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Gun Jumping In Indian Competition Law – The need to Redefine Contours

Avantika Tiwari (*)



In both common parlance and the context of antitrust or competition law, ‘gun jumping’ alludes to acting prematurely. Particularly, it is the commencement of actions in furtherance of combination transactions between the parties involved, without the approval of the Competition Commission of India (“CCI”). Under the Competition Act, 2002, gun jumping as an offence has not been explicitly defined. Nevertheless, the definition of ‘combination’ read in conjunction with the powers accorded to the CCI for penalizing parties that jump the gun shed a considerable amount of light on what it constitutes.

Through this article, the author has attempted to firstly, understand the two primary aspects of gun jumping – procedural and substantive. Secondly, the article scrutinizes the approach of the CCI towards ex-ante combination regulation through the ‘Rule of Reason’ as posited by Professor Rosenfield, Professor Carlton, and Professor Gertner. Ex-Ante is a regulatory approach that refers to the undertaking of regulatory measures before the occurrence of events like combinations.

The ramifications of continuing the current stringent approach of combination regulation are thereafter viewed from the lens of the ‘Knicker Bocker Theory’, as propounded by Frederick T. Knickerbocker, with particular emphasis on its ‘follow the leader’ element. Lastly, the author adduces certain policy recommendations, the incorporation of which into the Indian Competition Law Regime could curtail gun jumping to a considerable extent, promote robust competition and ensure consumer welfare.

The Dichotomy Of Gun Jumping: Procedural & Substantive

Procedural Gun Jumping can be best characterized as the failure of the parties to the merger in question to notify the relevant competition authority of the said transaction and closing the same prior to the expiration of the waiting period. In other words, any implementation of a combination is prohibited until the CCI proves the same, or until a period of 210 days have passed since the day of notice, as under Section 6(2A) of the Act In the nascent stage of combination regulation, a great deal of ambiguity persisted vis-à-vis the mandatory notifying to the CCI within a span of thirty days of the effectuation of an agreement or other document with respect to the acquisition of assets, control, shares, or voting rights.

As a consequence, a plethora of matters that arose vis-à-vis gun jumping under the Act was procedural in character, and a majority of the jurisprudence surrounding this aspect of Competition Law has rendered clarity merely on the contours of procedural gun jumping. Nevertheless, with the gradual surge in awareness regarding statutory compliance and the five-year exemption granted by the Ministry of Corporate Affairs (‘MCA’) from the aforementioned thirty-day rule, effective from 29th June, 2017, instances of procedural gum jumping have dipped significantly.

More importantly, it is the act of substantive or soft gun jumping that has compelled even the most veteran Competition Law experts to scratch their heads in bewilderment. Such an act can include within its ambit any transaction with an improper pre-approbation integration of the parties involved, wherein they cease to advertise as competitors in the duration awaiting the regulatory nod, sharing of information that is commercially sensitive, allocating customers, etc. The test to ascertain substantial gun jumping has been posited by the CCI as the evaluation of whether or not the transacting parties continue to compete in a fashion similar to the conceptualization of the proposed combination.

This is in addition to determining if they continue to act independently vis-à-vis their regular business activities. . Prior to the crystallization of this test, one of the first Indian precedents on substantive gun jumping, particularly involving the imposition of a penalty on the acquirer entity, was adjudicated by the CCI in 2013. In this case, Etihad as the acquirer had notified the Commission of its intended acquisition of 24% equity interest in Jet Airways on 1st May, 2013.

While the acquisition received the CCI’s approbation nearly six months later, the Commission simultaneously noted that some clauses of the Commercial Cooperation Agreement (“CCA”) between the two entities involved had already been effectuated. In particular, the fact of certain take-off and landing slots in Jet Airways’ possession at the Heathrow International Airport, London, being sold off was not brought to the CCI’s attention and directly consummated.

