GUN JUMPING

‘Jumping the Gun’, the phrase which derives its origin probably from the track and field
races, in the context of merger control regime refers to a variety of actions that merging
parties might enter into prior to closing to facilitate the merger and expedite the integration of
the companies. This assumes specific significance for Indian anti-trust practitioners, as Indian
merger control regime covered under the Competition Act, 2002 (“Act”) is a suspensory one
and prohibits implementation of notifiable combinations[1] unless approved by the
Competition Commission of India (“CCI”/ “Commission”) or expiry of the 210 days review
period following notification[2], with a view to ensure that the parties to the combination
continue to compete as they were competing before the proposed combination[3].
In other words, the standstill obligations essentially require that the parties carry on with their
ordinary course activities completely independent of each other and to the fact of the
combination transaction. The rationale behind such obligations is that if the parties stop
competing as they were competing before, the resulting adverse effect on competition in the
interim period cannot be restored even if the Commission based on its review decides that the
transaction is likely to result in AAEC and therefore does not approve the same or approve
with modifications i.e., even if the transaction is not consummated or at least not
consummated in the form as originally envisaged by the parties[4]. It is in this context,
assessment of gun jumping instances assume significance.

In its decisional practices, CCI has considered gun jumping to have occurred where the
parties have (a) implemented a notifiable transaction without making the compulsory
filings to CCI; and (b) violation of suspensory obligations under the Act,
by consuming the transaction prior to the expiry of the relevant waiting period
following the notification, which may reduce or have the potential to reduce the degree
of independence or the incentives of the parties to compete. It is the latter kind of
transactions, known as soft or substantive gun jumping, where defining or determining what
constitutes a gun jumping poses the most difficult questions to a practitioner. That is because,
whilst closing of a transaction may signify a definite point and time of action, a transaction
may be viewed to have been consummated even if there are steps which have taken keeping
in mind the prospective and future integration between the parties to the combination.

Procedural Gun Jumping - Failure to Notify

The most straightforward form of gun jumping occurs when the parties to a merger meeting
the applicable jurisdictional thresholds do not notify the transaction to the relevant
competition authority.
Examples of such cases, which typically arose in the initial years of operation of the Act,
arose on account of lack of awareness regarding the transaction requiring a filing or
notification under the Act[11], or due to lack of clarity regarding calculation of relevant
threshold when the acquisition involved only a part of the business division/undertaking, as
opposed to the entire target enterprises[12].
In the initial days, a few of the cases also arose due to lack of clarity as to what would be the
instrument which would have triggered the filing requirement. This is because, Section 6(2)
(b) of the Act mandated filing of the notification with CCI within 30 (thirty) days of
execution of any agreement or other document for acquisition of control, shares, voting rights
or assets and whilst the sub-regulation (8) of Regulation 5 of the Competition Commission of
India (Procedure in regard to the transaction of business relating to combinations)
Regulations, 2011 (“Combination Regulations”) clarified that to some extent what would
qualify as ‘other document’, there was considerable ambiguity as to what would be covered
under the ambit of ‘other document’. For instance, CCI found Pension Investment Board and
Grupo Isolux Corsan found to be guilty of delayed filing as they failed to intimate execution
of a settlement agreement, in spite of the fact that the settlement agreement did not specify
certain key elements/conditions of the combination, which were covered in a separate but
subsequent document. To arrive at the conclusion that the settlement agreement was
a binding agreement, CCI relied on the boilerplate clause of the settlement agreement which
specified the agreement to be binding in nature. As regards the issue of uncertainties pointed
out by the Parties, the CCI observed that generally the agreements which are executed in
relation to mergers and acquisitions are cross-conditional and open-ended to some extent. In
any agreement, there are issues which are kept flexible to be decided in terms of
methodologies provided for in the agreement itself and ordinarily, the presence of such
conditions does not impact the status of an agreement or other document as a “trigger
document”[13].

It may, however, not be out of place to mention that requirement of making the relevant filing
within the 30 (thirty) days period has been exempted for a period of five years from June 29,
2017[14] and hence, the scope of gun jumping being attracted on account of delayed filing
beyond the stipulated period has been considerably reduced.

