#r( Sectio"s 89* 6? #"! 69 o& the erstwhie 3ERA re#te to tr#"s&er o& sh#res,

Where o"e o& the tr#"s#cti") p#rties is # No"4Resi!e"t I"!i#"* the Act prohi%its the

tr#"s#ctio" e+cept with the s#"ctio" o& the Reser$e B#"- o& I"!i# .R,B,I,/,

Sectio" >7.A/ to >7 .3/ o& the MRT2 Act pert#i" to tr#"s&er o& sh#res re#ti") to

!o'i"#"t u"!ert#-i")s #s !e&i"e! i" the Act,

3urther* Sec, 66 .A/ o& the Securities Co"tr#ct .Re)u#tio"/ Act* 89?* !e#s with the

tr#"s&er o& sh#res,

C#uses :7 .A/ #"! :7 .B/ o& the Stoc- E+ch#")e Listi") A)ree'e"t 3or' #so #(

!ow" the rues i" c#se o& t#-eo$er %i!s,

Be&ore 89?7* sectio" ::A o& the B#"-i") Re)u#tio" Act o"( pro$i!e! &or the

$ou"t#r( #'#)#'#tio" o& %#"-s, But #&ter wi!espre#! we#-"ess i" the %#"-i") sector*the Act w#s #'e"!e! %( #!!i") Sectio" : to #ow &or co'pusor( #'#)#'#tio"

where$er "ecess#r( #"! o" # $ou"t#r( %#sis where$er possi%e* i" or!er to stre")the" the

%#"-i") s(ste' %( ei'i"#ti") s'# #"! we#- %#"-s, The '#i" !i&&ere"ce %etwee" #"

#'#)#'#tio" #"! # tr#"s&er is th#t* u"!er #'#)#'#tio" the co'p#"(* which is t#-e"

o$er* ce#ses to e+ist* whie u"!er tr#"s&er the co'p#"( c#" opt to either )o i"to

i5ui!#tio" or co"$ert itse& i"to # "o"4%#"-i") co'p#"(,

U"!er Sectio" : o& the Act* RBI h#s the power to co'pusori( reco"struct or

#'#)#'#te # we#- %#"- with #"( other %#"-,

Sectio" ::A o& the B#"-i") Re)u#tio" Act #(s !ow" the proce!ure &or #'#)#'#tio"

o& %#"-i") co'p#"ies,

Sectio" ::B o& the Act &urther e'powers RBI i" the '#tter o& co'pro'ise

#rr#")e'e"ts %etwee" # %#"- #"! its cre!itors, These h#$e to %e #ppro$e! %( RBI #"!

such co'pro'ise c#""ot %e s#"ctio"e! e$e" %( # i)h Court,


34/56

U"!er Sectio" >? AE o& the Act* the Ce"tr# Go$er"'e"t c#" u"!er #!$ice &ro' RBI

t#-eo$er # we#- %#"-, Whe" # %#"- is p#ce! u"!er i5ui!#tio"* the i)h Court c#"

#ppoi"t RBI* SBI or #"( other %#"- #s the o&&ici# i5ui!#tor #"! 'o"itor the spee!(

!ispos# o& wi"!i") up procee!i")s,

2#rt4II C o& the B#"-i") Re)u#tio" Act !e#s with the #c5uisitio" o& the u"!ert#-i") o&

%#"-i") co'p#"ies,

Sectio" >?4AE o& the B#"-i") Re)u#tio" Act !e#s with the power o& Ce"tr#

Go$er"'e"t to #c5uire u"!ert#-i")s o& %#"-i") co'p#"ies i" cert#i" c#ses,

Sec,>?4A3 !e#s with the powers o& Ce"tr# Go$er"'e"t to '#-e sche'e

Sectio" >?AG !e#s with co'pe"s#tio" to %e )i$e" to sh#reho!ers o& the #c5uire!

%#"-,

The Ce"tr# Go$er"'e"t o" receipt o& # report &ro' the RBI '#( #c5uire # %#"-i")

co'p#"( i& it is to co'p( with the !irectio"s )i$e" to it u"!er Sec,68 or Sec, >4A o&

the B#"-i") Re)u#tio" Act,

Si'i#r #ctio" '#( #so %e t#-e" i& the B#"-i") Co'p#"( is %ei") '#"#)e! i" #

'#""er which is !etri'e"t# to the i"terest o& its !epositors* or #)#i"st the %#"-i")

poic(, Re#so"#%e opportu"it( shou! %e )i$e" to the %#"- %e&ore t#-i") such #ctio",

C) BA05*0. RE.63AT*$0 ACT7 1;

U"!er B#"-i") Re)u#tio" Act* there is prese"t( "o pro$isio" &or o%t#i"i") #ppro$# o&

the Reser$e B#"- o& I"!i# &or #"( #c5uisitio" or 'er)er o& #"( &i"#"ci# %usi"ess %( #"(

%#"-i") i"stitutio", I" other wor!s* i& # %#"-i") i"stitutio" !esires to #c5uire "o" %#"-i")

&i"#"ce co'p#"( there is "o re5uire'e"t o& #ppro$# o& the Reser$e B#"- o& I"!i#,

3urther* i" c#se o& # 'er)er o& #" # I"!i# &i"#"ci# i"stitutio" with ow" su%si!i#r( %#"-*

there w#s "o e+press re5uire'e"t o& o%t#i"i") the #ppro$# o& Reser$e B#"- o& I"!i# &or

such 'er)er* u"!er the pro$isio"s o& the B#"-i") Re)u#tio" Act or the Reser$e B#"- o&

I"!i# Act, Such #ppro$# o& the Reser$e B#"- o& I"!i# is re5uire! o"( i" the co"te+t o&

re#+#tio" o& re)u#tor( "or's to %e co'pie! with %( # %#"-,

owe$er* &or # re)u#tor* it is # '#tter o& co"cer" to e"sure th#t such #c5uisitio"s or

'er)ers !o "ot #!$erse( #&&ect the co"cer"e! %#"-i") i"stitutio"s or the !epositors o&

such %#"-i") i"stitutio"s,


35/56

Reserve Bank@s Revie& Process

Reser$e %#"- o& I"!i# h#s #i! !ow" )ui!ei"es &or the process o& 'er)er propos#*

!eter'i"#tio" o& sw#p r#tios* !iscosures* the st#)es #t which %o#r!s wi )et i"$o$e! i"

the 'er)er process #"! "or's o& %u(i") #"! sei") o& sh#res %( the pro'oters %e&ore

#"! !uri") the process o& 'er)er Reser$e %#"- o& I"!i# .RBI/ i" its c#p#cit( o& the

pri'#r( re)u#tor #"! super$isor o& the %#"-i") s(ste's h#s i"&or'#tio" o" the prese"t

