Debt-To-Equity Conversion Without Prior Approval Draws Gun-Jumping Penalty From The Competition Commission Of India

On 31 July 2025 (published December 2025), the Competition Commission of India (CCI) imposed a penalty of INR 20 lakhs on Manipal Health Systems Pvt. Ltd. (MHSPL) under Section 43A of the Competition Act for completing the acquisition of 39.61% equity in Aakash Educational Services Ltd (AESL) before notifying and obtaining approval. The case arose from a combination notice filed on 9 May 2024 by MHSPL together with MEMG Family Office LLP (MEMG FO).

AESL had issued debentures which were convertible into equity upon an event of default. MHSPL had acquired and was holding these debentures. Following repeated defaults and AESL’s financial distress, the debt-to-equity conversion occured in January 2024, resulting in MHSPL acquiring a 39.61% stake in AESL (Transaction 1). In parallel, MEMG FO proposed to acquire up to 8.25% of AESL under a separate loan arrangement (Transaction 2). It was this proposed acquisition that prompted the CCI filing in May 2024, during which the parties disclosed that MHSPL’s 39.61% acquisition had already been completed in January 2024. Based on these facts, the CCI issued a show-cause notice for gun-jumping, alleging breach of the pre-notification and standstill obligations under Sections 6(2) and 6(2A) of the Competition Act.

In response to the show-cause notice, MHSPL argued that the conversion was triggered by repeated events of default by AESL from 26 June 2023 and its severe financial distress, including insolvency risks faced by its shareholder, Think & Learn Pvt. Ltd. (Byjus). It submitted that the transaction was necessary to preserve AESL as a going concern and to protect the interests of nearly 4 lakh students and 10,000 employees. MHSPL further contended that it acquired no special rights, caused no appreciable adverse effect on competition (AAEC), and acted in good faith through pre-filing consultations and cooperation with the CCI. MEMG FO separately maintained that it was not involved in Transaction 1 and that Transaction 2 had been duly notified.

The CCI rejected these defences and reiterated that India’s merger control regime is mandatory and suspensory. Any transaction crossing the thresholds under Section 5 of the Competition Act must be notified and cannot be implemented, in whole or in part, prior to approval, irrespective of competitive effects. Since Transaction 1 had been consummated before notification and was not exempt, it violated Sections 6(2) and 6(2A), while Transaction 2 did not attract liability. The CCI relied on the Supreme Court’s judgment in CCI v. Thomas Cook (India) Limited, where it was held that liability under the Competition Act arises from the breach of the statutory obligation itself- regardless of intent. While Section 43A permits penalties of up to 1% of turnover or assets of the parties involved, the CCI considered mitigating factors such as financial urgency, stakeholder protection, and cooperation with the CCI and imposed a nominal fine of INR 20 lakhs on MHSPL.

Business Takeaway: Convertible and hybrid instruments (such as compulsorily convertible debentures, optionally convertible debentures, warrants and loan-to-equity rights) are treated as merger-control relevant acquisitions where they confer equity, voting rights or strategic influence. With the introduction of the Deal Value Threshold (INR 2,000 crore) in 2024, deal teams must assess not only eventual shareholding but also the value of embedded conversion rights. Standstill obligations under merger control norms applies strictly: conversion or allotment cannot occur before CCI approval, even in rescue or financially distressed transactions.