Substantive Gun Jumping - Violation of Standstill Obligation

Unlike procedural gun jumping, substantive gun jumping poses a much more difficult
assessment of whether the parties had undertaken any actions which has the effect of putting
a notifiable transaction “into effect” prematurely or has the effect of prohibiting competitive
behavior even prior to closing of the combination. What is the nature of such exercise was
explained by CCI in the following terms[15]:
“7….. The substantive issue involved is that of the conduct of the parties to a combination
and not only that of timing of conduct. Going by the arguments of the Acquirer, it would
imply that parties, during the stage of negotiations, may enter into cooperation on any
commercial/financial/marketing aspects leading to integration of their operations and yet
claim that the conduct cannot amount to gun jumping, as it occurred prior to the execution of
definitive agreements or filing of notice. Hence, what is critical in such cases is
determination of the fact whether the alleged conduct is pursuant to the combination and has
the effect of consummating a part of a combination and not the timing of the
same…” (emphasis supplied)
CCI has recognized that whether or not a particular conduct of the parties can be regarded as
gun jumping in contravention of Section 6(2A) of the Act is a subject matter of examination
as consummating a part of a combination may, in substance, have impact similar to
consummation of the combination itself. The basis of examination of a gun jumping
contravention is whether the parties have ceased to compete as they were competing earlier or
whether they have ceased to act independently as regards their ordinary course activities
pursuant to the combination transaction[16]. Some of the instances where CCI found
evidence of consummation of the transaction prior to the approval of the transaction are as
follows:
1. sale of three landing/take-off slots of the target at London Heathrow Airport to the
acquire; and lease of the same slots back to target[17].
2. Payment of part of the purchase consideration as refundable deposit on the date of
signing of the share purchase agreement was held to have resulted in part-
consummation of the combination, as pre-payment of consideration may have the
impact of creating a tacit collusion which may cause an adverse effect on competition
even before consummation of the combination, as (i) it may lead to a strategic
 advantage for the Acquirer; (ii) it may reduce the incentive and will of ‘target’ to
compete; and (iii) it may become a reason/basis to access the confidential information
of the ‘target’[18].
3. Providing corporate guarantee to lending institution of the seller to secure loan to be
advanced to the seller, in spite of the fact that loan amount was repayable irrespective
of the combination, as CCI considered that such an arrangement may result in the
parties to the combination not acting independently as they are required to do till the
combination is approved by a competition authority[19].
4. Advancement of loan to the seller of the target enterprise prior to the approval of
CCI[20].
5. Pre-payment of transaction advance which was immediately repayable if the
Combination were not to come into effect[21].
6. Existence of interim covenants such as (i) requirement to handover certain inventories
to the acquirers, (ii) acquirer’s introduction and interaction with the suppliers of the
seller, (iii) restriction on promotional spending and (iv) the restriction on seller to
enter or exit territories, were all considered to be giving effort to the transaction[22].
7. Existence of contractual obligations which can be a source of potential competition
distortions, such as no anteriority clause related to the term of effectiveness of the
contract in relation to the date of its execution that brings any integration among
parties or clauses allowing direct interference by any party in the other party's
business strategies by submitting, for example, decisions over prices, customers,
business/sales policy, planning, marketing strategies and other sensitive decisions
(that do not constitute a mere protection against deviation from the normal course of
business and, consequently, the protection of the value of the business being sold).
CCI also held that a number of conditions to be fulfilled before consummation does
not militate against coming to a conclusion that parties may be incentivized to
coordinate their behaviour in the interim period[23].

Under section 6(2) of the Act, it is obligatory for the parties to duly notify the commission about
the details of the proposed combination and as per section 6(2A) the combining transaction
cannot be implemented either until the completion of 210 days or grant of approval by the CCI
under section 31(1) of the Act. Section 43A of the Act ensures the compliance of the above-
mentioned provisions by imposing a penalty on the concerned parties who fail to notify the
commission.

It has been clarified in the case of SCM Soilfert Ltd4., that section 43A is a civil statute. Thus, it
is neither a criminal nor a quasi-criminal provision and does not consider the factum of mens rea.

Gun-jumping can be either procedural – want of notification to the CCI by the parties, or
substantive – initiation of activity before approval. Although the Act is silent on a definition of
the phrase “gun-jumping”, the same has been elucidated by the CCI in some of its decisions, one
such being the order of UltraTech Cement Ltd5. In this order, the CCI had stated that when
parties to the transaction carry out an activity “pursuant to the proposed combination”, that
would in effect be considered as consummating even a part of it “without approval, express or
implied”, it would qualify as gun-jumping.