&u"ctio"i") o& # the %#"-s i" I"!i#* the RBI is the %est suite! to u"!ert#-e the 'er)er

re$iew process,

Whie u"!ert#-i") the 'er)er re$iew process* RBI wi "ee! to e+#'i"e the propos# &or

the 'er)er &ro' # pru!e"ti# perspecti$e to )#u)e the i'p#ct o" the st#%iit( #"! the

&i"#"ci# we %ei") o& the 'er)er #ppic#"ts #"! o" the &i"#"ci# s(ste's, I" #!!itio" to

the #ssess'e"t o& the propose! 'er)er o" the co'petiti$e"ess #"! st#%iit( o& the

&i"#"ci# s(ste's* RBI wi #so "ee! to e+#'i"e the i'pic#tio"s o" re)io"#

!e$eop'e"t* i'p#ct o" societ( etc, #s # resut o& 'er)er si"ce %#"-s i" I"!i# #so h#$e

to &u&i h#$e to &u&i $#rious soci# o%i)#tio"s The RBI wi "ee! to e+#'i"e the

re#so"#%e"ess o& &i"#"ci# projectio"* i"cu!i") %usi"ess p#" #"! e#r"i") #ssu'ptio"s

#s we #s the e&&ect o& the propose! 'er)er o" the 'er)e! e"tit(


36/56

The possi%e costs #"! %e"e&its to custo'er #"! to s'# #"! 'e!iu' si0e

%usi"esses* i"cu!i") the i'p#ct o" %#"- %r#"ches the #$#i#%iit( o& &i"#"ci")

price* 5u#it( #"! the #$#i#%iit( o& ser$ices,

The ti'i") #"! the socioeco"o'ic i'p#ct o& #"( %r#"ch cosures resuti") &ro'

the 'er)er, The '#""er i" which the propos# wi co"tri%ute to the i"ter"#tio"#

co'petiti$e"ess o& the &i"#"ci# ser$ices sector,

The '#""er i" which the propos# wou! i"!irect( #&&ect e'po('e"t #"! the

5u#it( o& jo%s i" the sector* with # !isti"ctio" '#!e %etwee" tr#"sitio"# #"!

per'#"e"t e&&ects,

The '#""er i" which the propos# wou! i"cre#se the #%iit( o& the %#"-s to

!e$eop #"! #!opt "ew tech"oo)ies,

Re'e!i# steps th#t the 'er)er #ppic#"ts wou! %e wii") to t#-e to 'iti)#te the

#!$erse e&&ects i!e"ti&ie! to #rise &ro' the 'er)er

CHAPTER ? - C$!PET*T*$0 C$!!*SS*$0 $ *0D*A@S R$3E *0

!ER.ERS A0D AC6*S*T*$0

The Co'petitio" Act* which recei$e! 2resi!e"ti# #sse"t o" #"u#r( 8>* 677>*

est#%ishe! the Co'petitio" Co''issio" o& I"!i# .the CCI/ #s the "ew st#tutor( #uthorit(

to i"5uire i"to #e)e! co"tr#$e"tio"s o& the e)is#tio", The Co'petitio" Act is #

!r#'#tic shi&t &ro' the pre$ious co'petitio"4re#te! e)is#tio"* the Mo"opoies #"!

Restricti$e Tr#!e 2r#ctices Act* which h#! %ee" i" p#ce o") %e&ore I"!i# u"!ertoo- its

si)"i&ic#"t '#r-et re&or's #"!* #s # resut* w#s i"cre#si")( irree$#"t* i"e&&ecti$e* #"!

o$er( %ure#ucr#tic,

The Mer)er Co"tro pro$isio"s co"t#i"e! i" Sectio"s #"! ? o& the #'e"!e!

Co'petitio" Act #re perh#ps the 'ost "oteworth( ee'e"ts o& the "ew #w* i"sor #s

'er)ers were "ot speci&ic#( #!!resse! u"!er the erstwhie MRT2 Act, Sectio" !e&i"es

Pco'%i"#tio"s #"! #(s out the ree$#"t thresho!s &or re)u#tio", Co'%i"#tio"s* i"

ter's o& the 'e#"i") )i$e" to the' i" the Act* i"cu!e 'er)ers* #'#)#'#tio"s*

#c5uisitio"s #"! #c5uisitio"s o& Co"tro,>6 Sectio" ? #uthori0es the CCI to i"$esti)#te

co'%i"#tio"s #%o$e cert#i" si0e


37/56

>8 httpJJwww,%#-es,co'Je")ishJ$iew!isc,#spID878 .#st $isite! o" 8Fth

3e%ru#r(* 6787/

>6 Sectio" o& the Co'petitio" Act* 6776, 3or the purpose o& this p#per* we wi %e

oo-i") #t the Mer)er

pro$isio"s speci&ic#(, Sectio" re#!s

Co'%i"#tio",4The #c5uisitio" o& o"e or 'ore e"terprises %( o"e or 'ore perso"s or

'er)er or #'#)#'#tio" o&

e"terprises sh# %e # co'%i"#tio" o& such e"terprises #"! perso"s or e"terprises* i&4 .#/

#"( #c5uisitio" where4

.i/ the p#rties to the #c5uisitio"* %ei") the #c5uirer #"! the e"terprise* whose co"tro*

sh#res* $oti") ri)hts or

#ssets h#$e %ee" #c5uire! or #re %ei") #c5uire! joi"t( h#$e*4 .A/ either* i" I"!i#* the

#ssets o& the $#ue o& 'ore

th#" rupees o"e thous#"! crores or tur"o$er 'ore th#" rupees three thous#"! crores@ or

.B/ i" I"!i# or outsi!e

I"!i#* i" #))re)#te* the #ssets o& the $#ue o& 'ore th#" &i$e hu"!re! 'iio" US !o#rs

or tur"o$er 'ore th#"

&i&tee" hu"!re! 'iio" US !o#rs@ or .ii/ the )roup* to which the e"terprise whose

co"tro* sh#res* #ssets or

$oti") ri)hts h#$e %ee" #c5uire! or #re %ei") #c5uire!* wou! %eo") #&ter the#c5uisitio"* joi"t( h#$e or

wou! joi"t( h#$e*4 .A/ either i" I"!i#* the #ssets o& the $#ue o& 'ore th#" rupees &our

thous#"! crores or

tur"o$er 'ore th#" rupees twe$e thous#"! crores@ or .B/ i" I"!i# or outsi!e I"!i#* i"

#))re)#te* the #ssets o& the

$#ue o& 'ore th#" two %iio" US !o#rs or tur"o$er 'ore th#" si+ %iio" US !o#rs@ or

.%/ #c5uiri") o&

co"tro %( # perso" o$er #" e"terprise whe" such perso" h#s #re#!( !irect or i"!irect

co"tro o$er #"other

e"terprise e")#)e! i" pro!uctio"* !istri%utio" or tr#!i") o& # si'i#r or i!e"tic# or

su%stitut#%e )oo!s or

pro$isio" o& # si'i #r or i!e"tic# or su%stitut#%e ser$ice* i&4 .i/ the e"terprise o$er which

co"tro h#s %ee"


