When two enterprises form a combination through acquisition or merger, it affects the competition dynamics in the market. In order to regulate such practice and promote fair competition, the Competition Act (hereinafter, "Act") imposes certain obligations upon the parties before they consummate a combination. Section 6(2) of the Act obligates an enterprise or person to notify the Competition Commission of India (hereinafter "Commission") after approval by the board of directors or execution of any agreement providing for such combination. Alongside, Section 6(2A) imposes a standstill obligation upon such parties to not consummate a combination prior to the approval of the Commission or completion of the waiting period of 150 days. Failure to adhere to requirements of Sections 6(2) and 6(2A) results in gun jumping, which is further categorised into procedural and substantive variants. While the Act explicitly provided a penalty under Section 43A for failure to notify, it did not provide for a penalty in case of violation of standstill obligations under Section 6(2A) of the Act. Recently, the Competition (Amendment) Act of 2023 (hereinafter, "Amendment Act") filled this legal vacuum by incorporating the violation of Section 6(2A) within the ambit of penalty provision under Section 43A. The scope of this article is to trace the penalty provisions for gun jumping in the Act, in light of the changes brought by the Amendment Act.
I. Analysing the Penalty Provision for Gun Jumping under the Act
While a majority of anti-competition regulators penalise both procedural and substantive gun-jumping, the Act penalised only procedural gun-jumping under Section 43A. Procedural gun-jumping takes place when an enterprise fails to notify the Commission under Section 6(2), while substantive gun-jumping takes place upon non-compliance with the standstill obligations under Section 6(2A). Section 43 A of the Act provides for the imposition of a penalty of 1% of the total turnover or assets or value transaction for failure to notify the Commission under Section 6(2) of the Act. Since the Act did not provide a penalty in the case of substantive gun-jumping, it led to the creation of legislative casus omissus, i.e., case omitted. In the past, the parties utilised this inadvertent legal omission as a window to argue against the imposition of penalty for substantive gun-jumping under Section 43A of the Act.
This led to an interpretative conflict, attracting contention from both sides of the aisle. On the one hand, the parties argued that the courts are not empowered to fill the void created by the legislature, as it would lead to usurpation of legislative functions by the judiciary. While, the other side argued that a legislative casus omissus may be filled by the judiciary when it is necessary to serve the purpose of law. It was contended that when the intent of the legislature is clear, and such omission may lead to manifest absurdity, judicial interpretation must be allowed to fill a legislative vacuum.
II. Judicial Interpretation and Changes Brought by the Amendment Act-
In a catena of cases, the Commission dealt with this conundrum over the imposition of penalty under Section 6(2A) of the Act. Finally, in the Baxalta case, the Commission performed harmonious construction of 6(2) and 6(2A) to determine the applicability of penalty in case of violation of standstill obligation. The Commission observed-
"If the parties to the combination are allowed to give effect to the proposed combination either before filing of the notice with the Commission or after filing of the notice but before the expiry of the period given in sub-section (2A) of Section 6 of the Act, then it will tantamount to violation of sub-section (2) of Section 6 of the Act."
Further in the UltraTech Cement Limited case, the Commission observed-
"While Section 6(2), by emphasising the words "proposes" or "proposed", highlights that the parties cannot take any step towards consummation of the combination or any part thereof during the period leading to filing of notice, Section 6(2A) makes it mandatory that the parties observe standstill obligations during the review period as well, as prescribed in the Act.
A harmonious reading of Section 6(2) and Section 6(2A) brings out the continuity of standstill obligations as regards any combination transaction and implies that consummating the combination or any part thereof, before filing notice or after filing notice but before the expiry of period specified under Section 6(2A) of the Act, will be in contravention of Section 6(2) of the Act and violate the ex-ante nature of regulation of combinations in India."