However, the Commission also took into account the parties having completely disclosed all the agreements governing their other transactions, with both of them believing the slots’ sale transaction to be an independent one from the CCA, in good faith. Thus, Jet and Etihad had notified the CCI of the CCA in concomitance with the 2002 Act, despite some portions of it being subjected to implementation, with the Commission’s nod still pending. Construing their bona fide actions as ‘mitigating factors’, the CCI eventually reduced the penalty on Etihad under Section 43A of the statute to a nominal Rs.10 million.

In the recent Amazon-Future Group Case however, the CCI has both withdrawn its approval for the American conglomerate’s investment (49% shareholding) in the Kishore Biyani-founded giant and levied a substantial penalty of Rs 202 crores on Amazon for having gun jumped by suppressing material facts from the CCI, during notifying the body for ex ante approbation in July 2019. This case reflects a major shift in the fair market watchdog’s approach and characterization of gun jumping as a serious offence.

Ascertaining Gun Jumping Via The Employment Of The Rule Of Reason

In their insightful piece, Rosenfield, Carlton, and Gertner argue that where there seems to exist no explicit evidence of the formation of an agreement adversely affecting competition, the appropriate legal standard to scrutinize the exchange of commercially sensitive information between the transacting entities is the ‘rule of reason’. The rule of reason, as developed through American jurisprudence and legislation, is a standard of proof, wherein the defendant who is claiming that the accused is engaged in anti-competitive behaviour, has to prove that the action causes an appreciable adverse effect, as also mentioned under Section 3(3) of the Competition Act.

Along with being embodied in Section 3(1) of the Competition Act, its dimensions have been set-out and expanded by the judiciary. As against this, there exists the ‘per se’ rule, which directly imposes the burden of proof on the accused, from the moment of alleging the anti-competitive behaviour. This is mainly used in cases involving those activities which are blatantly illegal for being anti-competitive and anti-trust, like monopolising, price-fixing, etc. While these two rules co-exist in the American judicial system, there doesn’t exist any solid grounding for an expansive usage of the “per se” rule in the Indian context.

Moreover, gun-jumping in combination agreements cannot be termed as being blatantly anti-competitive, which require to shift the burden of proof. Indian jurisprudence around gun jumping has also been made more flexible which further sits well with the “rule of reason”. Therefore, importing a strict standard of “per se” rule would be entirely irrational and detrimental to both parties involved in the combination and to consumer welfare as it prevents instances of “cooperative pricing”, monopolisation, etc.

The “rule of reason” standard for substantive gun jumping, as laid down in the Adani Green Energy case would be the most apt. In such cases, the authority verifies the conduct to determine the existence of (i) an infringement of the ordinary course of activities of the combining parties, or (ii) reduction in the intensity of competition, or (iii) a potential to cause distortions in the market and competition through numerous factors. This results in a more equitable and reasoned out decision through an elaborate process of evidence presentation and argumentation.

Prior to 2018, the CCI was already construing and implementing the Combination Regulations stringently. This was done by adjudging that in such transactions, the date on which the acquiring entity conveys its intention to acquire to the requisite authority, deliberate non-compliance with the Section 6 requirements, either substantively or procedurally, will act as the trigger event for the imposition of penalty under Section 43A. Thus, the standard was intentional non-compliance with statutory obligations, with a pre-transaction Commission investigation being conducted regardless of the parties obtaining the necessary regulatory nod.

In 2018 however, the Supreme Court of India clarified that mens rea was no longer a requisite for the levying of the Section 43A penalty, with such a standard being applicable only to criminal and quasi-criminal disputes. This decision of the Supreme Court is synonymous to the ‘per se approach’, wherein even an inadvertent failure to notify the CCI is being appropriated as an invitation for statutory liability. Instead of delving deeper into the intricacies of the information exchange between the transacting parties and the various aspects of their written or unwritten agreement (i.e., ‘the rule of reason’), this approach is merely implicating entities that might not even possess the slightest bit of intention to adversely impact competition.