38/56

#c5uire! #o") with the e"terprise o$er which the #c5uirer #re#!( h#s !irect or i"!irect

co"tro joi"t( h#$e*4

.A/ either i" I"!i#* the #ssets o& the $#ue o& 'ore th#" rupees o"e thous#"! crores or

tur"o$er 'ore th#" rupees

three thous#"! crores@ or .B/ i" I"!i# or outsi!e I"!i#* i" #))re)#te* the #ssets o& the

$#ue o& 'ore th#" &i$e

hu"!re! 'iio" US !o#rs or tur"o$er 'ore th#" &i&tee" hu"!re! 'iio" US !o#rs@ or

.ii/ the )roup* to which

thresho!s* which i"cu!es 'er)ers* #'#)#'#tio"s* #"! #c5uisitio"s o& sh#res* #ssets*

$oti")

ri)hts* or co"tro, Sectio" ?.8/ st#tes th#t co'%i"#tio"s th#t c#use* or #re i-e( to c#use*

#"

#ppreci#%e #!$erse e&&ect o" co'petitio" #re prohi%ite!,>> Sectio" ?.6/* #s #'e"!e! i"

677F*

pro$i!es &or '#"!#tor( pre4'er)er "oti&ic#tio" withi" >7 !#(s o& either #ppro$# o& the

propos# &or # co'%i"#tio" or e+ecutio" o& the #)ree'e"t &or #" #c5uisitio",>:

As i" the c#se o& #)ree'e"ts* 'er)ers #re t(pic#( c#ssi&ie! i"to hori0o"t# #"! $ertic#

'er)ers, I" #!!itio"* 'er)ers %etwee" e"terprises oper#ti") i" !i&&ere"t '#r-ets #re

c#e!

co")o'er#te 'er)ers,>e"terprise whose co"tro h#s %ee" #c5uire!* or is %ei") #c5uire!* wou! %eo") #&ter the

#c5uisitio"* joi"t( h#$e

or wou! joi"t( h#$e*4 .A/ either i" I"!i#* the #ssets o& the $#ue o& 'ore th#" rupees

&our thous#"! crores or

tur"o$er 'ore th#" rupees twe$e thous#"! crores@ or .B/ i" I"!i# or outsi!e I"!i#* i"

#))re)#te* the #ssets o& the

$#ue o& 'ore th#" two %iio" US !o#rs or tur"o$er 'ore th#" si+ %iio" US !o#rs@ or

.c/ #"( 'er)er or

#'#)#'#tio" i" which4 .i/ the e"terprise re'#i"i") #&ter 'er)er or the e"terprise cre#te!

#s # resut o& the

#'#)#'#tio"* #s the c#se '#( %e* h#$e*4 .A/ either i" I"!i#* the #ssets o& the $#ue o&

'ore th#" rupees o"e


39/56

thous#"! crores or tur"o$er 'ore th#" rupees three thous#"! crores@ or .B/ i" I"!i# or

outsi!e I"!i#* i"

#))re)#te* the #ssets o& the $#ue o& 'ore th#" &i$e hu"!re! 'iio" US !o#rs or

tur"o$er 'ore th#" &i&tee"

hu"!re! 'iio" US !o#rs@ or .ii/ the )roup* to which the e"terprise re'#i"i") #&ter the

'er)er or the e"terprise

cre#te! #s # resut o& the #'#)#'#tio"* wou! %eo") #&ter the 'er)er or the

#'#)#'#tio"* #s the c#se '#( %e*

h#$e or wou! h#$e*4 .A/ either i" I"!i#* the #ssets o& the $#ue o& 'ore th#" rupees &our

thous#"! crores or

tur"o$er 'ore th#" rupees twe$e thous#"! crores@ or .B/ i" I"!i# or outsi!e I"!i#* the

#ssets o& the $#ue o&

'ore th#" two %iio" US !o#rs or tur"o$er 'ore th#" si+ %iio" US !o#rs,

E+p#"#tio",43or the purposes o&

this sectio"*4 .#/ co"tro i"cu!es co"troi") the #&irs or '#"#)e'e"t %(4 .i/ o"e or

'ore e"terprises* either

joi"t( or si")(* o$er #"other e"terprise

or )roup@ .ii/ o"e or 'ore )roups* either joi"t( or si")(* o$er #"other )roup or

e"terprise@ .%/ )roup 'e#"s

two or 'ore e"terprises which* !irect( or i"!irect(* #re i" # positio" to 4 .i/ e+ercisetwe"t(4si+ per ce"t or

'ore o& the $oti") ri)hts i" the other e"terprise@ or .ii/ #ppoi"t 'ore th#" &i&t( per ce"t,

o& the 'e'%ers o& the

%o#r! o& !irectors i" the other e"terprise@ or .iii/ co"tro the '#"#)e'e"t or #&irs o& the

other e"terprise@ .c/

the $#ue o& #ssets sh# %e !eter'i"e! %( t#-i") the %oo- $#ue o& the #ssets #s show"* i"

the #u!ite! %oo-s o&

#ccou"t o& the e"terprise* i" the &i"#"ci# (e#r i''e!i#te( prece!i") the &i"#"ci# (e#r i"

which the !#te o&

propose! 'er)er s* #s e!uce! %( #"( !epreci#tio"* #"! the $#ue o& #ssets sh#

i"cu!e the %r#"! $#ue*

$#ue o& )oo!wi* or $#ue o& cop(ri)ht*p#te"t* per'itte! use* coecti$e '#r-* re)istere!

proprietor* re)istere!


40/56

tr#!e '#r-* re)istere! user* ho'o"('ous )eo)r#phic# i"!ic#tio"* )eo)r#phic#

i"!ic#tio"s* !esi)" or #(out!esi)"

or si'i#r other co''erci# ri)hts* i& #"(* re&erre! to i" su%4sectio" ./ o& sectio" >,

>> Sectio" ?.8/ o& the Co'petitio" Act* 6776,

>: Sectio" ?.6/ o& the Co'petitio" Act* 6776,

> Gi"# M, Kii#"* PB#"- Mer)ers #"! The Dep#rt'e"t o& ustice777 crores,> I" the e$e"t either o&

the co'%i"i") p#rties is outsi!e I"!i# or %oth #re outsi!e* the thresho! i'its #re V77

'iio" &or #ssets #"! V877 'iio" &or tur"o$er,>9 I& o"e o& the 'er)i") p#rties %eo")s

to # )roup* which co"tros it* the thresho! i'its #re Rs, :777 crores i" ter's o& #ssets

#"! Rs, 86777 crores i" ter's o& tur"o$er, I& the )roup h#s #ssets or tur"o$er outsi!e


