The phrase gun jumping owes its origin to the USA, where it was used in reference to those athletes who started the race before the gun was fired to signal them to start the race. In context of competition law it is used to denote those situations where parties to a proposed combination coordinate their conduct or implement any part of the combination before receiving clearance from the merger authorities.
However, the phrase, ‘Gun Jumping’ has a more colloquial connotation and has not been used in the Competition Act, 2002 (the Act) which is the principal legislation which regulates combinations in India.
Legal Framework
Combination includes acquisition of control, shares, voting rights and mergers or amalgamations between enterprises. According to Section 6(2) of the Act, when any person or enterprise proposes to enter into a combination and meet the threshold requirement (which is notified by the Central Government from time to time), it is required to give notice to the Competition Commission of India (Hereinafter ‘CCI’) disclosing the details of the proposed combination.
Further, Section 6(2A) provides that no combination shall come into effect unless the CCI passes orders under Section 31 of the Act. Thus, the combinations cannot be effected before the CCI grants approval for the same before or until 210 days post the notification. Thus, Section 6(2A) contemplates a ‘standstill obligation’ on the parties to not give effect to the combination until the ‘waiting period’. In case, the parties chose to violate this obligation, it is known as ‘Gun Jumping’ and it can be heavily penalized by the CCI under Section 43A of the Act.
These provisions form a part of the ex ante merger control which has an underlying rationale to put necessary safeguards for anti-competitive problems which might arise in future. Together Section 6(2) and 6(2A) is considered as cornerstone of ex ante combination regulation.
Substantive and Procedural ‘Gun Jumping’
‘Gun Jumping’ can be of two types, substantive and procedural. Substantive Gun Jumping occurs when the parties to the proposed combination are competitors and they coordinate their competitive conduct prior to the closing of the combination transaction. This includes activities like sharing of competition-sensitive information like plans for research and development (R&D) or other forms of joint conduct.
Procedural Gun Jumping, on the other hand, occurs when the parties to the proposed combination fail to notify the competition authorities of the transaction which hits the merger thresholds or effects the combination arrangement in violation of the waiting period. Majority of ‘Gun Jumping’ cases in India pertain to failure to notify the CCI.
The decisional practice of CCI
There have been instances of ‘Gun Jumping’ in the recent past and CCI has been vigilant about monitoring the same. Some of the relevant issues which have been highlighted by the CCI in its recent decisions are as follows:
- Scope of Section 43A of the Act– CCI can impose penalty under S. 43A of the Act in cases where the parties to the proposed combination have failed to notify the CCI regarding the transaction or have consummated the transaction (in whole or in part) during the waiting period. The erstwhile COMPAT, in the case of SCM Soilfert and Ors. v. CCI[i], while upholding the penalty against SCM Soilfert for ‘Gun Jumping’ observed that the ‘ex ante nature of notification under Section 6(2) is buttressed by a reading of S. 6(2A) which uses the phrase “no combination shall come into effect” until 210 days from the date of notice’. Similarly, in the CCI order against Baxalta Incorporated under Section 43A, it was observed, till the expiry of 210 days from the date of filing of notice, or the CCI has passed an order under Section 31, whichever is earlier, a combination remains a proposed combination and parties cannot give effect to the same. Thus, consummation of the proposed combination in violation of the expiry period under Section 6(2A) is tantamount to violation of Section 6(2) of the Act.
- Part-Consummation of the Transaction is ‘Gun Jumping’– On November, 12, 2013, the CCI approved the Jet-Etihad Combination. The combination dealt with Etihad Airways’ (a foreign airline) investment in Jet Airways India Ltd (an Indian airline). However, the CCI fined Etihad for Gun Jumping in light of the commercial cooperation agreements which were entered into by the parties on February 26th, 2013 regarding the sale of three of Jet’s landing and take-off slots at London’s Heathrow Airport to Etihad. The CCI thus, noted that the parties had implemented the commercial cooperation agreement without notifying the CCI. Accordingly, penalty was imposed on Etihad Airways.
- Period of Limitation for suo moto inquiry prescribed under Section 20(1) is not a bar for initiation of proceedings under Section 43(A) of the Act– In the penalty proceedings under S. 43(A) of the Act against Intellect Design Arena Limited (IDAL), one of the issues before CCI was limitation for inquiring into the combination by the commission. IDAL had argued in its defense that for levying a penalty under S. 43A of the Act, the CCI has to come at a finding that there has been a contravention of the Act by the enterprise. Such a finding can be arrived only pursuant to an enquiry into whether the transaction is a combination. However, such an inquiry has a bar of limitation of one year from the date of coming into effect of the ‘combination’. However, the CCI noted that the bar of limitation as provided by proviso to Section 20(1) is not applicable on initiation of proceedings under Section 43A. The CCI further clarified that the object of Section 43A is imposition of penalty for non disclosure of relevant information before the consummation of a notifiable combination.
- Part-Payment amounts to ‘Gun Jumping’– On 18th February, 2016, CCI approved the acquisition of bitumen plant of Shell India Markets Pvt. Ltd.(SIMPL) by Hindustan Colas. The notice disclosing the proposed combination was filed on 21st August, 2015. However, the CCI observed that Hindustan Colas has paid a sum of INR 40 million to SIMPL as a part of sale and purchase agreement on 23rd July, 2015. The CCI observed this pre-payment of price qualifies as ‘Gun Jumping’ as it may lead to distorting the competition by first leading to a strategic advantage for the Acquirer second reducing the will of the ‘target’ to compete and third it may lead to accessing the confidential information of the ‘target’.
- Anteriority Clause as ‘Gun Jumping’– In the case of Bharti Airtel’s proposed acquisition of 100% of consumer mobile business run by Tata Teleservices, CCI observed that a clause predating assumption of economic responsibility by the acquirer would lead to creation of a situation of tacit collusion and the ‘target’ will have no incentive to compete in the market. Thus, the anteriority clause was considered as ‘‘Gun Jumping’’.
Fining for ‘Gun Jumping’
According to Section 43A of the Act, the CCI has discretion to impose penalty for non-furnishing of information on combinations or for violation of the standstill obligations. The penalty which is imposed by the CCI on such person or enterprise may extend to one percent of the total turnover or assets, whichever is higher. While, imposing penalty, the CCI takes into consideration the conduct of the parties and the facts and circumstances of the case. This helps it consider if there are any mitigating factors to the case. For example, in the Piramal Enterprises case[ii], the CCI had considered the mitigating factors like absence of mala fide intention on the part of the acquirer to evade the compliance of the Act, cooperation with the competition authorities, etc.
Conclusion:
The preceding sections serve to demonstrate that the enforcement of ‘‘Gun Jumping’’ have seen a significant evolution in the recent years in Indian competition regime. In light of the steps taken by the competition watchdog CCI to regulate ‘‘Gun Jumping’’ activities, it is mandatory for the parties to the proposed combination to be well informed and aware and in this regard Competition Compliance Manual can be referred to. Further, the parties to the proposed combination should refrain from sharing competitively sensitive information or if it’s necessary to do so then it must be subjected to Clean Team Arrangement. In a Clean Team arrangement the sensitive data is placed in a separate room and access is limited to the member of the Clean Team which includes employees of the acquirer and they have no responsibility for setting prices, setting terms of sale, etc.
1) SCM Soilfert and Ors. v. Competition Commission of India, (2016) Comp LR 1111.
2) Combination Registration No. C-2015/02/249.
This article is written by Shreya Jha of Amity Law School, Delhi
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