The Competition Commission of India (“CCI”) as a third of its duties under the Competition Act, 2002, upholds the mandate of regulation of combinations so as to ensure that any acquisitions and mergers do not have appreciable adverse effect on competition in India. The Indian combination regulation regime comprises of the Competition Act, 2002 (“Act”) and the CCI (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 (“Combination Regulations”).
This article seeks to analyze the nature of gun-jumping as an offence and comment upon the present position of law as to what constitutes gun jumping today.
Combination Regulation – Introduction
Section 5 of the Act stipulates what kinds of transactions form under the ambit of Combination Regulation by the CCI based on various factors like assets, turnover and location of the entities among others. Under Section 6(1) of the Act, there is a prohibition on entering into combinations that have an adverse effect on competition in India and the same shall be void. This means that where CCI concludes that the Combination would have appreciable adverse effect on competition in India, it stands prohibited under Section 6(1) of the Act. But, for the purpose of this finding, the CCI must conduct its investigation regarding such effects. There are two ways of affecting such an investigation, either by notice of the parties or by the CCI on its own cognizance. In either case, CCI must first be of the prima facieopinion that the Combination may lead to AAEC in India.
What is gun jumping?
Gun jumping is the consummation of the combination process without the approval of CCI. According to Section 6(2) of the Act, any person or enterprise that seeks to enter into a combination shallwithin a period of 30 days from the approval of the merger proposal or the agreement of acquisition, as the case may be. This provision is a mandatory one, firstly, as it uses the word “shall” and, secondly, it comprehends of a penalty under Section 43A of the Competition Act 2002. Acting in derogation of this duty to notify the combination amounts to gun jumping.
Usually, a combination takes places in three stages which includes agreement, execution and consummation of the combination. A trigger event or execution is the stage at which the duty to notify arises, not before. CCI has in the past rejected a notice owing to the fact that the trigger event had not been reached which makes such a notification ‘premature’. Alternatively, CCI has been very stringent with regard to such combinations that have been consummated post execution, without any notification of the same.
Penalty for Gun Jumping
Section 43A of the Act stipulates that where a person or enterprise fails to give a notice of the Combination under Section 6(2) of the Act, the commission shall impose a penalty upon such person a penalty which may extend to one percent of the total turnover or assets, of such combination. Recently, the Hon’ble Supreme Court of India had held in the case of Competition Commission of India Vs. Thomas Cook (India) Ltd. and Anr. that there is a no requirement of mens reaor intentional breach as an essential element for the levy of penalty under Section 43A of the Act. Penalty is imposed for the mere fact of failure to file notice. Illustratively, CCI had imposed the highest penalty to date (Rs. 3 crores) for failure to file the notice of the combination upon Tesco Overseas Investment Limited within 30 days of the trigger event.
It must be noted that the question of potential AAEC of the combination and that of giving of notice are two entirely separate ones. The law stipulates for a prohibition on combinations having AAEC but where the acquirer or the combined entity as the case may be, fails to provide a notice he is liable to a fine only and the mere failure to file notice does not go towards the analysis of AAEC. These two provisions are quite separate, the former being a substantive provision while the latter is a procedural necessity.
The Ministry of Corporate Affairs has, vide Notification dated 29thJune 2017, exempted persons or enterprises from the need for the notice of the combination under Section 6(2) within 30 days as is stipulated under Section 6(2). This exemption has been granted for a period of 5 years from the date of the notification. Therefore, a company is not bound to make notice of the combination within one month. This exemption is a welcome but belated relief that is given looking to the complex nature and specify of the notice of the combination, so as to ensure that proper representation is made to the Commission.
Moreover, the exemption provided has been made subject to provisions of Sections 6(2A) and Section 43A of the Act. Under Section 6(2A) of the Act, it has been stipulated that a combination shall not come into effect without either the order of the CCI or the passing of 210 days from the filing of the notice under Section6(2) of the Act.
What Constitutes Gun Jumping Today?
