[Rashi Kumari is a 4th year law student at the National University of Study and Research in Law, Ranchi and Ananyashree Jaiswal a 4th year law student at the Gujarat National Law University, Gandhinagar]
Gun jumping, i.e., a premature implementation of a combination before receiving regulatory approval, has emerged as a significant global antitrust concern. In India, section 6(2A) of the Competition Act 2002 imposes a standstill obligation on parties to a combination, prohibiting them from giving effect to a transaction until either the Competition Commission of India (CCI) grants approval or 210 days have lapsed since the filing of the application.
However, the legal framework in India suffers from a critical shortcoming: the absence of a clear, objective, and technical definition of when a combination “comes into effect”. This lacuna leaves parties navigating a grey zone where even commercially legitimate preparatory steps can be construed as violations. This post critiques the Indian regulatory ambiguity, draws comparisons with international practices and case law, and proposes a robust and structured enforcement framework for India.
The Legal Vacuum: What Does “Come Into Effect” Mean?
Section 6(2A) of the Competition Act stipulates that no combination shall “come into effect” until either 210 days have passed from the date of notification by the parties or it has received the CCI’s approval. However, the statute leaves the phrase “come into effect” undefined, unlike international regimes such as the EU’s Regulation No. 139/2004, which ties implementation through a “lasting change in control”. In India, the absence of such a threshold gives rise to uncertainties in compliance. For instance, there is ambiguity on whether the “effect” is triggered by pre-payment, contractual clauses, due diligence exercises, or information exchange. To date, merely three decisions have conducted an objective analysis of the conundrum in question. However, even these rulings have stopped short of laying down an exhaustive and objective framework.
Adani Ruling and The “Functionality” Approach
In the Adani Ruling, the CCI held that the phrase “come into effect” must be interpreted purposively, in light of the twin objectives of standstill obligations in India’s antitrust regime: firstly, preservation of competition during the pendency of the regulatory body’s approval and, secondly, the avoidance of irreversible market distortions if the combination is not approved. In applying this reasoning, the CCI reiterated three analytical tests as laid down in Hindustan Colas: (i) reduction in competition intensity, (ii) interference with the ordinary course of business, and (iii) the potential to cause competitive distortions. However, the observations in Hindustan Colas were tailored to the narrow issue of pre-payment of price, thus making its mechanical reiteration in Adani inaccurate.
The CCI also applied the inherence proportionality test (IPT), stating that the conditions imposed by the acquirer on the target must be inherent (necessary) and proportionate (limited) to ensure certainty in and preservation of business valuation. However, firstly, the application of the test remains inconsistent. For instance, the IPT was laid down to be exhaustive in Bharti Airtel. However, in Adani, the CCI interpreted IPT to be merely indicative. Thus, the IPT has further muddied the waters instead of offering ex-ante clarity for combining parties. Secondly, the CCI drew no meaningful differences between contractual provisions, exchange of information, and conduct, even though they all constitute different types and degrees of premature implementation.
The Airtel Ruling and the Intent-Effect Debate
In Bharti Airtel, the CCI set a precedent by prioritising intent over effect in the implementation of standstill obligations. The acquirer was penalised solely for the inclusion of a certain clause (referred to as the “ER Clause”) that the CCI held could potentially contravene standstill obligations, irrespective of the notional nature of the clause expressly hinging on CCI approval. The CCI ruled that “actual actions” and “agreed contractual obligations” would be treated on the same footing, thereby broadening the scope of prohibited conduct. However, this position was muddled in the Adani ruling, where effect was given primacy over intent. Here, the acquirer was penalised for a clause that had legitimate commercial intent, but was found capable of affecting competition. The CCI further observed that an arrangement could breach standstill obligations despite the intention of information exchange being legitimate and proportionate. Thus, the expansive interpretation has resulted in two consequences. Firstly, it makes even preparatory acts susceptible to regulatory penalties. Secondly, by alternating between intent-based and effect-based standards, the CCI has failed to provide a consistent benchmark, thereby amplifying uncertainty.
