INTRODUCTION
The term Gun-jumping is not used and defined in the Competition Act, 2002. But this is not an unknown term in the merger control regime of India. The term Gun-jumping was first used by the competition commission of India in the case of acquisition made by Hindustan Colas Pvt. Ltd. in Shell India Markets Pvt. Ltd[1]. This blog aims to provide a view regarding the provision of Gun-jumping, the result of its breach and how the breach of Gum-jumping can be mitigated.
WHAT IS GUN-JUMPING?
Combinations as stated in Section 5 of the Competition Act, 2002 will be void if they cause an appreciable adverse effect on competition in the market of India.[2] As per Section 6(2) of the Competition Act, 2002 no combination shall be effected until an order regarding the same has been passed by the Competition Commission of India under Section 31 of the Act.
Section 6 of the Act requires the parties entering into the agreement –
- To give notice to the competition commission of India before entering into the proposed combination; and
- That the transaction shall not come into effect unless 210 days have been passed from the date of giving notice to the commission.
Either of the above-stated points should not be violated. If either of the two has been breached then it would result in Gun-jumping and the parties will be liable for the penalty under Section 43A of the Act.
GROUNDS UNDER WHICH GUN-JUMPING OCCURS
When parties fail to file a notice of transaction before the competition commission of India- There have been instances where parties have failed to give notice of the transaction before the commission within 30 days. This occurs when there is an error by parties about the nature of the transaction entered by them or when they receive the wrong legal guidance.
- When there is an error in the computation of calculation- This happened when Avago Technologies Ltd was acquired by Broadcom communications. In this transaction parties wrongfully evaluated the turnover and assets and assumed they are getting the benefit of target exemption. However, the competition commission of India held that the transaction was to be notified as parties to the transaction failed to calculate the turnover of the enterprise correctly. And hence penalty of INR 10 Lakh was imposed on the acquirer for failing to notify the transaction under section 43A of the Act.[3]. (Combination Registration No. C-2015/09/312)
- When parities violate the transaction partially- This occurs when parties file the notice of the combination to the commission but consummate part or parts of the transaction before it has been approved by the commission.
- When there is the partial computation of the transaction- In the Jet-Etihad acquisition case, Etihad Airways acquired 24 %of the equity stake of Jet Airways PJSC. The notice of the transaction was filled to the commission but while going through the approving procedure the commission found that a part of the transaction has been consummated before approving by them. And hence, the penalty of INR 10 Million was imposed up on the acquirer i.e. Etihad Airways under the Section 43A of the Act.[4] (Combination Registration No. C-2013/05/122)
- When parties misinterpret the type of transaction- In the Zuari case, parties entered into a market purchase which was for the investment purpose. However, the competition commission of India held that the transaction was a strategic investment and will not fall under item 1 of Schedule 1. Thus, it was held that it was a breach of Section 6(2) of the Competition Act, 2002. And the penalty of INR 3 Crores was imposed on the acquirer under Section 43A of the Act[5]. (Combination Registration No. C-2014/06/181)
- When there is partial payment before the approval of the commission- In the case of Hindustan Colas Pvt. Ltd. and Shell India Market Pvt. Ltd., the acquirer paid the amount of INR 4 Crores to Shell India Market Pvt. Ltd. before the date the of completion of the combination. The competition commission of India held that before giving the notice to the commission under Section 6(2) of the Act parties partly consummated the combination and therefore the penalty of INR 5 Lakhs was levied upon the acquirer under Section 43A if the Act[6]. (Combination Registration No. C-2015/08/299)
FACTORS THAT WORK AS MITIGATING MEASURES FOR GUN-JUMPING
In the case of Piramal/Shriram case[7], the competition commission of India considered the following factors that were stated by the parties-
- There was no mala fide intention;
- They have not violated the competition laws prior to this;
- Disclosure of information;
- The transaction was not consummated.
The competition commission of India considered the reasons and the penalty was reduced to the amount of INR 5 Crores.
The following precautions are needed to be taken by the parties:
- Clean team agreement:
The suggestions are offered for this by the competition commission of India in “Compliance Manual for Enterprises” for reducing the chances of leaking confidential information. It is recommended that in the due diligence team only limited members should be there i.e. Clean Team. The sensitive information of the transaction should remain within the team. A clean team preferably consists of senior management, internal and external legal counsel. The clean team should not include personnel involved in pricing, sales, marketing, etc.[8]
- Management control of the target:
Before the approval is given by the competition commission of India, the buyer should not exercise any kind of effective control in the target company. There may be circumstances where the competition commission of India may accept the restriction or material change made in the target company if it is reasonable.
- Premature engaging/integration:
The transaction should avoid indulging in any physical act before getting clearance from the competition commission of India. This applies to the buyer and seller.[9]
- Competitive behaviour:
The parties of the transaction should avoid coordinated business strategies, like bidding jointly for contracts for avoiding competition in the relevant market.
CONCLUSION
Gun-jumping is still evolving concept in India and there has been an evolution with regards to “Gun-jumping” in the recent past in the competition regime of India. It makes it compulsory for the parties entering into the combination transaction to notify the commission if they are not exempted under the Act. It creates the obligations on the parties to ensure that the sensitive information is placed in a separate data room and is not misused. Thus, we can conclude that breaching of Section 6 can cost a lot to the parties involved in the combination transaction.
Author’s Name: Riya Dubey (Banasthali Vidyapith, Rajasthan)
[1] (Combination Registration No. C-2015/08/299)
[2] Sub-section 2 of Section 6 of the Competition Act, 2002
[3] https://www.cci.gov.in/sites/default/files/Notice_order_document/43A%20Order%20in%20C-2015-09-312.pdf accessed on 21 October 2021
[4] https://www.cci.gov.in/sites/default/files/faq/Order%20191213.pdf accessed on 21 October 2021
[5] https://www.cci.gov.in/sites/default/files/C-2014-06-181-43A_0.pdf?download=1 accessed on 21 October 2021
[6] https://www.cci.gov.in/sites/default/files/Notice_order_document/Order%20under%20Section%2043A-299.pdf accessed on 23 October 2021
[7] (Combination Registration No. C-2015/02/249)
[8] Manual Booklet.pdf (cci.gov.in) accessed on 22 October 2021
[9]Argus Partners ‘Jumping the gun under Indian Competition law’ <https://www.argus-p.com/uploads/blog_article/download/1568625052_Jumping__the_Gun_-_An_Overview_of_the_Recent_Trends_in__Indian__Merger_Control_Regime.pdf> accessed on 22 October 2021