This exemption does not comprehend of a waiver to the duty to file notice under Section 6(2) of the Act. It only means that penalty would only be imputed upon the party where the Commission is of the view that the conduct of the person or enterprise constitutes “failure to file notice” and not just on a rigid standard of 30 days from the trigger event. A person or enterprise is still under the obligation to file the notice of the combination upon execution and before the stage of consummation of the combination.
Presently, the principal question that arises is whether the non-filing of notice or belated filing amount to failure to file the notice under Section 43A of the Act?
Since, an exemption has been granted to this effect, a one-sided test of timelines cannot be applied to impose the penalty. In such a situation, the matter and not form of the stages of the combination are material. Today, the essence of the offence of gun jumping can be concluded when the Combination has been given effect to without notifying the CCI.
The next question that arises is ‘what constitutes consummation of the combination?’ Consummation of the combination, amounts to, firstly,putting the combination in effect without giving notice of the same under Section 6(2) of the Act. Secondly,putting the combination in effect and filing a belated notice thereupon. Thirdly, filing of notice between the execution and consummation of the consummation which amounts to “failure” to file notice. The mandate of Section 6 of the Act stipulates that a notification is to be given after the appropriate trigger event in order for CCI to assess whether the proposed combination would have appreciable adverse effect on competition in India. This analysis is necessary for the CCI to apply its mind so as to ensure that the completive climate in the relevant market is not stifled by the combination coming into effect. It should be noted that to this effect, under Section 6(2A) of the Act, it has been stipulated that a combination shall not come into effect without either the order of the CCI or the passing of 210 days from the filing of the notice under Section6(2) of the Act. This provision must be noted so as to understand the time-frame behind what amounts to consummation of the combination.
The legislature, by way of Section 6(2A) of the Act, has asserted that no combination shall come into effect without CCI’s assent and only if the CCI fails to make the requisite analysis in the stipulated period of 210 days, can the combination come into effect without CCI’s assent. In either case, it is the filing of the notice that holds paramount importance and is the duty of the party or enterprise. Putting the combination into effect without the CCI’s Consent amounts to exposing the relevant market to any competitive concerns of the combination without the necessary safeguards to this effect that the legislature has put forth by way of the Act. This amounts to undermining the mandate of the CCI as the combination regulator.
Gun jumping and being a combination having appreciable adverse effect on competition are two different matters. While the former amounts to the violation of a procedural duty, the latter comprehends of a substantive analysis. It must be noted that Section 6(1) prohibits combinations having appreciable adverse effect on competition in India and does stipulate that “no combination shall come into effect without notifying the CCI”. This distinction is paramount.
It ought to be noted that the CCI would not base its decision of the combination’s AAEC upon the failure of the person or enterprise to file notice under Section 6(2) of the Act. However, CCI, among the various factors in considering whether the combination would have AAEC, does consider the presence of bona fidesor mala fidesin the acts of the assessed combination.
The offence of gun jumping has severe implications on the competitive climate and so it comprehends of a high penalty that can go as high as one percent of the total turnover or assets of the combination. In anti-trust law, it is not only the substantive provisions that form the essence of the law, the manner of execution of such substantive laws is essential in ensuring the health and stability of competition in markets and to keep them free from anti-competitive concerns and practices. Gun jumping essentially undermines the CCI’s role as the regulator of combinations and the same is rightfully prohibited and backed by substantial sanction. However, CCI must be cognizant of the complexities and volmue issues that come about in combinations, especially one’s of larger size that would lead to filing of notice of the combination after substantial time but which may very well be justified. In the absence of a strict timeline for the imposition of penalty within 30 days, CCI has to ensure both stringency and laxity in the law relating to gun jumping.
Combination Registration No C-2012/07/69
Rahul Rashi & Shinoj Koshy, ‘CCI Approves Combination, But Fines Tesco For Delayed Notification’, (Mondaq, 17th July 2014) -http://www.mondaq.com/india/x/328188/Antitrust+Competition/CCI+APPROVES+COMBINATION+BUT+FINES+TESCO+FOR+DELAYED+NOTIFICATION.
Combination Registration No. C-2015/01/241.