41/56

I"!i# #so* the thresho! i'its #re V6 %iio" &or #ssets #"! V? %iio" &or tur"o$er, 3or

this purpose # )roup 'e#"s two or 'ore e"terprises which !irect( or i"!irect(

h#$e The #%iit( to e+ercise 6? or 'ore o& the $oti") ri)hts i" the other

e"terprise@

or The #%iit( to #ppoi"t 'ore th#" h#& the 'e'%ers o& the Bo#r! o& Directors i"

the other e"terprise@ or

The #%iit( to co"tro the #&irs o& the other e"terprise,

Co"tro which e+pressio" occurs i" the thir! %uet !e&i"i") )roup< #%o$e/ h#s #so %ee"

!e&i"e! i" the Act, Co"tro i"cu!es co"troi") the #&irs or '#"#)e'e"t %(

i, o"e or 'ore e"terprises* either joi"t( or si")(* o$er #"other e"terprise or

)roup@

ii, o"e or 'ore )roups* either joi"t( or si")(* o$er #"other )roup or e"terprise,

The thresho! i'its o& #ssets #"! o& tur"o$er wou! %e re$ise! e$er( two (e#rs o" the

%#sis o& the Whoes#e 2rice I"!e+ or &uctu#tio"s i" e+ch#")e r#te o& rupee or &orei)"

curre"cies,

The Act h#s iste! the &oowi") ctors to %e t#-e" i"to #ccou"t &or the purpose o&

!eter'i"i") whether the co'%i"#tio" wou! h#$e the e&&ect o& or %e i-e( to h#$e #"

#ppreci#%e #!$erse e&&ect o" co'petitio",

The #ctu# #"! pote"ti# e$e o& co'petitio" throu)h i'ports i" the '#r-et@

The e+te"t o& %#rriers to e"tr( to the '#r-et@

The e$e o& co'%i"#tio" i" the '#r-et@

The !e)ree o& cou"ter$#ii") power i" the '#r-et@

The i-eihoo! th#t the co'%i"#tio" wou! resut i" the p#rties to the co'%i"#tio"

%ei") #%e to si)"i&ic#"t( #"! sust#i"#%( i"cre#se prices or pro&it '#r)i"s@

The e+te"t o& e&&ecti$e co'petitio" i-e( to sust#i" i" # '#r-et@


42/56

The e+te"t to which su%stitutes #re #$#i#%e or #re i-e( to %e #$#i#%e i" the

'#r-et@

The '#r-et sh#re* i" the ree$#"t '#r-et* o& the perso"s or e"terprise i" #

co'%i"#tio"* i"!i$i!u#( #"! #s # co'%i"#tio"@

The i-eihoo! th#t the co'%i"#tio" wou! resut i" the re'o$# o& # $i)orous #"!e&&ecti$e co'petitor or co'petitors i" the '#r-et@

The "#ture #"! e+te"t o& $ertic# i"te)r#tio" i" the '#r-et@

The possi%iit( o& # ii") %usi"ess@

The "#ture #"! e+te"t o& i""o$#tio"@

Re#ti$e #!$#"t#)e* %( w#( o& the co"tri%utio" to the eco"o'ic !e$eop'e"t* %(

#"( co'%i"#tio" h#$i") or i-e( to h#$e #ppreci#%e #!$erse e&&ect o"

co'petitio"@

Whether the %e"e&its o& the co'%i"#tio" outwei)h the #!$erse i'p#ct o& the

co'%i"#tio"* i& #"(,

O" &i"!i") # co'%i"#tio" to h#$e #ppreci#%e #!$erse e&&ect o" co'petitio"


43/56

situ#tio" which '#( either e#! to c#rtei0#tio" or pote"ti# #%use o& !o'i"#"t positio" %(

the e"tit( which either re'#i"s or is "ew( cre#te! #&ter the co'%i"#tio" t#-es p#ce, The

$i#%iit( o& the 'er)er is "ot withi" the '#"!#te o& the CCI* %ut i"ste#! it is the sector#

re)u#tors such #s TRAT* IRDA #"! RBI itse&* #o") with the ree$#"t Mi"istr( who

h#$e %ee" )i$e" the !ut( to oo- #t the $#rious #spects pert#i"i") to $i#%iit( o&

co'%i"#tio"s* -eepi") i" 'i"! the se$er# ctors which p#( # roe i" th#t p#rticu#r

sector, Moreo$er* the pri'#r( o%jecti$es o& the Co'petitio" Act* 6776 shou! #so %e

-ept i" 'i"! whie #"#(0i") the #ppic#tio" o& the Act, Co'petitio" Act* 6776 is p#sse!

-eepi") i" $iew o& the eco"o'ic !e$eop'e"t o& the cou"tr( with &oowi") o%jecti$e,

8/ To pre$e"t pr#ctices h#$i") #!$erse e&&ect o" co'petitio"*

6/ To pro'ote #"! sust#i" co'petitio" i" '#r-ets*

>/ To protect the i"terests o& co"su'ers #"! to e"sure &ree!o' o& tr#!e c#rrie! o" %(

other p#rticip#"ts i" '#r-ets,

Thus* pro'otio" o& co'petitio"* e"suri") &ree!o' o& tr#!e o& the p#rticip#"ts i" the

'#r-et #"! protectio" o& co"su'er i"terests #re the core pri"cipes which the CCI wi

#w#(s -eep i" 'i"! whie i'pe'e"ti") the Co'petitio" Act* 6776,

SA3*E0T EAT6RES $ THE C$!B*0AT*$0 RE.63AT*$07811

Co'petitio" Co''issio" o& I"!i# .CCI/ h#s o" 88 M#( 6788 issue! the Co'petitio"

Co''issio" o& I"!i# .2roce!ure i" re)#r! to the tr#"s#ctio" o& %usi"ess re#ti") to

co'%i"#tio"s/ Re)u#tio"s* 6788 .Co'%i"#tio" Re)u#tio"s/ which !e#s with 'er)er

#"! #c5uisitio"s i" I"!i#, The Co'%i"#tio" Re)u#tio"s sh# co'e i"to &orce o" 8 u"e

6788, Co'%i"#tio" Re)u#tio"s !e#s with proce!ur# #spects re#te! to "oti&ic#tio" o&

Co'%i"#tio" u"!er the Co'petitio" Act* 6776 .Co'petitio" Act/* e+e'ptio"s #"!

pre'er)er "oti&ic#tio" process,

!eanin" o Com(ination

As per the Act* # XCo'%i"#tio" co'prises o& #"( o& the &oowi") 4

#"( #c5uisitio" o& co"tro J sh#res J $oti") ri)hts J #ssets o& e"terprises


44/56

#c5uiri") o& co"tro %( perso" o$er #" e"terprises* where such perso" #re#!( h#s

!irect J i"!irect co"tro o$er #"other e"terprise e")#)e! i" si'i#r J co'petiti$e

%usi"ess

#"( 'er)er or #'#)#'#tio" %etwee" e"terprises

I& it e+cee!s the 'o"et#r( thresho! o& #ssets #"! or tur"o$er #s u"!er

D*A.RA!

