Gun-Jumping Penalties in Green Channel Filings: A Critical Analysis

[Yaatri is a student at Institute of Law, Nirma University.]

The Competition Act 2002 (Act) necessitates that all combinations meeting the prescribed thresholds must notify the transaction and obtain approval from the Competition Commission of India (CCI). The CCI is responsible for conducting an ex-ante competitive assessment of the combination prior to its implementation. Herein, the CCI firstly examines whether the combining parties have any horizontal, vertical or complementary overlaps, and if there is any likelihood of anti-competitive conduct taking place post the combination takes effect. However, a significant drawback of this process is that it is very time-consuming, which can impede the parties' ability to promptly commence business operations. For instance, the CCI is statutorily allowed to take a maximum of 150 days to approve a combination. To remedy the same, the CCI in 2019 introduced the green channel route. 

The green channel route facilitates fast-track approvals for combinations where there are no overlapping markets. Under this route, the parties are required to furnish the notice along with a green channel declaration as per Section 6(2) of the Act, read with Regulation 5A of the CCI (Procedure in regard to the Transaction of Business relating to Combinations Regulations 2011. Here, the CCI does not undertake any competitive assessment and approves the combination under Section 6(5) of the Act on the same date the notice is filed and acknowledged. However, many a times the parties fail to disclose certain overlapping markets and file the notice in accordance with Section 6(2) of the Act or consummate the transaction before securing the approval. This significantly compromises the credibility of the deemed approval so granted, prompting the CCI to impose gun-jumping penalties.

Gun-jumping under Section 43A of the Act occurs when an enterprise either fails to notify the transaction before the CCI, or when it disregards the standstill obligation and commences the business operations before securing CCI's approval. Accordingly, the CCI has the power to impose penalties, declare the notice and approval to be void ab initio and direct the parties to refile. Against this background, the article examines the imposition of gun-jumping penalties by the CCI on combinations approved via the green channel route. 

The IBEF/VVDN Combination

In August 2024, the CCI imposed a penalty of INR 10,00,000 on India Business Excellence Fund-IV (IBEF) for incorrectly opting for the green channel route as it failed to disclose that it had a vertical relationship with VVDN Technologies (VVDN). Here, the parties entered into an acquisition of 8.12% to 10.57% shareholding in the target, and the combination was deemed approved. However, it was later on found that certain overlaps existed between the parties regarding the provision of printed circuit board (PCB) assembly services. 

The acquirers argued that the supply arrangement in question was insignificant and arose solely due to constraints posed by the pandemic. They contended that the supply was conducted on an ad hoc basis and was neither a primary activity nor a core business operation nor a strategic input. Additionally, they clarified that the PCB supply was fully executed and entirely concluded. Lastly, they emphasized that the market share attributable to the supply was between 0–5%, and the turnover constituted less than 1% of VVDN’s total turnover. 

The CCI analysed the commercial nature and significance of the service provided, and clarified that it is irrelevant whether the supply constitutes a primary activity. Instead, the entity’s capability to provide the service and evidence of its actual supply are more pertinent considerations. The CCI observed that the arguments advanced by the parties required a detailed assessment, rendering the green channel route an unsuitable filing mechanism. Consequently, the CCI declared the notice and approval void ab initio and directed the parties to submit a fresh notice.

Previous Cases of Gun Jumping Violations in Green Channel Route

Similar allegations of gun-jumping in combinations filed through the green channel route have been brought before the CCI on 2 notable occasions, in August 2023 and in September 2022. First, in August 2023, the CCI imposed a penalty of INR 55,00,000 on Platinum Jasmine A 2018 Trust and TPG Upswing Ltd. The CCI penalised the parties for submitting false and incorrect statements in their green channel notice and for indulging in gun-jumping, in contravention of Section 44 and Section 43A of the Act, respectively. It was found that the business activities of the UPL SAS and SWAL Corporation Limited and Arysta LifeScience India Limited (Arysta) exhibited overlaps in the market of manufacturing and distribution, and marketing and sale of formulated crop protection products (FCPP) to third parties in India, as well as sale by Arysta to the target. 