It was only much later in the Compliance Manual, 2017 that gun-jumping was explicitly
defined by the Commission. Thus, introduction of the fundamental concept could be found in
the case laws.
Parties must comply with several procedural and substantive aspects to receive the Commission’s
approval. Procedural requirements include filing of the notice and the timeline for approval. In a
2015 order7, the CCI deliberated upon the timeline for filing the notice and subsequently the
determination of the acquisition document to be filed under Section 6(2), in its section 43A order
against the parties. The three parties were proposed to enter a joint venture which required the
transfer of property and assets from them into the combination. The first Share Purchase
Agreement (SPA) was entered on 24 th March, 2015, which was modified by way of a second SPA
dated 15th May, 2015. The notice under section 6(2) was filed on 5 th June, 2015. This was held to
be in contravention of the 30 days deadline. Though it was argued that considering which
document is relevant as under section 6(2) is the discretion of the parties, CCI referred to the
SPAs and opined the second SPA as an amendment to the first. Moreover, accepting such an
argument would give the parties the liberty to continuously amend and push the notification
timeline and consequently the statutory requirement would be rendered meaningless. Thus, the
CCI, through its holding, preserved strict adherence of the provisions in its absolute sense.
Nonetheless, only a minor penalty was charged owing to voluntary filing of the notification by
the parties.

Another instance of repeated contention that often arises is with respect to the activities and the
documents that must be notified by the parties to the Commission. In the case of SCM Soilfert 11,
there were two sets of share acquisitions involved, wherein only the second acquisition was
notified to CCI as the first was deemed to fall under the exception of “solely as an investment”.
CCI opined that given the fact that the acquirer and the target engaged in similar businesses and
through the acquisition of shares the overall intention seemed to be a long-term plan of acquiring
control, the transaction would not fall under the exception. For this purpose, CCI also relied on
the public announcement made by parties regarding the acquisitions being a strategic move.
Moreover, not exercising voting rights and holding shares in an escrow account by the acquiring
party amounted to consummation. The Supreme Court upheld the same and stated that a post
facto notice was not in contemplation of the Act and the notification of the second acquisition
was not sufficient. Interestingly, the stance of the Commission in its order about referring to
public announcements of such nature made by parties was later introduced (amendment) 12 as a
provision.

Another factum of consideration is the observation of the standstill obligations, i.e., any
activity done by the parties during the period of assessment (120 days) that could amount to
consummation of the transaction. It is safe to say that there have been multiple cases in which
the CCI had to qualify ‘consummation’. Part-payment or pre-payment of consideration that could
be refunded upon the execution of share purchase agreements was held, in the Hindustan Colas
case,15 to be consummation and was penalized. Similarly, in the order against Adani Ltd 16 it was
found that ATL had sanctioned multiple loans to RInfra prior to the approval which could have
been used as an adjustable consideration payable for the concerned acquisition. Pre-payment of
consideration and adjustable consideration was established to be indeed a contravention of
section 6(2) read with section 6(2A) of the Act and accordingly nominal penalty was imposed on
ATL. In its reasoning, the Commission has been extremely mindful of the spirit and the purpose
of the legislation. If the activity poses even the slightest inkling of having an effect on
competition, the commission holds them accountable under Section 43A of the Act. Agreements
with anteriority clauses as in Bharti Airtel Ltd.17 whereby the acquirer could, prior to its
conclusion, influence the target’s affairs and prevent independent functioning by the target,
leading to a tacit collusion would also fall within the purview of having an AAEC in the market
and was penalized. Although the combination in themselves are seldom disapproved, the
commission is cognizant of such adverse activities and is quick to penalize them.
Mandatory and suspensory regime
The Indian merger control regime is mandatory and suspensory in nature. This means that
combinations are notifiable unless they specifically exempted, and cannot be consummated,
either entirely or in part, before an approval from the CCI has been obtained.

Obligation to notify
In a transaction structured as an acquisition, the obligation to notify a combination lies upon
the acquirer, whereas in a merger or an amalgamation, the transacting parties are required to
notify the combination jointly to the CCI.

Thresholds
All transactions, including foreign-to-foreign transactions that breach the thresholds under the
Competition Act, are required to be notified to the CCI. Analysis of the thresholds consists of
asset and turnover assessment, which is a three-pronged test, the first of which is based solely
on the assets and turnover of the target, whereas the second and the third limbs are based on
the assets and turnover of the parties and their group or groups, respectively.