Y Assets %oo- $#ue #s per #u!ite! #ccou"ts #"! i"cu!es i"t#")i%es Z Group 'e#"s

two or 'ore e"terprises* which !irect( or i"!irect(

o E+ercise [ 6? o& $oti") ri)hts i" other e"terprise

o Appoi"t [ 7 o& %o#r! 'e'%ers i" other e"terprise

o Co"tro .\/ the '#"#)e'e"t or #&irs o& the other e"terprise

\ Co"tro i"cu!e co"troi") the #&irs or '#"#)e'e"t* either si")( or joi"t(

o %( o"e or 'ore e"terprises o$er #"other e"terprise or )roup@ or

o %( o"e or 'ore )roups o$er #"other )roup or e"terprise

Exemptions from Section 5 of the Act:

8, A" e"terprise* whose co"tro* sh#res* $oti") ri)hts or #ssets #re %ei") #c5uire! h#s

#ssets o& the $#ue o& "ot 'ore th#" 6,7 %iio" or tur"o$er o& "ot 'ore th#" F,7

%iio" is e+e'pte! &ro' the pro$isio"s o& Sectio" o& the Act &or # perio! o& (e#rs

&ro' : M#rch 6788,

6, A XGroup e+ercisi") ess th#" 7 o& $oti") ri)hts i" other e"terprise is e+e'pte!

&ro' the pro$isio"s o& Sectio" o& the Act &or # perio! o& (e#rs &ro' : M#rch 6788,

$vervie& o Re"'lation o Com(ination

Sectio" ? o& the Act i"ter #i# pro$i!es th#t "o perso" or e"terprise sh# e"ter i"to #

Co'%i"#tio" which c#uses or is i-e( to c#use #" #ppreci#%e #!$erse e&&ect o"

co'petitio" withi" the ree$#"t '#r-et i" I"!i# #"! such # co'%i"#tio" sh# %e $oi!,


45/56

I& #"( propose! Co'%i"#tio" e+cee!s the thresho! o& #ssets #"! J or tur"o$er speci&ie!

i" Sectio" o& the Act .#s #&ores#i!/* the perso" J e"terprise "ee! to i"ti'#te the s#'e to

the CCI withi" >7 !#(s o& %o#r! #ppro$# J e"teri") i"to o& the #)ree'e"t &or

Co'%i"#tio" &or

#ppro$#,

A Co'%i"#tio" c#""ot co'e i"to e&&ect u"ti # perio! o& 687 !#(s h#s p#sse! &ro' the

!#( o" which the "otice w#s )i$e" to CCI or CCI h#s p#sse! #" or!er u"!er Sectio" >8 o&

the Act* whiche$er is e#rier,

Salient eat'res o t%e Com(inations Re"'lations are as 'nder#

8, E+e'ptio" &ro' &ii") i"ti'#tio" o& Co'%i"#tio" Tr#"s#ctio"s th#t #re or!i"#ri( "ot

i-e( to h#$e #" Appreci#%e A!$erse E&&ect ]AAE^ o" co'petitio" i" I"!i# !oes "ot

re5uire &ii") o& #ppic#tio" with CCI #s prescri%e! u"!er the Act, So'e o& such

tr#"s#ctio"s #re #s u"!er

Ac5uisitio" o& sh#res or $oti") ri)hts '#!e* soe( #s #" i"$est'e"t or i" the

or!i"#r( course o& %usi"ess* such th#t the tot# sh#res or $oti") ri)hts he! %( the

#c5uirer !irect( or i"!irect(* !oes "ot e+cee! 8 o& the tot# sh#res or $oti")ri)hts o& the co'p#"(,

Ac5uisitio" o& sh#res or $oti") ri)hts* where the #c5uirer* prior to #c5uisitio"* h#s

7 or 'ore sh#res or $oti") ri)hts i" the t#r)et e"terprise* e+cept i" the c#ses

where the tr#"s#ctio" resuts i" tr#"s&er &ro' joi"t co"tro to soe co"tro,

Ac5uisitio" o& #ssets* "ot !irect( re#te! to the %usi"ess #cti$it( o& the p#rt(

#c5uiri") the #sset or '#!e soe( #s #" i"$est'e"t or i" the or!i"#r( course o&

%usi"ess #"! "ot e#!i") to co"tro o& the t#r)et e"terprise e+cept where the #ssets%ei") #c5uire! represe"t su%st#"ti# %usi"ess oper#tio"s i" # p#rticu#r oc#tio" or

&or # p#rticu#r pro!uct or ser$ice o& the e"terprise* o& which #ssets #re %ei")

#c5uire!* irrespecti$e o& whether such #ssets #re or)#"i0e! #s # sep#r#te e)#

e"tit( or "ot,


46/56

A'e"!e! or re"ewe! te"!er o&&er where # "otice to CCI h#s %ee" &ie! %( the

p#rt( '#-i") the o&&er* prior to such #'e"!'e"t or re"ew# o& the o&&er #"! th#t

i"ti'#tio" o& #"( ch#")e is !u( '#!e to CCI,

Ac5uisitio" o& stoc-4i"4tr#!e* r#w '#teri#s* stores #"! sp#res i" the or!i"#r(

course o& %usi"ess, Ac5uisitio" o& sh#res or $oti") ri)hts pursu#"t to # %o"us issue or stoc- spits or

co"soi!#tio" o& sh#res or su%scriptio" to ri)hts issue to the e+te"t o& their e"tite!

proportio"* "ot e#!i") to #c5uisitio" o& co"tro,

A"( #c5uisitio" o& sh#res or $oti") ri)hts %( # perso" #cti") #s u"!erwriter or #

re)istere! stoc- %ro-er o" %eh#& o& its cie"ts,

Ac5uisitio" o& co"tro or sh#res or $oti") ri)hts or #ssets %( o"e perso" or

e"terprise o& #"other perso" or e"terprise withi" the s#'e )roup @

Ac5uisitio" o& curre"t #ssets i" the or!i"#r( course o& %usi"ess@

Co'%i"#tio" t#-i") p#ce e"tire( outsi!e I"!i# with i"si)"i&ic#"t oc# "e+us #"!

e&&ect o" '#r-ets i" I"!i#,

6, I" c#ses o& co'%i"#tio"s which #re "ot e+e'pt &ro' &ii") o& "otice* the p#rties to the

co'%i"#tio"s #re re5uire! to &ie re5uisite i"&or'#tio" with CCI withi" >7 !#(s o&

#ppro$# o& the propos# %( the Bo#r! o& !irectors or e+ecutio" o& #"( #)ree'e"t i" the

prescri%e! &or'#t with prescri%e! &ees,

>, 3#iure i" &ii") o& "otice

I& p#rties to # co'%i"#tio" i to &ie "otice o& co'%i"#tio"* CCI '#( o" its ow"

i"5uire whether the co'%i"#tio" h#s #"( AAE,

I& CCI co''e"ce #" i"5uir(* it sh# #p#rt &ro' i'posi") #"( pe"#t( or i"iti#ti")

#"( prosecutio"* !irect the p#rties to &ie "otice i" the prescri%e! ti'e #"!

