In a move towards ensuring investor protections, the Competition Commission of India (“CCI”) penalized Goldman Sachs (India) Alternative Investment Management Private Limited (“GS AIF”), the investment manager of Goldman Sachs AIF Scheme-1, INR 4,000,000/- (Indian Rupees Four million), in an order dated January 14, 2025 (“CCI Order”).
The case pertained to GS AIF’s investment in Biocon Biologics Limited (“Biocon”), via optionally convertible debentures (“OCDs”) and its failure to notify CCI before consummation of the said transaction.
Details of the Transaction
The transaction was executed through a securities subscription agreement and a shareholders’ agreement dated November 7, 2020 (“Transaction Documents”) and was consummated on December 9, 2020. Through this transaction, GS AIF subscribed to the OCDs of Biocon, which, upon conversion, would have constituted 3.81% per cent of Biocon’s total shareholding on a fully diluted basis.
As part of the Transaction Documents, the rights extended to GS AIF included:
- Reserved Matter Rights – Where decisions on the listed reserved matters required GS AIF’s prior written consent.
- Information Rights – Which entitled GS AIF to board/committee/shareholder meeting details and minutes.
- Inspection and Access Rights – Which enabled GS AIF to visit Biocon’s premises and interact with its personnel upon giving prior notice.
Regulatory Concerns
CCI noted that GS AIF did not notify the transaction before its consummation, a potential violation of Section 6(2) of the Act which mandates prior approval for combinations which may cause an appreciable adverse effect on competition within the relevant market in India.
CCI in its findings noted that the information and access rights extended to GS AIF under the Transaction Documents granted it access to confidential and commercially sensitive information, and concluded that the investment was strategic rather than purely financial, before directing GS AIF to explain why a penalty should not be imposed upon them.
GS AIF’s Arguments
GS AIF argued that its investment qualified for exemption under Item 1 of Schedule 1 of the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011 (“Combination Regulations”).
The Item 1 Provision exempts minority acquisitions if three conditions are met:
- Shareholding Condition – The acquirer holds less than 25% of the target’s total shares or voting rights.
- Control Condition – The acquirer does not obtain control (negative, joint, or de facto control).
- Solely as an Investment (SIP) or Ordinary Course of Business (OCB) Condition – The acquisition is purely an investment with no intent to participate in management.
Explanation to Item 1 Provision: If the acquirer holds less than 10%, it is deemed solely an investment if:
- The acquirer exercises only rights available to ordinary shareholders (Rights Condition).
- The acquirer does not have board membership/nomination rights (Board Condition).
- The acquirer does not participate in management (Participation Condition).
GS AIF claimed it met all three conditions since, its holding in Biocon was under 10%, it had no board seat or nomination rights, and it did not participate in Biocon’s management.
Further, GS AIF stated that it routinely invests in companies in India as part of its normal investment activities and that other investors in Biocon had similar rights, proving the rights were standard investor protections.
Lastly, GS AIF asserted that the Transaction Documents restricts the use of confidential information beyond investment purposes, and GS AIF had no investments in competitors of Biocon at the time of the transaction. Despite these measures, GS AIF also offered to give up certain access rights in order to ease CCI’s concerns.
CCI’s Findings and Penalty Imposed
CCI rejected GS AIF’s claim that the investment was purely passive because the information and access rights extended to GS AIF went beyond standard shareholder rights. It also held that the privileged access to strategic board discussions indicated a potential to influence Biocon’s operations, contradicting their argument that the transaction was solely a financial investment.
CCI also dismissed GS AIF’s confidentiality safeguards, stating that the key issue was notification of the transaction, and not confidentiality protections.
Accordingly, upon examination of all the facts of the matter, CCI ruled that GS AIF violated Section 6(2) of the Act by failing to notify the transaction before its consummation, and in its order under Section 43A, CCI imposed a penalty of INR 4 million on GS AIF, to be paid within 60 days.
The Commission also emphasized that this order does not grant confidentiality to any of the information used in the proceedings.
Conclusion
The CCI Order is an important example of the investors’ requirements to notify CCI if special rights are involved in a transaction, as even small stake purchases can trigger competition law scrutiny if they involve access to strategic information.
This case reaffirms CCI’s strict approach to investment transactions with special shareholder rights, ensuring that competition law compliance is prioritized over procedural shortcuts.
