Competition Commission of India (CCI) has imposed a penalty of ₹10 lakhs on Cummins Inc for its move to consummate a combination deal with Meritor Inc without giving notice to the competition watchdog and for not having observed the Standstill obligations under Competition law.

The Cummins-Meritor Combination comprised the acquisition of sole control of Meritor by Cummins by way of a reverse triangular merger, where Rose NewCo Inc, a company newly incorporated by Cummins, merged with and into Meritor, and Meritor survived as a directly wholly owned subsidiary of Cummins. 

Cummins has been asked to pay the penalty within 60 days from the date of receipt of the CCI’s order.

Gun jumping essentially means acting before the appropriate time. It refers to situations where a party or parties to a combination consummate a transaction wholly or partly before CCI approves the transaction, thereby violating standstill obligations.

The Merger control regime in India is ex-ante. All combinations above a certain financial threshold are required to be notified to CCI,  and the combination cannot be consummated until approved by the Commission. Section 6(2) of the Act obligates the parties to give notice to CCI disclosing the details of the proposed combination. 

CCI found that the Cummins-Meritor Combination was consummated on August 3 last year, much ahead of November 2, 2023 when the Notice of the transaction was given to CCI.  

This was considered a legal infringement as a notice in Section 6(2) of the Competition Act was required to be given by Cummins Inc before consummation of the Combination (in this case Cummins-Meritor Combination).

Also, the parties to the transaction were required to observe a standstill obligation for 210 days from the date of giving notice to the Commission or date of approval by the Commission, whichever is earlier. 

With legal infringements on both counts— transaction getting consummated without giving Notice to CCI and both parties to the deal not adhering to the 210 days standstill, the CCI issued show cause notice to Cummins on why penalty should not be levied on this count.

Cummins is a global supplier that designs, manufactures, distributes and services diesel, natural gas, electric and hybrid powertrains and powertrain-related components.

Meritor is a global supplier of axles, brakes, and other modules and components to original equipment manufacturers and the aftermarket for the commercial vehicle, transportation and industrial sectors. Its principal products are axles, drivelines, brakes, and suspension systems.

In its response to the SCN and during the oral hearing allowed on July 25, Cummins had primarily argued that failure to notify the transaction to CCI was a result of a bona fide error by Meritor in computing its turnover in India, and upon knowing about the error, Cummins notified the transaction to the Commission.

CCI has, in its order, highlighted that Section 43A of the Competition Act makes it abundantly clear that it’s provisions get attracted if there is a failure to give notice to the Commission by the parties under Section 6(2) of the Act, irrespective of whether it was inadvertent or intentional.

“The argument about error is not relevant for determining whether section 43A of the Competition Act gets attracted to a case or not. Cummins does not get absolved from the duty cast upon it by the Act, merely on the ground of an error in assessing the applicability of the de minimis exemption”, said the CCI order.

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