prescri%e! &or' #o") with re5uisite &ees,

:, CCI sh# &or' # pri'# cie opi"io" o" the "otice &ie! withi" thirt( !#(s* #s to

whether the tr#"s#ctio" c#" c#use #"( AAE or "ot i" I"!i# '#r-et,

, 2u%ic#tio" o& !et#is o& Co'%i"#tio"


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I& CCI is pri'# cie o& the opi"io" th#t the co'%i"#tio" h#s J is i-e( to c#use

AAE o" co'petitio" withi" the ree$#"t '#r-et i" I"!i#* the !irectio" o& CCI

sh# %e co"$e(e! to the p#rties &or t#-i") prescri%e! #ctio"s,

?, Mo!i&ic#tio" o& propose! Co'%i"#tio"

I& CCI is o& the opi"io" th#t the co'%i"#tio" h#s J is i-e( to c#use AAE o"

co'petitio" %ut such AAE c#" %e ei'i"#te! %( suit#%e 'o!i&ic#tio" to such

co'%i"#tio"* CCI '#( propose #ppropri#te 'o!i&ic#tio" to the p#rties,

I& 2#rties #ccept the 'o!i&ic#tio" propose! %( CCI* it sh# c#rr( out the

'o!i&ic#tio"s to such co'%i"#tio"s i" #ccor!#"ce with !irectio"s issue! %( CCI,

I& p#rties i to #ccept the 'o!i&ic#tio"* the co'%i"#tio" is !ee'e! to h#$e AAE

#" sh# %e !e#t with #s per the Co'petitio" Act,

F, Co4oper#tio" with re)u#tor( #uthorities

CCI '#( see- opi"io" o& #"( other re)u#tor( %o!( J #uthorit( i" re#tio" to #

co'%i"#tio",

COMPARITIVE STUDY OF RBI AND CCI,S DISTINCTIVE ROE

Si"ce 89?8 ti !#te* u"!er the pro$isio"s o& the B#"-i") Re)u#tio" Act* 89:9* there

h#$e %ee" #s '#"( #s FF %#"- #'#)#'#tio"s i" the I"!i#" %#"-i") s(ste'* o& which :?

#'#)#'#tio"s too- p#ce %e&ore "#tio"#is#tio" o& %#"-s i" 89?9 whie re'#i"i") >8

occurre! i" the post "#tio"#is#tio" er#, O& the >8 'er)ers* i" 6 c#ses* the pri$#te sector

%#"-s were 'er)e! with # pu%ic sector %#"- whie i" the re'#i"i") si+ c#ses %oth the

%#"-s were pri$#te sector %#"-s,

Report o& the Co''ittee o" B#"-i") Sector Re&or's .the Seco"! N#r#si'h#'

Co''ittee 4 899/ h#! su))este!* i"ter #i#* 'er)ers #'o") stro") %#"-s* %oth i" the

pu%ic #"! pri$#te sectors #"! e$e" with &i"#"ci# i"stitutio"s #"! NB3Cs,I"!i#" %#"-i")

sector is "o str#")er to the phe"o'e"o" o& 'er)ers #"! #c5uisitio" #cross the %#"-s,


48/56

Si"ce the o"set o& re&or's i" 8997* there h#$e %ee" 66 %#"- #'#)#'#tio"s, It wou! %e

o%ser$e! th#t prior to 8999* the #'#)#'#tio"s o& %#"-s were pri'#ri( tri))ere! %( the

we#- &i"#"ci#s o& the %#"- %ei") 'er)e!* where#s i" the post48999 perio!* there h#$e

#so %ee" 'er)ers %etwee" he#th( %#"-s !ri$e" %( the %usi"ess #"! co''erci#

co"si!er#tio"s,

The proce!ure &or $ou"t#r( #'#)#'#tio" o& two %#"-i") co'p#"ies is #i! !ow" u"!er

Sectio" ::4A o& the B#"-i") Re)u#tio" Act* 89:9, A&ter the two %#"-i") co'p#"ies

h#$e p#sse! the "ecess#r( resoutio" proposi") the #'#)#'#tio" o& o"e %#"- with

#"other %#"-* i" their )e"er# 'eeti")s* %( # '#jorit( i" "u'%er represe"ti") two4thir!s

i" $#ue o& the sh#reho!i") o& e#ch o& the two %#"-i") co'p#"ies* such resoutio"

co"t#i"i") the sche'e o& #'#)#'#tio" is su%'itte! to the Reser$e B#"- &or its s#"ctio",

I& the sche'e is s#"ctio"e! %( the Reser$e B#"-* %( #" or!er i" writi")* it %eco'es

%i"!i") "ot o"( o" the %#"-i") co'p#"ies co"cer"e!* %ut #so o" # their sh#reho!ers,

B#se! o" the reco''e"!#tio"s o& the Wor-i") Group to e$o$e the )ui!ei"es &or

$ou"t#r( 'er)er %etwee" %#"-i") co'p#"ies RBI h#! issue! )ui!ei"es i" M#( 677

#(i") !ow" $#rious re5uire'e"ts &or the process o& such 'er)ers i"cu!i")

!eter'i"#tio" o& the sw#p r#tio* !iscosures* the st#)es #t which Bo#r!s wi )et i"$o$e!

i" the 'er)er process* etc, Whie #'#)#'#tio"s #re "or'#( !eci!e! o" %usi"essco"si!er#tio"s .such #s the "ee! &or i"cre#si") the '#r-et sh#re* s("er)ies i" the

oper#tio"s o& %usi"esses* #c5uisitio" o& # %usi"ess u"it or se)'e"t* etc,/* the poic(

o%jecti$e o& the Reser$e B#"- is to e"sure th#t co"si!er#tio"s i-e sou"! r#tio"#e &or the

#'#)#'#tio"* the s(ste'ic %e"e&its #"! the #!$#"t#)e #ccrui") to the resi!u# e"tit( #re

e$#u#te! i" !et#i, Whie s#"ctio"i") the sche'e o& #'#)#'#tio"* the Reser$e B#"-

t#-es i"to #ccou"t the &i"#"ci# he#th o& the two %#"-i") co'p#"ies to e"sure* i"ter #i#*

th#t #&ter the #'#)#'#tio"* the "ew e"tit( wi e'er)e #s # 'uch stro")er %#"-,

I& we t#-e # oo- #t the %#"-i") re)u#tio"s* we wi "e$er &i"! the wor! c#rte*

!o'i"#"ce* or #)ree'e"ts i" their e)is#tio"s, Now i& th#t is the c#se* it %eco'es

o%$ious th#t #s-i") the RBI to !e# with co'petitio" issues usi") %#"-i") re)u#tio"s is #

"o"4st#rter, Thus there I "o 5uestio" th#t CCI shou! chec- #%use o& !o'i"#"ce #"!

c#rteis#tio",


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owe$er* the '#jor co"cer" o& the RBI h#s %ee" with re)#r!s to the %#"- 'er)ers, The

