Merger enforcement is on a high with the Commission pursuing gun jumping inquiries into multiple transactions (many of them, minority acquisitions). However, the penalties for a failure to notify have seen a decreasing trend.
The Commission has dealt with close to 40 gun jumping cases so far. Gun jumping refers to instances where parties implement a transaction without notifying it or take certain premature actions.
While the penalty for gun jumping could go up to 1% of the higher of the total turnover or the value of the total assets of the combination, in practice, the CCI has imposed nominal penalties ranging from Rs 0.1 – 50 million.
The violations that have attracted these penalties included the following acts and omissions pending CCI approval:
(a) extending corporate guarantee to a bank in connection with its loan to the target;
(b) requiring transfer of IP rights in favour of the proposed acquirer;
(c) advance payment of the whole or part of the consideration;
(d) holding acquired shares in an escrow account;
(e) advancement of loan to the target company; and
(f) contractual overreach of standstill obligations.
The Commission has so far ignored submissions for reasonable rules of derogation that would allow some acts such as the payment of advance consideration to distressed targets, or the acquisition of shares in public companies pending CCI approval (with the condition that voting rights are not exercisable till such time as the final approval is received).
With the 30-calendar day timeline for submitting the merger filing being suspended, the CCI’s recent enforcement focus has also included incomplete and/or incorrect information provided in merger filings.
Recently, the CCI penalised a large cement company for omitting to provide correct and complete information in respect of its shareholders/ status of control, and a pension fund for failing to disclose material facts about arguably a connected transaction.
The penalty imposed in these cases was Rs 50 lakh, much higher than recent penalties for a failure to notify transactions.