BL Explainer. Gun Jumping in M&As: Obligations and consequences

What is Gun Jumping?

No, no this is not about sports or the name of the next movie in the James Bond franchise. Gun Jumping here is all about competition and merger control. 

Put simply, Gun Jumping in competition jurisprudence occurs when parties to an M&A deal (combination to be legally and technically right) go ahead and consummate a transaction without keeping the competition authorities — the Competition Commission of India (CCI) in our case — in the loop.

Most competition regimes, including India, requires pre-merger notification (in India it is the CCI), and in the process of investigation, expects parties not to proceed with merger till the standstill period is over.

So what does the Competition law require parties to a combination to do?

The term ‘Gun Jumping’ has not been defined anywhere in the Competition Act. The law requires parties to a deal satisfying certain monetary thresholds, to first notify the CCI about the impending transaction. Parties are then obligated to conform to the standstill provisions — wait for 210 days from the date of notifying or till CCI approval happens, whichever is earlier.

During the standstill period, the parties are required to continue to operate their businesses as independent entities.

If the parties fail to notify CCI before the consummation of the deal or violate standstill obligations, this is typically referred to as gun jumping.

Gun Jumping essentially means acting before the appropriate time and refers to situations where a party or parties to a combination (M&A deal) consummate a transaction before CCI approves the transaction, thereby, violating standstill obligations.

Is India emerging as a hub for gun jumping, or is it widely prevalent abroad also?

No.  India is not the only country that is tackling gun jumping. The topic of gun jumping has received lot of interest around the world in recent years, with very high fines imposed by developed jurisdictions. India, too, is not far behind, with CCI over the years bringing to book several gun jumping transactions through levy of penalties.

What does CCI do if parties are found to be ‘gun jumping’?

The Competition Commission of India (CCI) has the power to penalise parties for Gun Jumping under Section 43A of the Competition Act 2002. The penalty can be as high as 1 per cent of the total turnover or 1 per cent of the assets, whichever is higher, of the combination. 

Initially, the merger control regime in India was very strict. Parties were required to notify CCI within 30 days. However, a “business friendly” amendment made a few years back merely said that one cannot consummate without CCI approval! The 30-day stipulation was done away with, although notifying CCI remains mandatory.

What are the types or forms of Gun Jumping?

Gun jumping may occur in two forms — Procedural Gun Jumping (failure to notify) and Substantive Gun Jumping.

The most common form of Gun Jumping occurs when parties to a combination, meeting the applicable monetary and jurisdictional thresholds for notification to Competition authorities, do not notify such transaction to the competition authorities. 

Substantive Gun Jumping happens when parties to a transaction agree to actions that have the effect of putting a combination “into effect” prematurely (i.e. prior to approval).

Can one recount some of the high profile instances viewed as Gun Jumping by the CCI?

There are several, including the Jet-Etihad case; Hindustan Colas Private Ltd; UltraTech Cement Limited; Adani Transmission; Adani Green Limited; Bharti Airtel; and most recently the Axis Bank-CSC e-governance and Cummins Inc-Meritor Inc combination deal.

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