RBI h#s ur)e! the Mi"istr( o& 3i"#"ce th#t the RBI #o"e shou! h#$e soe juris!ictio"

o$er the %#"- 'er)ers #"! it shou! %e outsi!e the pur$iew o& the Co'petitio"

Authorities* #s the RBI h#s the speci# -"owe!)e re5uire! to re)u#te the %#"-i") sector,

The )ui!ei"es %( the RBI re)#r!i") 'er)ers h#$e %ee" !iscusse! #%o$e, The )ui!ei"es

o& the RBI speci&( the pru!e"ti# re)u#tio"s with respect to %#"- 'er)ers, The( !o "ot

oo- #t the issues which the CCI oo-s #t, As 'e"tio"e! #%o$e* CCI o"( chec-s whether

# co'%i"#tio" wi i-e( resut i" !o'i"#"ce or i-e( ciit#te c#rteis#tio", The( wi

"ot )o %e(o"! this to chec- o" pru!e"ti# re)u#tio"* which the( !o "ot h#$e the '#"!#te

"or co'pete"ce to !o, RBI o" the other h#"! wi o"( chec- whether the %#"-s wi

re'#i" sou"! #"! whether pu%ic 'o"e( wi re'#i" s#&e #&ter # co'%i"#tio", The( wi

"ot )o &urther #"! #ssess whether # !o'i"#"t positio" wi %e cre#te! or whether

c#rteis#tio" is i-e(* which is wh#t CCI !oes,

A !isti"ctio" shou! %e '#!e %etwee" pru!e"ti# re)u#tio" o& %#"-s %( RBI #"!

co'petitio" re)u#tio" o& the whoe eco"o'(* i"cu!i") &i"#"ci# sector* %( CCI,

2ru!e"ti# re)u#tio" is #r)e( ce"tre! o" #(i") #"! e"&orci") rues th#t i'it ris-4t#-i")

o& %#"-s* e"suri") s#&et( o& !epositors< &u"!s #"! st#%iit( o& the &i"#"ci# sector, Thusre)u#tio" o& M;As %( the RBI wou! %e !eter'i"e! %( such %e"ch'#r-s, Co'petitio"

re)u#tio" o& M;As i" the %#"-i") sector o" the other h#"! is # !i&&ere"t '#tter, This is

#i'e! #t e"suri") th#t %#"-s co'pete #'o") the'se$es i" &i)hti") &or custo'ers %(

o&&eri") the %est ter's* ower i"terest r#tes o" o#"s #"! hi)her i"terest r#tes o" !eposits

#"! securities, Mer)er re)u#tio" %( CCI wou! %e there&ore i"te"!e! to e"sure th#t such

#cti$ities #re "ot 'oti$#te! %( the !esire to cou!e #"! '#-e e+cessi$e pro&its #t the

e+pe"se o& custo'ers or to s5uee0e other p#(ers out o& the '#r-et throu)h #%usi$e

pr#ctices, Whie CCI !oes "ot h#$e either the e+pertise or the re'it o" pru!e"ti#

re)u#tio"* RBI !oes "ot h#$e the e+pertise or re'it to re)u#te #"tico'petiti$e

%eh#$iour,

Co'petitio" poic( #"! pru!e"ti# re)u#tio"* to the e+te"t th#t %oth see- to prohi%it

u"!esir#%e %eh#$iour* #re 'utu#( co'p#ti%e,: I" p#rticu#r* #s o") #s %oth pru!e"ti#

#"! co'petitio" #uthorities co"&i"e the'se$es to %oc-i") u"!esire! .r#ther th#" &orci")


50/56

or re5uiri")/ 'er)ers* %#"-s wi h#$e "o !i&&icut( #%i!i") %( %oth #)e"cies< 'er)er

!ecisio"s, As re)#r!s cert#i" 'er)ers* pru!e"ti# re)u#tio" #"! co'petitio" poic( c#"

%e co'pe'e"t#r(, A pro'i"e"t e+#'pe is 'er)ers cre#ti") too %i) to i %#"-s* i,e,

%#"-s th#t #re so #r)e th#t '#r-et p#rticip#"ts #ssu'e the )o$er"'e"t wou! t#-e

wh#te$er steps 'i)ht %e "ecess#r( to preser$e their so$e"c( i" # crisis, Such %#"-s

'i)ht %e i"ci"e! to t#-e wh#t re)u#tors re)#r! #s e+cessi$e ris-s, B#"-s see" %(

co"su'ers #s too %i) to i cou! #so )i$e rise to co'petiti$e !istortio"s si"ce the( '#(

h#$e #" #rti&ici# #!$#"t#)e i" r#isi") &u"!s* especi#( i" '#r-ets where !eposit

i"sur#"ce is i"#!e5u#te,

There is # i'ite! pote"ti# &or co"&ict %etwee" pru!e"ti# #"! co'petitio" poic( )o#s

whe" it co'es to 'er)ers !esi)"e! to shore up # ii") or we#-e"e! %#"-, E$e" i" such

c#ses* howe$er* it wi "or'#( %e possi%e to #$oi! co'petitio" pro%e's %( choosi")

the ri)ht p#rt"er* or %( structuri") the 'er)er so #s to 'i"i'ise its e&&ects o" oc# '#r-et

co"ce"tr#tio", I" #"( c#se* co"&ict %etwee" pru!e"ti# #"! co'petitio" poic( )o#s c#"

%e re!uce! %( cose co4oper#tio"* i"cu!i") prior co"sut#tio" %etwee" the perti"e"t

#)e"cies,


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CHAPTER - BANKING AW %AMENDMENT BI)2.**

The Go$er"'e"t t#%e! the B#"-i") L#w .A'e"!'e"t/ Bi %e&ore the Lo- S#%h# i" the

'o"th o& M#rch* 6788, The #'e"!'e"t e+e'pts 'er)ers #"! #c5uisitio"s i" the %#"-i")

sector &ro' the scruti"( o& the Co'petitio" Co''issio" o& I"!i#,

Sectio" 6A o& The B#"-i") L#ws .A'e"!'e"t/ Bi* 6788 is #s &oows

Notwithst#"!i") #"(thi") to the co"tr#r( co"t#i"e! i" sectio" 6* "othi") co"t#i"e! i" the

Competition Act7 88 sh# #pp( to #"( %#"-i") co'p#"(* the St#te B#"- o& I"!i#* #"(

su%si!i#r( %#"-* #"( correspo"!i") "ew %#"- or #"( re)io"# rur# %#"- or co4oper#ti$e%#"- or 'uti4st#te co4oper#ti$e %#"- i" respect o& the '#tters re#ti") to #'#)#'#tio"*

'er)er* reco"structio"* tr#"s&er* reco"stitutio" or #c5uisitio" u"!er

i, this Act@

ii, the St#te B#"- o& I"!i# Act* 89@

iii, the St#te B#"- o& I"!i# .Su%si!i#r( B#"-s/ Act* 899@


52/56

i$, the B#"-i") Co'p#"ies .Ac5uisitio" #"! Tr#"s&er o& U"!ert#-i")s/ Act*

89F7@

$, the Re)io"# Rur# B#"-s Act* 89F?@

$i, the B#"-i") Co'p#"ies .Ac5uisitio" #"! Tr#"s&er o& U"!ert#-i")s/ Act*

897@

$ii, the Muti4St#te Co4oper#ti$e Societies Act* 6776@ #"!