De minimis exemption
A combination is exempt from notification if the value of assets of the target in India does not
exceed 3.5 billion rupees or the value of the turnover of the target does not exceed 10 billion
rupees. At present, this exemption is available until 27 March 2022. There have been no
updates so far on whether the de minimis exemption will be extended.

If the de minimis exemption is unavailable, the parties need to assess whether their
transaction falls under Schedule I of the Combination Regulations, which includes
transactions that are not ordinarily required to be notified as they are presumed not to cause
AAEC (Schedule I Exemptions). If none of the exemptions are available and the
jurisdictional thresholds are met, the CCI’s approval must be sought.

Jurisdictional thresholds
Under section 5 of the Competition Act, the jurisdictional thresholds comprise eight different
threshold tests related to worldwide and domestic assets and turnover of the transacting
parties (the parties test) and their groups (the group test).

Calculation of the thresholds

The values of the assets and turnover as provided in the consolidated financial statements of
the relevant parties for the immediately preceding financial year are considered for analysing
the applicability of the jurisdictional thresholds and the de minimis exemption.
For the asset value, the book values of fixed and current assets are considered, including
brand value, value of goodwill, value of intellectual property rights or other similar
commercial rights. For the turnover value, the total turnover of the enterprise, including
revenue from exports, net revenue from operations excluding indirect taxes, other income not
connected with operations and intra-group sales (only sales made by and between Indian
group entities are to be excluded while determining the Indian turnover) must be considered.
In asset acquisitions, business transfers and so on, the asset or turnover of only the true target
(and not the seller) is to be considered when applying the de-minimis exemption and the
jurisdictional thresholds.
Exemptions
Transactions that meet the jurisdictional thresholds may avail certain exemptions under the
Competition Act or the Combination Regulations.

Exemption of minority acquisitions

Minority acquisitions of less than 25 per cent shares are exempt if they are made solely as an
investment or in the acquirers’ ordinary course of business, with a caveat that such
transactions do not result in the acquisition of ‘control’ or confer any special shareholder
rights upon the acquirers.
However, various orders passed by the CCI over the course of the past few years have limited
the applicability of this exemption. One such interpretation that the CCI seems to be
increasingly adopting is that where an acquirer and the target are engaged in competing
businesses or where their businesses are vertically related, the acquisition ‘need not
necessarily be termed as an acquisition made solely as an investment or in the ordinary
course of business’.
In the case of private equity transactions, while the parties may not be direct competitors, the
private equity fund may have interest in portfolio companies that are in the same line of
business or vertically linked with the target. The CCI recently conducted a market study on
the trends of common ownership by PE investors in India to understand investors’ incentives
while making investments in competing companies; the kind of special rights available to
them; the degree of influence that can be exercised as a result of such rights; and safeguards
available to mitigate any competition concerns. The CCI is yet to publish its findings from
this market study.

Exemption for acquisition of additional shares or voting rights

If an acquirer or its group that already has 25 per cent shareholding in a target acquires
additional shareholding not exceeding 50 per cent in the target, the acquisition of additional
shares is exempt if the acquirer or its group does not acquire any control (sole or joint) over
the target.
Similarly, acquisitions where the acquirer or its group holds 50 per cent in the target and
acquires additional shares in the target without any transfer of joint to sole control are
exempt.

Intra-group transactions
Acquisitions or mergers and amalgamations where the parties belong to the same group and
the target is not jointly controlled by enterprises outside the same group are exempt.

Other exemptions
A number of other transactions are also exempt, such as the acquisition of shares due to
bonus issue, stock splits, consolidation of face value, buy-back or subscription to rights of
issue of shares, that does not lead to acquisition or change in control.

Exemptions under section 6 of the Competition Act

Share subscriptions or financing facilities, or any acquisition by a public financial institution,
foreign institutional investor, bank, or venture capital fund, pursuant to any covenant of a
loan agreement or investment agreement, are exempt and need not be notified to the CCI.

Exemptions for certain banks and petroleum companies

The government (through the Ministry of Corporate Affairs) has provided blanket
exemptions from the requirement to notify combinations to the CCI for the following three
sectors: amalgamations of regional rural banks; reconstitution, transfer (whole or part) and
amalgamation of nationalised banks; and acquisitions, mergers and amalgamations under the
Petroleum Act 1934 or the Oilfields (Regulation and Development) Act 1948 that involve
central public sector enterprises and their wholly or partly owned subsidiaries.

