CCI’s order against Goldman Sachs (India) Alternative Investment Management Private Limited under Section 43A of the Competition Act, 2002 – An Analysis

Goldman Sachs AIF Scheme-1 (GS AIF), a scheme of Goldman Sachs India Alternative Investment Trust[1], invested in Biocon Biologics Limited (Biocon) by subscribing to optionally convertible debentures (OCDs) issued by Biocon (“Transaction”). For this investment, GS AIF and Biocon entered into a Securities Subscription Agreement and a Shareholders Agreement (SHA) on November 7, 2020 and the transaction closed on December 9, 2020 resulting in  GS AIF acquiring  a 3.81% stake in Biocon on a fully diluted basis.

The SHA gave GS AIF rights over certain reserved matters (Reserved Matter Rights), certain information rights (Information Rights) and access rights (Access Rights). The Information Rights also allowed GS AIF access to the minutes of  board/committee/shareholder meetings (Minutes Right), information relating to any direct change in certain  shareholdings, access to the latest capitalization table of Biocon, etc. The Access Rights allowed GS AIF to access the premises and personnel of Biocon during  normal business hours, upon providing a reasonable prior written notice.

GS AIF did not notify the CCI of its investment in Biocon under Section 6(2) of the Competition Act, 2002 (“Act”) on the understanding that the transaction benefited from the exemption provided under Item 1, Schedule 1 (Item 1 Exemption) of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulation, 2011 (Combination Regulations 2011). Subsequently, the CCI issued a notice to GS AIF under Section 36(4) of the Act to furnish information and documents relating to the Transaction in order to assess whether further proceeding is required under Section 20(1) and/or Section 43A of the Act.

Was the Transaction covered under the Item 1 Exemption ?

Should the Transaction have been notified to the Competition Commission of India (“CCI”) in terms of Section 6(2) of the Act?

The Exemption under Item 1 Provision:

The Item 1 Exemption, as it stood then[2], provided an exemption for minority acquisitions, if all the following conditions were met:

• Condition 1: The acquisition did not entitle the acquirer to hold 25% or more of the total shares (on a fully diluted basis) or voting rights of the target enterprise, whether directly or indirectly (Shareholding Condition); and
• Condition 2: The acquisition does not lead to an acquisition of control (including negative or joint control), voting arrangements, de facto control, or otherwise (Control Condition); and
• Condition 3: The acquisition is solely as an investment (SIP Condition) or in the ordinary course of business of the acquirer (OCB Condition). being acquired, directly or indirectly or in accordance with the execution of any document including a share holders’ agreement or articles of association, not leading to acquisition of control of the enterprise whose shares or voting rights are being acquired.

The CCI took the prima facie view that:

• the Minutes Right is a right which is not available to an ordinary shareholder noting that such a right could enable the provision of confidential and commercially sensitive information and strategic information of Biocon to GS AIF.
• other rights viz., the Access Rights and Reserved Matter Rights appear to indicate that the Transaction was strategic in nature and not in the ordinary course of business or made solely as an investment.

The CCI took the prima facie view that the Transaction may not be covered under the Item 1 Exemption and that it ought to have been notified in terms of Section 6(2) of the Act. The CCI directed GS AIF to show cause as to why penalty should not be imposed upon it, in terms of Section 43A of the Act, for failure to file notice under Section 6(2) of the Act

After hearing GS AIF at length, the CCI issued a detailed order dated January 14, 2025  holding that the Transaction:

• satisfied the Shareholding Condition and Control Condition; but
• did not satisfy the SIP Condition or the OCB Condition

The CCI reiterated its earlier comments regarding the Minutes Right, the Access Rights and Reserved Matter Rights (which are mentioned above).

During the course of the proceedings, GS AIF and GS AIMPL  had offered to give up and not exercise the Minutes Right and Access Right under the SHA if the case could be closed without penalty. However, the CCI does not seem to have accepted the offer.

The CCI took into account the fact that GS AIF acquired the OCDs in 2020 which had a final maturity date of January 9, 2026 which, according to the CCI, implies a significant holding period. In the CCI’s view, the length of this maturity period coupled with the other rights such as Reserved Matter Rights, Information Rights, etc. point to the fact that the Transaction has not been made with an intent of benefiting from short term price movements.

According to the CCI, the “frequent, routine and usual” test for the OCB transactions is not limited to the execution of transactions but also weighs the intended span or time period of investment and the agreed role as an investor. OCB transactions, according to the CCI, are transactions where the intended/actual span of investment is short, and the role of an investor is limited to that of an ordinary shareholder and the investor has no rights at all apart from beneficial rights attached to shares and  voting rights.

GS AIF argued that the Rights Condition needs to be applied in the context of existing rights that are vested on investors in the relevant enterprise i.e., the target under consideration, and that the Rights Condition cannot be equated with rights available to ordinary shareholders in a listed company. The CCI rejected this argument on the ground that it potentially implies that if any enterprise grants control conferring rights/strategic rights to a class or classes of investors, the same should be considered as ‘ordinary rights’ not considering the nature of rights but only because these rights have been granted to all investors or a subset of investors.

Further, the CCI stated that the form of GS AIF’s organization (of being an AIF) could have no bearing on its obligation to report the Transaction. The regulatory framework is agnostic to the form of an organization and therefore the same is applicable to all enterprises in equal measure

The CCI imposed a “gun jumping” penalty of INR 40,00,000 (Rupees Forty Lakhs Only) on GS AIF and its investment manager Goldman Sachs (India) Alternative Investment Management Private Limited (“GS AIMPL”).

Pursuant to the Competition (Amendment) Act, 2023, the Competition (Criteria for Exemption of Combinations) Rules, 2024 came into effect on September 10, 2024 (Exemption Rules 2024). The Exemption Rules 2024 essentially bring together the exemptions that were provided under Schedule 1 of  Combination Regulations 2011 and variations in the CCI’s interpretation and decisional practice between 2011 and 2024. The Item 1 Exemption has now been built into Items 2 and 3 of the Exemption Rules 2024.

Explanation (b) to Rule 2 of the Exemption Rules 2024 states that the acquisition of shares or voting rights of an enterprise shall be treated as solely as an investment where pursuant to the said acquisition, the acquirer does not gain a right or ability to access commercially sensitive information of any enterprise. Further, Rules 2 and 3 of the Exemption Rules, 2024 are predicated on the acquisition not resulting in acquisition of control of such enterprise by the acquirer or its group, even if the 25% threshold is not crossed. Therefore, the issues that were raised and decided upon by the CCI in its order against GS AIF  and GS AIMPL  in the context of the Item 1 Exemption continue to be relevant.

The CCI’s order dated January 14, 2025 can be accessed from here

We hope you have found this information useful. For any queries/clarifications please write to us at insights@elp-in.com  or write to our authors:

Ravisekhar Nair, Partner – Email – ravisekharnair@elp-in.com
Vinod Joseph, Partner – Email – vinodjoseph@elp-in.com

[1] Goldman Sachs India Alternative Investment Trust is a Category II Alternative Investment Fund registered with the Securities and Exchange Board of India and managed by Goldman Sachs (India) Alternative Investment Management Private Limited.

[2] The Competition (Amendment) Act, 2023 introduced several significant changes to the Competition Act, 2002 in India. Pursuant to the same, Item 1, Schedule 1 of the Combination Regulations has now been built into Items 2 and 3 of the Competition (Criteria for Exemption of Combination) Rules, 2024.