Gun Jumping Vis-À-Vis The Knickerbocker Theory: Driving Away Investment

Knickerbocker’s theory of Oligopolistic Competition can be simply understood as the actions of one firm being immediately replicated or emulated by its competitors (‘follow the leader’). The stringent approach of the SC in the Solifert Case, in addition to the CCI recently slapping a considerable fine on Amazon (foreign investor) inevitably impact the ‘investor friendly’ image of the country that the Indian Government has been attempting to curate ever since its rise to power. Situations wherein an acquirer is merely negotiating with several sellers, with all of the latter necessitating a pre-transaction clearance from the concerned authority, will require the acquirer to notify the authority with regards to all potential transactions, despite it being cognizant of the ability to proceed with only one them.

Such high transaction costs of ensuring regulatory compliance, coupled with the exposure to statutory liability, will deter investors, especially foreign ones in pumping in funds in the enterprises across India and target other jurisdictions more favourable for investment. One by one, the firms shall emulate each other, detrimentally impacting the Foreign Direct Investment ("FDI”) directed towards the country and its economic growth, while simultaneously reducing the entry of new players in the Indian market and thus, the competition. This would also diminish the choices available to the consumers and encourage the few firms remaining to charge exorbitant prices for goods and services, with consumer welfare being massively hit.

The Way Forward

An analysis of the Indian Competition Law Regime on Gun Jumping reveals the potential pitfalls of immensely stringent statutory obligations to ensure good law enforcement. The government has recently extended the validity of the exemption of the thirty-days rule from five to ten years. However, given that such extensions are not indefinite and only act as a stopgap measure, it is pertinent to not only define the contours of gun jumping, particularly its substantive aspect, but also make sure that investment by foreign corporates and even domestic conglomerates is not hindered in the process of raising transaction costs.

Instead of having numerous precedents elaborating to different extents on the application of gun jumping, a singular legislative provision in the Competition Act, 2002, laying down the contours of gun jumping on the “rule of reason” standard would result in the most efficient and effective way of preventing this practice. The Guidelines for the Analysis of Previous Consummation of Merger Transactions issued by Conselho Administrativo de Defesa Economica (Academic Council for Economic Defence of Brazil or CADE) (“CADE Guidelines”), can be looked at for guidance while drafting the provision. Known for its expansive provisions on gun jumping, Brazil has come out with provisions along with rules, resolutions and notifications definition the scope of gun jumping.

This not only defines the practice of gun jumping, but also lays down the non-exhaustive list of practices which may raise concerns for the CADE along with specific applicable sanctions for different levels of gun jumping. There is also the procedures to be followed by both the state and the parties when any accusations or complaints of gun jumping arise. This enables both the state to keep a vigilant eye on all mergers occurring in the country, but also makes the process transparent for all parties involved in the combinations so that even mistaken occurrences of gun jumping do not happen. Additionally, such detailed provisions also make the law more uniform, predictable and formulaic in calculating fines and penalties for gun jumping.

Such a consequentialist construction of the gun jumping law in India would be in line with the CCI’s numerous decisions of bona fide mistake as not being a valid defence for gun jumping because parties would no longer be governed by a vague jurisprudential law with no boundaries and contours. Other finer aspects of gun jumping, like purely preparatory actions, nature of change of control, etc., can also be addressed by looking at foreign cases from countries where competition law has a more expansive jurisprudence than India. The government and the CCI would then be able to penalise transacting parties only in prescribed circumstances wherein incontrovertible proof of anti-competitive effects result from the any form of combination agreements.

Furthermore, if a combination is being effectuated for the revival of a failing company, the Government should consider the increment of duration of the thirty-days rule in accordance with the severity of the financial distress faced by the company.


* The author is a penultimate year law student at NLSIU Bengaluru and a part of the Editorial Board at the ACLR Blog. She enjoys researching and writing on matters within the ambit on Antitrust, Insolvency, Fintech, and Intellectual Property Rights.

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