IntroductionIndia follows a mandatory merger control regime under the Competition Act, 2002 (‘Competition Act’) with suspensory effect, i.e. transacting parties are required not to ‘give effect’ to any part of the notifiable transaction, during the period of review by the Competition Commission of India (‘CCI’) or else they run the risk of ‘gun jumping’ and likely penalties for the same.Parties to every notifiable transaction, which satisfies the statutory thresholds, must not take steps towards operationalization during CCI’s review period, barring a few statutory exceptions which do not require prior notification[1]. While most notifiable transactions are structured to account for such a period of review by CCI, the purchase of shares in a publicly listed company on a stock market is inherently bound to create gun-jumping risks because of the time-bound nature of such transactions. Short delivery and settlement periods of such publicly traded securities often make it unfeasible to secure CCI approval in advance of purchasing such shares. Further, the acquisition by a competitor of even a minority, non-controlling interest i.e. less than 25% of the equity share capital of the target, is not eligible for an exemption since they are considered ‘strategic’ in nature and are not exempt from notification or the ‘standstill’ requirement.Given the inherent (and systemic) difficulties in completing a public market acquisition transaction without tripping the CCI’s gun-jumping rules, this article examines whether and how parties can proceed with such transactions.Legal BackgroundCCI is empowered to impose significant penalties on parties for gun-jumping as a disincentive from consummating all or any part of a transaction before the completion of the merger review process.  Equally, CCI has the power to ‘unscramble the egg’ for up to one year after its completion and it can block the combination if it were to conclude that it would result in an appreciable adverse effect on competition (‘AAEC’).Takeover bids for listed companies, by competitors, are increasingly commonplace and occur in real-time when bulk/block trades become available on the market. When such trades do become available, a potential acquirer has to make a choice of whether to purchase the shares that have become available and risk penalties for gun-jumping, or apply for merger approval from CCI, which could take up to 30 business days and risk missing the window of opportunity. A further complication is that the notification by an acquirer to CCI prior to purchasing shares would be made public and likely result in the increase of the price of such shares. Simply put, CCI filing and approval process would make the acquisition of shares in a publicly traded target company challenging.Since it cannot be the objective of a market regulator to close all avenues for such public acquisitions, other competition regulators have developed mechanisms to facilitate acquisitions of minority ‘non-controlling’ shareholdings on the stock exchange without review even in transactions where the purchaser and the target were competitors[2]. CCI has not yet permitted any exemptions in this regard, and has precluded such acquisitions being made during the pendency of its review, even where the acquirer has surrendered its right to vote such stock by placing such shares in an ‘escrow’ and the Supreme Court (‘SC’) in the SCM case[3] has now upheld this position.Finding middle groundThe SC appears to have taken a somewhat simplistic approach to the issue of holding shares in escrow, pending CCI approval, by noting that transferring consideration for shares held in escrow is ‘gun-jumping’ since the Competition Act does not contemplate post facto notice, as this would defeat CCI’s opportunity to assess whether the proposed combination could cause any appreciable adverse effect on competition. However, if all acquisitions of publicly traded companies through market purchases are not to be entirely disallowed, then the regulator must find middle ground – between its mandate to review all notifiable combinations without having parties complete them, and accommodating the time-bound nature of open market acquisitions. If the central concern of the regulator is that by allowing purchasers to make such an acquisition, the suspensory effect of the CCI’s merger review is being lost and the acquisition is irreversible, then the guidance provided in the General Court and UK Competition Commission’s decision in Ryanair/Aer Lingus[4]may be a useful example of how accumulation of shareholding could be reversible in a transaction, should it subsequently fail to receive competition approval.However, if CCI considers the acquisition of such shares as untidy, if not impossible to unwind, then it may also consider introducing a mechanism which takes away from the beneficial owner the voting rights attached to such shares and places them in an escrow until such time CCI post-facto approves the transaction. Should CCI ultimately decide not to approve the combination, the escrow agent could be empowered to sell the shares in the open market. CCI already has a similar mechanism for divestitures supervised by a divestiture trustee, and a similar mechanism may be used in such an escrow mechanism. This could balance the need of the CCI to prevent the premature consummation of a public market transaction with the corresponding need to provide some mechanism which facilitates such deals.  

[1] Given to banks, public financial institutions, foreign institutional buyers, and venture capital funds who are acquiring shares pursuant to a loan agreement or investment agreement.[2] Case T-411/07, Aer Lingus Group plc/ Ryanair Holdings plc, decision of the General Court dated 6 July 2010; available here: http://curia.europa.eu/juris/celex.jsf?celex=62007TJ0411&lang1=en&type=TXT&ancre=[3] SCM Solifer Limited v. Competition Commission of India, Civil Appeal Nos. 10678 of 2016.[4] Supra note 2. Ryanair acquired shares in Aer Lingus on the stock exchange and in parallel launched a public bid. Ryan Air notified the bid, but, the EC asserted jurisdiction over the combined stake-plus-offer, treating these as a single concentration, and prohibiting that concentration. While the offer therefore fell away, the question remaining was as to the stake. Aer Lingus argued that that the shareholding in Aer Lingus acquired by Ryanair before or during the public bid represents a partial implementation of the concentration declared incompatible by the EC and had to be unwound. Both the EC and the General Court on appeal by Aer Lingus were of the view that the European Commission had the power to order a sell-down on the ‘control-conferring’ part of the acquisition (i.e., the public bid) which had not been implemented. Ryanair’s minority shareholding in Aer Lingus remained un-affected up until the UK Competition Commission’s decision requiring Ryanair to divest its stake in Aer Lingus to a mere 5%. The UK Competition Commission on completing its investigation found that by way of its minority non-controlling shares, Ryanair was in a position to influence Aer Lingus.