$iii, #"( St#te #w re#ti") to co4oper#ti$e societies,,

CCI shou! o%ject to the "ew #'e"!'e"t %i o" %#"- re)u#tio" #ct* which t#-s #%out

the tot# e+e'ptio" o& Co'petitio" Act i" c#ses o& B#"-i") co'p#"ies %ei") 'er)ers*

#'#)#'#te!* reco"structe!* tr#"s&erre!* reco"stitute!* #c5uire!,

There 'i)ht %e # co"&ict o& #w o"ce the %i is e"#cte!, This %i o"( e+e'pts The

Co'petitio" Act #"! "o other re)u#tio" &ro' oo-i") i"to the 'er)ers #"! #c5uisitio",

Roe o& RBI is to protect the i"terest o& !epositors #"! e"sure s#&et( o& &u"!, This c#" %e

%est #chie$e! %( #owi") %#"-s to i"cre#se pro&it o" their &u"!s, O" the other si!e i" #"

opposite !irectio" CCI e"sures th#t e"!ers o& %#"- !o "ot su&&er %( %ei") ch#r)e! hi)her

i"terest !ue to #c- o& co'petitio" or !epositors #re o&&ere! )oo! i"terest %( w#( o&

co'petitio", There&ore %oth h#$e !isti"ct roe #"! %oth re5uire their roe to p#( i" the

i"terest o& their co"stitue"c(, B( w#( o& co'%i"#tio"s %#"-s c#" %eco'e $er( power&u

o"ce the( co"tro &u"!s #"! h#$e !o'i"#"t positio" i" the '#r-et, To!#( SBI p#(s th#t-i"! o& roe #"! our !#( to!#( &i"#"ces !o )ets i"&ue"ce! %( their poic(, I" c#se the

s#'e SBI w#s i" # pri$#te h#"!s it w#s possi%e &or the pri$#te p#(ers to co'pete(

wor- o" pro&it 'oti$e* which '#"( other pri$#tise! s(ste' is ci"), CCI wou! %e the

o"( #r' o& )o$t i" such # sce"#rio to -eep co"tro, A pri$#te sector SBI c#" wor- o"

&urther co"soi!#tio" to )#i" &urther !o'i"#"ce, RBI i" # w#( &or &i"#"ci# pru!e"ce '#(

st#rt i)"ori") such #cti$ities, CCI #o"e wi h#$e juris!ictio" to p#( the roe o& re)u#tor

&or s#$i") i"terest o& s'# custo'ers o& %#"-* %e it the !epositor or the e"!ers, The '#i"

o%jecti$e o& RBI is to re!uce the ris-s i"$o$e! i" i"$est'e"ts* he"ce to protect the

i"$estors #"! "ot to pro&it out o& these i"$est'e"ts, The e+e'ptio" ce#r( shows the

pro&iteeri") "#ture o& RBI #s CCI wou! co'e i" $o)ue to chec- u"!ue pro&iteeri") !ue

to #c- o& co'petitio",

CHAPTER +- CONCUSION


53/56


54/56

CHAPTER *. $ANAYSIS

#rious I"!ustri# #"! &i"#"ci# sectors #re see-i") to )et e+e'ptio" &ro' CCI to

oo- i"to their M;As, Sectio"4?7 o& CCI #ct o$erri!es # such e)is#tio",

B#"-i") re)u#tio" .#'e"!'e"t/ is o"e such #w, CCI "ee!s to o%ject such #ws

throu)h MCA,

CCI c#""ot )i$e up its roe i" M ;As #s o"ce # !o'i"#"t positio" is #c5uire! %(

#"( e"tit(* it wi %e # '#r#tho" t#s- with hu)e e)# i'pe!i'e"ts to restrict th#t

e"tit( i" their roe i" #"ti co'petiti$e #re#,

RBI


55/56

e"tities, Where%(* #&ter the M;A the cre!i%iit( o& o"e %#"- '#( )o !ow"*

#"!Jor its %#! !e%t or ris-( !e%t 'i)ht )o up, Such #" outco'e 'i)ht "ot %e

$our#%e to the co"su'ers to who' the CCI is !irect( respo"si%e, e"ce* %(

this poic(* u"!er #"( such M;A* CCI shou! %e co"sute! %( the RBI to

!eter'i"e i& the M;A is i" the i"terest o& the pu%ic,

CHAPTER *. $RECOMMENDATIONS

I, Reco''e"!#tio"4 I

O"e o& the '#jor co"cer"s #'o")st i"!ustries who #re see-i") e+e'ptio"

#re the #c- o& tech"ic# e+pertise with CCI to oo- i"to # c#se o& 'er)er

#"! #c5uisitio",

2rese"t( CCI c#" see- $iews o& e+perts i& it &ees it is ree$#"t, It is

propose! th#t i" or!er to h#$e #" e+pert opi"io" ri)ht #t the outset* CCI

'#( see- e+pert opi"io" o" e#ch o& the propose! M;A i") i" its

juris!ictio", Tow#r!s this it '#( -eep # p#"e o& '#"( e+perts i" &i"#"ci#*

I"!ustr( se)'e"ts etc, This wi hep it i" 5uic-( re5uisitio"i") the

ser$ices, 2#"e 'ust o"( co"t#i" E+pert I" their ow" c#p#cit( #"! "ot

Or)#"i0#tio"s or &ir's which c#" h#$e other %usi"ess I"terests, Such other

chec-s #"! %##"ces c#" %e thou)ht out,


56/56

A!$#"t#)es o& this wi %e

E#ch M;A o%jectio" or #ccept#"ce wi %e %#se! o" e+pert opi"io", This wi

re!uce iti)#tio" #"! wi hep i" 5uic-er ce#r#"ce,

DG .I"$esti)#tio"/ whie c#rr(i") i"$esti)#tio" c#" %#se the s#'e o" I"!ustr(

e+pert hepi") hi' !o his I"$esti)#tio" 5uic-er, E$e" DG.I"$esti)#tio"/ who is

!irect( #ppoi"te! %( Go$t to c#rr( i"!epe"!e"t i"$esti)#tio" c#" %e #owe! to

i"!epe"!e"t( hire e+perts, This wi hep i" tr#"sp#re"c( o& the e+ercise,

O"ce the e"tire pre'ise is %#se! o" e+perts opi"io" coupe! with CCIs !ii)e"t

$iews* ti'e o& process wi shorte"* which i" tur" wi hep I"!ustr( )row throu)h

M;A,

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Mergers and Acquisitions in Banking Sector in India

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