When Rescue Becomes Regulatory Trap: The Case for Distress Carve-Out in India's Merger Control Regime

[Garvit is a student at National Law University, Nagpur.]

Manipal Health Systems Private Limited (MHSPL) converted its debenture holdings in Aakash Educational Services Limited (AESL) into a 39.61% equity stake during January 2024. The acquisition did not serve any strategic purpose. Byju's, which owns AESL, had violated the debenture trust deed multiple times, and this led to the automatic enforcement of the conversion clause. The matter presented MHSPL with no options to pursue. AESL employed over ten thousand people and educated roughly four lakh students. The organisation required conversion, that is allotment of equity shares to stablise AESL’s capital structure, as its sole method to prevent total collapse.

The Competition Commission of India’s (CCI's) order of 31 July 2025 imposed a penalty of INR 20 lakhs on MHSPL under Section 43A of the Competition Act 2002 (Competition Act). The CCI acknowledged every mitigating factor, which included two elements that showed no harmful competition effects and three elements that showed complete company cooperation. None of it mattered legally. The Supreme Court had settled in CCI v. Thomas Cook (India) Limited (Thomas Cook), that Section 43A of the Competition Act liability arises from breach of the statutory obligation itself, regardless of intent or circumstance. The penalty was unavoidable.

The value of INR 20 lakh carries no substantial commercial importance because it deals with financial matters that display no significant worth. The order shows two essential aspects because it shows how the Competition Amendment Act 2023 (2023 Amendment) will treat creditors who enforce payment defaults the same way it treats companies that acquire their rivals. The two parties involved must follow the same standstill obligation while they both face gun-jumping liability and a 150-day review timeline. This piece argues that conflation is doctrinally indefensible and that the 2023 Act's own internal logic points directly to the fix.

Merger Control Designed for Voluntary Transactions

The Competition Act establishes a  mandatory suspensory regime  through its Sections 5 and 6, which stops parties from executing merger notifications until they receive CCI approval or 150 days elapse from the date of notification. The standstill under Section 6(2A) of the Competition Act  presupposes a voluntary transaction, one in which the parties have agreed to to enter into a contract, with a designates closing date, and must await regulatory clearance before consummation. 

Default-triggered debenture conversions operate with different characteristics from those elements. The conversion process begins at the moment of default when the debenture trustee takes action. There is no negotiated closing date, no commercial rationale for deferral and no willing counterparty, the conversion is a counterfactual enforcement mechanism, not a consensual transaction. The target defaulted; the contractual mechanism ran. The five gun-jumping decisions issued by the CCI in CY 2025 show that this is not a theoretical concern. These decisions contain structured finance cases which use external events to trigger combinations instead of making commercial decisions. The CCI has been generous with mitigating factors in each case, but that generosity offers no advance certainty to a creditor drafting a convertible note today about what they can legally do when their borrower defaults tomorrow.

The incentive distortion this creates is difficult to justify. The creditor who converts their  debenture holdings in a defaulting borrower into equity faces gun-jumping liability under the current regime regardless of urgency or involuntary nature of the transaction. Conversely, the creditor who postpones conversion, allowing the  target company to deteriorate further until it enters formal insolvency under the Insolvency and Bankruptcy Code 2016 (IBC) does not bear gun-jumping liability, because IBC process provides its own framework for the CCI review of resolution plans. The standstill obligation exists to maintain competitive balance between the parties who are conducting business transactions. A secured creditor who uses a debenture to enforce payment from a defaulting borrower establishes no competitive connection with that borrower. The rationale for the standstill simply does not apply here.

Section 6A and Unfinished Logic of 2023 Amendment

The strongest argument for a distress carve-out does not come from EU competition law. It comes from within the 2023 Amendment itself.

Section 6A of the Competition Act (Section 6A) permits an acquirer to complete an open offer under the Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations 2011 or buy shares through open market purchases on a stock exchange before CCI approval. The mechanism works through two main elements, which include post-facto notification requirements and control rights suspension until CCI approval is obtained for the purchased shares. The legislative rationale was that open market acquisitions are conditioned on price and timing, cannot be suspended without market disruption, and carry low competitive risk from any delay in exercising control rights.