While the decision of the Commission in the Baxalta and UltraTech Cement cases settled the confrontation over the interpretation of Section 6(2A), the Amendment Act solidified the imposition of penalty in case of substantive gun-jumping in India. The Amendment Act incorporated Section 6(2A) within the purview of Section 43A, leading to the penalisation of substantive gun-jumping in India.
III. Author's Observation-
The primary objective behind ex-ante notification regime under Section 6(2) and imposition of standstill obligations is to ensure independence of parties and ensure that maintenance competition between them prior to approval of such combination by the Commission. Further, maintaining competition between parties before the Commission's approval is necessary to avoid the possibility of any appreciable adverse effects on competition in the market. In tandem with this, in Bharati Airtel Limited case, the Commission observed-
"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."
The author maintains that the imposition of a penalty in case of substantive gun-jumping is necessary to serve the purpose of regulating combinations under the Act. Further, the central purpose behind ex-ante notification regime under Section 6(2) is to allow the Commission to review the after-effects of the proposed combination on the competition. If a violation of standstill obligations is left non-penalised, it would defeat the purpose of ex-ante notification regime. This would also lead to the prevalence of anti-competitive activities in the market as the parties will get a leeway to bypass the procedural requirements and consummate the combination even prior to the Commission's approval. In such context, the addition of Section 6(2A) within the ambit of Section 43(A) by the Amendment Act is a remarkable step towards ensuring legal certainty and solidifying the purpose of the ex-ante notification regime.
To summarise, in light of meteoric rise of corporate landscape coupled with growing foreign investment in India, efficient and effective competition laws are necessary to maintain fair competition in the market. Thus, the Amendment Act stands as a watershed moment in light of India's evolving jurisprudence on competition laws. With the penalisation of substantive gun- jumping, the Amendment Act has strengthened the roots of ex-ante notification regime in India.
IV. References-
- The Competition Act, 2002, § 6(2), Act No. 12, Act of Parliament (India).
- The Competition Act, 2002, § 6(2A), Act No. 12, Act of Parliament (India).
- The Competition (Amendment) Act, 2023, § 43A, Act of No. 9, Act of Parliament (India).
- Sachin Goyal, Gun jumping in India: lessons from Competition Commission of India's enforcement activities, Journal of Antitrust Enforcement, (2017).
- The Rise of Corporate India: A Look into the Growing Corporate Sector and Its Impact on the Indian Economy, Lords University, < edu.in/blog/the-rise-of-corporate-india> accessed on 27 February 2025
- R Bhatia and Toshika Soni, Evolving Gun Jumping Jurisprudence In India, Mondaq, (September 29, 2023) https://www.mondaq.com/india/antitrust-eu-competition/1371588/evolving-gun-jumping-jurisprudence-in-india accessed on 27 February 2025.
- R. Srivats, Gun Jumping in M&As: Obligations and consequences, The Hindu Business Line, (August 23, 2023) https://www.thehindubusinessline.com/economy/gun-jumping-in-mas-obligations-and-consequences/article67218812.ece accessed on 27 February 2025.
- Sonam Mathur, Shubhang Joshi and Dinoo Muthappa, India: Nuanced approach to merger control should benefit regulators and parties alike, Global Competition Review, (April 12, 2024) https://globalcompetitionreview.com/review/the-asia-pacific-antitrust-review/2024/article/india-nuanced-approach-merger-control-should-benefit-regulators-and-parties-alike accessed on 27 February 2025.
- Praveen Raju and Janhavi Joshi, Gun Jumping Under The Merger Control Regime, Mondaq, (September 15, 2022) https://www.mondaq.com/india/corporate-and-company-law/1230292/gun-jumping-under-the-merger-control-regime accessed on 27 February 2025.
- Anisha Chand, Trends in Gun-Jumping: CCI on a Gun-Jumping Spree, PYMNTS, (March 2, 2023) https://www.pymnts.com/cpi-posts/trends-in-gun-jumping-cci-on-a-gun-jumping-spree/ accessed on 27 February 2025.
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