Comparative Guidance: International Stance on Premature Implementation
European Union
In the Ernst & Young ruling, the Court of Justice of the European Union (CJEU) raised two relevant issues: firstly, what criteria are to be applied in assessing premature implementation under Article 7(1) of Regulation No. 139/2004; secondly, whether it matters if the conduct of the parties gives rise to market effects; and thirdly, what criteria and degree of probability ought to be applied in assessing market effects. The CJEU observed that Article 7 fails to clarify the scope of the prohibition it specifies. The CJEU laid down that a combination transaction would amount to premature implementation only if it would contribute to “a change of control on a lasting basis”. The Court held that mere preparatory actions, even if producing market effects, would not constitute gun-jumping unless a lasting change in control is established. It is noteworthy that the EU approach contrasts with India’s broad-brush method, where even commercially necessary due diligence may violate section 6(2A). The EU’s interpretation, if adopted in the Indian antitrust regime, would offer legal certainty while not taking away from the teeth of the legislation.
Brazil (CADE)
Brazil’s CADE Guidelines categorise gun-jumping risks into 3 clear categories: exchange of commercially sensitive information (CSI), contractual clauses regarding premature implementation, and conduct indicating merging of activities before clearance. CADE also necessitates the constitution of clean teams and parlor rooms, recommending that necessary due diligence be conducted by personnel uninvolved in the day-to-day operations of the acquirer. While India’s Competition Compliance Manual (Manual) also recognizes clean teams, it remains more generic and less structured in its treatment of gun-jumping risks. For instance, CADE Guidelines also clarify the purposes for which CSI may be shared and the kind of transactions where clean teams are required. While both the Manual and the CADE Guidelines lack binding enforceability, CADE’s approach offers sharper categorisation and operational clarity, thus providing a more practical compliance framework.
Towards a More Objective Gun Jumping Framework
India’s gun jumping regime is currently marked by multiple shortcomings. Firstly, there is no statutory definition of “come into effect” under the Act. India’s antitrust regime offers no threshold for identifying premature implementation, unlike the EU and Brazil. Secondly, since each of the few available cases has been judged on subjective and unpredictable metrics such as “competition distortions” and “reduction in competition intensity”, the available jurisprudence is marked by overreliance on ad-hoc factual analysis. Thirdly, the regime is marked by an absence of safe harbours since there is no regulatory guidance on distinguishing permissible pre-closing actions from those that violate standstill obligations. Fourthly, very few orders have meaningfully analysed section 6(2A), and even those offer non-binding and highly contextual observations instead of objective tests or rules. Lastly, there has been no proportionality in enforcement by the CCI. For instance, the CCI’s stance that even actions with justified commercial intent are capable of violating section 6(2A) can create a chilling effect on business.
Proposed Solutions
To address the summarised shortcomings and to bring the Indian gun-jumping regime at par with global best practices, several reforms are required. Foremost, a clear definition of “come into effect” must be codified. Such a definition should ideally be introduced statutorily, like the EU Regulation 139/2004. Additionally, the definition must have an objective codification such as “a change in control on a lasting basis.” Secondly, the CCI should introduce a reform by issuing binding regulations on gun jumping under section 64 of the Competition Act. Herein, the CCI could classify pre-transaction activities into three categories: (i) clearly permitted activities such as clean teams based due-diligence, (ii) clearly prohibited activities such as cost data and discount policies, and (iii) grey zone activities such as the inclusion of notional clauses in contracts. Such a tripartite structure could provide legal certainty alongside regulatory flexibility. Thirdly, a materiality threshold must be applied to for penalties under section 43A of the Competition Act. Such a proportionate threshold must ensure an effects-based analysis and avoid penalising intent or preparatory conduct without effect. Lastly, contractual clauses should be assessed with measured nuance. Clauses that are necessary for pre-transactional due diligence, integration planning post-signing, and assessing the feasibility of a transaction must be distinguished from clauses that grant strategic influence to the acquirer such as pricing information, marketing strategy, and terms of consumer contracts. Together, such reforms could mend the gaps in the current Indian gun-jumping regime and bring it at par with established international best practices.
Conclusion
In its current form, India’s gun-jumping enforcement regime is plagued by statutory silence, judicial subjectivity and regulatory ambiguity. Owing to the lack of a clear legal definition and actionable guidance, businesses find themselves treading on eggshells, where any preparatory act risks regulatory scrutiny and penalties. While the CCI’s concerns regarding preservation of competition dynamics are legitimate, a lack of clarity in what constitutes “coming into effect” increases compliance costs by eroding regulatory predictability. In order to balance competition law objectives with commercial realities, India must move towards a structured and principle-based approach, drawing inspiration from the EU, Brazil and the CCI’s own Competition Compliance Manual. Defining and distinguishing gun-jumping conduct through legislative reforms is not a mere procedural formality; it is a much-needed step towards a credible merger-control regime.
– Rashi Kumari & Ananyashree Jaiswal