The acquirers argued that the overlapping entities were a part of the same brand or entity and, therefore there was no need to map overlaps. They also contended that the FCPPs sold constituted intra-group sales, and thus did not alter the competitive landscape of the FCCP market. Moreover, they argued Arysta's negligible market share indicated the FCCP sale was not a primary business activity, but a result of regulatory needs or surplus capacity. Moreover, the sales and revenue being generated was also steadily declining, and Arysta was in the process of discontinuing sale of FCCP to third parties.

The CCI observed that the green channel route does not envisage a detailed assessment, unlike other transactions involving overlaps or acquisition of control. Consequently, the notice and approval were declared void ab initio and a penalty was imposed. However, the CCI approved the transaction in the current order. 

Second, in September 2022, the CCI imposed a INR 20,00,000 penalty on Trian Partners AM Holdco, Ltd. (Trian Holdco) and Trian Fund Management, LP, under Section 43A of the Act. The transaction involved an acquisition of shareholding amounting to 9.9% in Invesco Limited (Invesco). Here, it was found that the combination was consummated before CCI’s approval due to the appointment of Trian’s Holdco’s Founding Partners to the Board of Invesco. The acquirers argued that they were exempt from notification as the acquisition and the appointment of Board members were made solely for investment purposes and in the ordinary course of business.

However, the CCI observed that Trian Holdco negotiated for the Board seats on the same date it closed the transaction. Thus, it was inferred that Trian Holdco intended to participate in the affairs and management of Invesco, and accordingly the transaction was a condition precedent to the appointment of Board members. Hence, the CCI held that the acquirers consummated the combination prior to securing the approval and accordingly imposed a penalty. However, the CCI made no additional remarks regarding refiling, nor did it declare the notice or approval void ab initio.

Analysis of the CCI’s Opinion

CCI’s differing opinion

It can be observed that there are several similarities in the facts stated and arguments advanced by the parties, such as: (i) non-disclosure of overlapping activities; (ii) provision of overlapping activities not by choice; (iii) insignificant supply arrangements; (iv) diminishing market share and revenue; (v) cessation of activities post combination, etc. Notwithstanding these similarities, the CCI’s analysis has demonstrated variance across these cases. For instance, in the IBEF/VVDN combination, the CCI examined whether the overlapping activity constituted an important input to determine the existence of a complementary or vertical relationship. However, no such analysis was undertaken in remaining cases. Further, the CCI chose not to impose any penalty on IBEF under Section 44 of the Act, despite having imposed such penalties in the other cases. Lastly, the penalties imposed in all 3 cases varied significantly: INR 10,00,000 in IBEF/VVDN, INR 55,00,000 in Platinum Jasmine Trust/UPL SAS, and INR 20,00,000 in Trian Holdco/Invesco, without the provision of any significant reasoning for the difference. 

Implications of refiling 

Generally, the CCI approves transactions without prejudice to proceedings under Section 43A of the Act. However, in the Amazon NV Investment Holdings LLC/Future Retail combination, the CCI suspended the approval and directed the parties to file a fresh notice. While transactions filed through the ordinary route have occasionally faced similar outcomes, the CCI’s decisions in the Platinum Jasmine Trust/UPL SAS, and Trian Holdco/Invesco, did not impose any re-filing requirement unlike the IBEF/VVDN combination. Furthermore, while the CCI conducted a revised assessment in the Platinum Jasmine Trust/UPL SAS combination and approved the transaction, no such reassessment was undertaken in the other cases. It is relevant to note that even if the parties were directed to refile after the transaction has been closed, and that the CCI were to re-assess the combination, the resultant treatment would mirror situations where the CCI reviews mergers within a year of their approval. Lastly, the mandate of refiling also casts a duty on the investors combining parties to disclose all existing and potential overlap, and let the CCI assess any potential conflict of interests.

Conclusion

In conclusion, while the CCI maintains rigorous enforcement against gun-jumping violations, its approach in each case exhibits several variations. Since the green channel route will now gain more traction owing to the recent amendments under the Competition (Criteria of Combination) Rules 2024, a more predictable framework is essential to ensure clarity for the parties regarding eligibility. Thus, it is imperative for the CCI to streamline its process and come up with a more definitive guidance so as to prevent the parties from misusing the benefits provided by the green channel route.