Anti-Trust Legislation To Target Mega Mergers
The government is set to introduce anti-trust legislation to prevent the creation of monopolies through corporate mergers and amalgamations.
The proposed companies bill has suggested that the Company Law Board be renamed the Company Law Tribunal and empowered to prepare status reports on mergers and amalgamations.
These reports would be submitted to the high court concerned, which would officially retain the right to clear mergers and amalgamations. However, section 267 of the proposed bill makes the tribunals report binding on the high court. The section states: No compromise or arrangement... shall be sanctioned by the court unless the court has received a report from the tribunal... that the affairs of the company (into which the other company is being merged) have been conducted in a manner prejudicial to the interests of its members or to the public interest. In other words, the high court can block a merger or amalgamation only if the tribunal makes a recommendation to this effect.
The supremacy of the Company Law Tribunal in matters related to mergers and amalgamations is guaranteed under section 423 of the proposed bill, which stipulates that the tribunals report would overrule any orders passed under other Acts, including the Monopolies and Restrictive Trade Practices Act and the Consumer Protection Act.
Government sources added that all powers to review mergers and amalgamations may be transferred to the tribunal through further notifications, issued after the passage of the bill.
However, certain issues are bound to be raised when the bill is debated, such as whether the tribunal is the competent authority to prepare status reports on companies that have not been referred to it earlier. Doubts may also be expressed on transferring review powers from the high courts to the tribunal, which would remain a quasi-judicial body even in its new incarnation. The move could also trigger an inter-ministerial row on the question of jurisdiction, since the tribunal would be under the finance ministry while the high courts come under the law ministry.
The MRTP Commission was divested of its authority to review mergers and amalgamations in 1991 with the deletion of Chapter 3 of the MRTP Act. Later, ruling on the Hindustan Lever-Tomco merger case in 1992, the Supreme Court stated that the prior approval of the government was not required for amalgamations following the amendment to the MRTP Act. However, suitable corrective steps could be taken by the appropriate authorities if the working of the merged company proved harmful for consumers or employees.
As a result, the country now does not have any legislation to review corporate mergers and amalgamations before they take place. It is this lacuna that the proposed companies bill seeks to fill.