Several elements of rationale also apply, though not identically, to events that occur when defaults trigger automatic conversion of assets. The analogy is partial rather than perfect, but the structural parallels are sufficient to warrant equivalent legislative treatment. The acquisition trigger operates as an external event that happens independently of the decision-making process during closing. Indeed, the involuntariness of a default-triggered conversion is arguably stronger than that of an open market purchase, where the acquirer still actively decides to buy at a particular price and time. Suspending the conversion pending CCI review risks the same type of value destruction that motivated the Section 6A derogation, though here the harm is to the target's operational viability rather than to market price integrity. The competitive risk from a control rights standstill may be comparable to, or even lower than, the risk in open market transactions, particularly in zero-overlap cases like MHSPL. 

However, the risk profiles differ in one important respect: open market purchases occur on regulated stock exchanges with SEBI oversight and price transparency, whereas distress conversions are private bilateral events without equivalent external safeguards. The system requires complete operation because its shutdown will lead to complete loss of business value. The competitive risk that comes from delays in control rights will match the risks that exist during public market transactions. In both scenarios, the acquisition decision was made when the investor originally entered into the financing arrangement. The post-default period that follows the default events operates in a similar way to market-acquisitions of markets because both of these processes are dependent on pre-existing entitlement rather than a fresh commercial decision made at the point of closing. The nature of the entitlement differs—an open market acquirer holds a standing investment thesis, while a converting creditor holds a contractual enforcement right—but in neither case is the acquirer making a new competitive entry decision at the moment of acquisition. It is this shared feature, not a claim of identity between the two transaction types, that justifies analogous treatment.

If the legislature has used that structural feature as justification for Section 6A to allow open market purchases to receive an exception, denying the same exemption to distress conversions is not a principled distinction. It represents an unintentional or accidental gap in the system. 

The distress conversion scenario had therefore gone unaddressed. MHSPL is the first case to put it squarely on record. The current legislative requirements should develop specific solutions instead of needing to redesign all elements of merger control systems.

Suggestion: Proposed Section 6B

There should be a new Section 6B modelled on Section 6A, establishing a 30-day notification period post-acquisition applying to acquisitions that have resulted from the mandatory enforcement of a pre-existing contractual conversion right, to be activated by a documented instrument default that occurred before the merger reached the notification threshold. This last condition would act as a safeguard to prevent any acquirer from creating a convertible instrument that they will use to  prevent strategic exploitation of  the carve-out. .

The procedural mechanics shall mirror Section 6A directly. Liability under Section 43A is suspended between the period of conversion and notification if the acquirer notifies within 30 days. The acquirer needs to demonstrate three elements, which include the text of the conversion clause and the default event, that no control rights, operational influence or management rights were exercised before the CCI-approval and that the competitive market structure was not altered In scenarios of MHSPL-type cases where the acquirer and target operate in entirely different industries, that last condition is satisfied without any meaningful analysis.

The entire review procedure runs on the same fundamental characteristics. The CCI maintains complete authority to evaluate appreciable adverse effect on competition assessments while determining which conditions to implement. The window period between contractual obligations and the 30-day notification period now operates under new rules, which modify all existing procedural tasks. The CCI's green channel automatic approval system should apply to zero-overlap cases that need CCI approval for their combination. The CCI requires no additional time to reach its decision, which provides immediate assurance to a creditor-acquirer who possesses no market overlap. The current regulatory framework enables this situation to occur.

Conclusion

The existing legal status of MHSPL represents its accurate legal status. The CCI followed the Supreme Court decisions from Thomas Cook and SCM Solifert Limited v. Competition Commission of India, which established its binding legal framework. The problem exists as a matter of legislation rather than through judicial processes.

The 2023 Amendment established a temporary exemption for open market purchases until its implementation was completed. Default-triggered debenture conversions function similarly to open market purchases because both methods satisfy all requirements that allow their Section 6A exemptions through their external activation points, time-dependent nature and execution of previous decisions. The two elements should receive equal treatment because they share the same characteristics; still, the current system creates unfair outcomes that punish creditors who try to keep their businesses running, while the system provides no market-based reasons for its decisions.

Therefore,a special Section 6B with narrow eligibility conditions such as a 30-day post-facto notification window, a standstill on control rights pending review and providing green channel routing for zero-overlap cases would close this gap at a minimal regulatory cost. Occurrences like that of MHSPL would only increase with the growth  of India’s structured credit market. Solely relying on the CCI’s discretion on a case-by-case basis to produce fair outcomes cannot be a substitute for a provision that informs the creditors well in advance about what the law actually requires of them.