The concept of control under the Competition Act 2002

The interpretation of the term ‘control’ forms one of the cornerstones of the Indian merger
control framework. This is on account of the fact that several of the exemptions under
Schedule I (as discussed above) pivot around these terms. The CCI has analysed different
degrees of control in competition law. The first degree of control identified by the CCI is
material influence, which constitutes the lowest level of control and gives an enterprise the
ability to influence the affairs and management of another enterprise. The second degree of
control identified by the CCI is de facto control, where an enterprise holds less than the
majority of the voting rights, but in practice controls more than half of the votes actually cast
at a meeting. The third degree of control identified by the CCI is de jure or controlling
interest, which exists where an entity has a shareholding conferring more than 50 per cent of
the voting rights upon it. A nuanced review of commercial realities is required to be
undertaken by the parties for ascertaining whether the CCI’s approval is required for a
particular transaction.

The CCI has also considered the acquisition of veto rights for the approval of business plans
and annual operating plans or budgets; commencement of a new line of business or to set up
operations in new cities; discontinuation of an existing business; appointment of key
managerial personnel including key terms of employment; influencing material terms of
employee benefit plans; and strategic business decisions, as acquisition of rights amounting
to control under the Competition Act.

Trigger events and form of filing

Trigger events
Transactions are required to be notified to the CCI upon the occurrence of one of the
following trigger events:
In the case of acquisitions, the trigger is the execution of binding transaction documents or
any other binding document that indicates an agreement to acquire control, shares, voting
rights or assets. A subset of acquisitions are transactions involving takeover of listed
companies pursuant to an open offer in terms of the Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeover) Regulations 2011 (as amended). In such
cases, the public announcement made to the Securities and Exchange Board of India is
considered as the trigger.
In the case of mergers or amalgamations (a court-approved process in India), approval of the
transaction by the board of directors of the respective parties is the trigger event.

Trigger for acquisition of distressed assets

In relation to acquisitions of distressed assets under the Insolvency and Bankruptcy Code
2016 (the Code), the CCI must be notified upon finalisation of the acquirer’s resolution plan.
Pursuant to the recent view of the National Company Law Appellate Tribunal in its decision
in Arcelormittal India Pvt Ltd v. Abhijit Guhathakurta (Company Appeal (AT) (Insolvency)
No. 524 of 2019), obtaining the approval of the CCI before a resolution plan is approved by
the committee of creditors is directory in nature and not mandatory. However, parties must
seek the CCI’s approval prior to the approval of the resolution plan by the National Company
Law Tribunal to avoid gun-jumping penalties.

Green channel notification

In line with the government’s policy to improve the ease of doing business in India, the CCI,
on 13 August 2019, introduced the concept of a ‘Green Channel’ approval route under the
Combination Regulations.
This allows parties to file a simplified version of Form I and receive deemed approval of the
transaction immediately upon notifying the same to the CCI. The Green Channel applies to
only those transactions where the acquirer (and the acquirer group) has no existing interests
in companies:
 that may be seen as competitors to the target’s business;
 that operate in markets with vertical linkages to the target’s business; and
 that operate in markets with complementary linkages to the target’s business.
26 notices have been filed and deemed approved in 2021 under the Green Channel route.

Failure to notify and limitation

Gun-jumping
The maximum penalty for failure to notify a combination to the CCI is 1 per cent of the
combined assets or turnover, whichever is higher, of the combining parties. In December
2021, the CCI imposed the highest-ever penalty of 2 billion rupees on Amazon for gun-
jumping in relation to its investment in Future Coupons Private Limited (FCPL).1

AMAZON_FUTURE COUPONS CASE:- https://www.jsalaw.com/newsletters-and-

updates/competition-law-may-2022/

1
https://globalcompetitionreview.com/review/the-asia-pacific-antitrust-review/2022/article/india-merger-control
https://www.argus-p.com/papers-publications/thought-paper/jumping-the-gun-under-indian-competition-law-an-
overview/
https://www.irccl.in/post/jumping-the-gun-an-antitrust-law-perspective
https://www.amsshardul.com/wp-content/uploads/2019/09/Reports-CL-Towards-New-Horizons-Apr2019.pdf