Background

On 14 January 2025, the Competition Commission of India (“CCI”) imposed a penalty of INR 40 lakhs on Goldman Sachs (India) Alternative Investment Management Private Limited (“GS AIMPL”), the investment manager of Goldman Sachs AIF Scheme-1 (“GS AIF”) (collectively, “Goldman Sachs”), for its failure to notify the subscription to optionally convertible debentures (“OCDs”) issued by Biocon Biologics Limited (“Biocon”). The subscription was completed on 9 December 2020, at which time, the OCDs (on a fully diluted basis) amounted to 3.81% of Biocon’s shareholding. The CCI held that the transaction could not benefit from the exemption for minority share acquisitions. as the subscription conferred certain strategic rights on Goldman Sachs that went beyond those of an ordinary shareholder, requiring prior merger clearance from the CCI.

Rights acquired by Goldman Sachs included rights on reserved matters, information rights, and access related rights. The reserved matter rights required Goldman Sachs’ prior written consent for specific strategic decisions. The information rights granted Goldman Sachs access to certified true copies of board/committee/shareholder meeting minutes (“Minutes Rights”) and capitalization tables, among other financial details. The access related rights allowed Goldman Sachs to visit Biocon’s premises and interact with its personnel during business hours with prior notice (“Access Rights”).

Arguments by Goldman Sachs 

Goldman Sachs argued that its subscription and acquisition of rights in Biocon was exempt from the requirement to notify the transaction to the CCI. It was claimed that the investment was purely financial in nature without any strategic acquisition of control over Biocon. The acquired rights were standard investor protection rights, similar to those held by other investors, and did not confer material influence. Goldman Sachs also emphasized that requiring notification for such investments would contradict the decisional practice of the CCI and impose undue burdens on investors. It also highlighted that while access to certain commercially sensitive information (“CSI”) is required to monitor the use of funds being invested, there are strict confidentiality safeguards in place to prevent any information exchange between Biocon and Goldman Sachs’ other portfolio companies. Lastly, it was also contended that the transaction was undertaken in the ordinary course of business, aligning with its typical investment activities in India. 

Findings by the CCI 

The CCI rejected Goldman Sachs’ contentions to conclude that the transaction did not benefit from the exemption for minority share acquisitions and it should have been notified to the CCI for prior approval. Key observations of the CCI are as follows:

(a) Transaction was not undertaken solely as a financial investment: The Minutes Right and Access Right went beyond those available to ordinary shareholders and granted Goldman Sachs access to CSI of Biocon. This indicated that the transaction was not a mere financial investment but had strategic implications.

(b) Acquired rights conferred strategic influence: The CCI observed that Goldman Sachs’ claim that similar rights were available to other investors did not change the fact that the nature of the rights themselves conferred a level of influence over Biocon. The CCI clarified that the assessment of rights is based on their substance / nature rather than their availability among a class of investors.

(c) Minority protection rights are not automatically exempt: The CCI held that minority / investor protection rights can impact the assessment of control. The benefit of the exemption for minority share acquisitions cannot be presumed merely because a transaction involves less than 10% shareholding. Rather, the specific rights conferred must be assessed in detail.

(d) Confidentiality safeguards are irrelevant to determine reportability: The CCI held that confidentiality safeguards are irrelevant to the question of whether the transaction required prior notification, and that notifiability must be assessed objectively. The key concern was that Minutes Right and Access Right acquired by Goldman Sachs went beyond ordinary shareholder rights and provided access to CSI. The CCI held that these rights indicated a strategic nature of the transaction, making it notifiable under competition law, regardless of confidentiality protections.

(e) Transaction was not undertaken in the ordinary course of business: The CCI observed that Goldman Sachs’ investment was long-term in nature, involving conversion rights and additional investor privileges. The holding period of six years, ability to convert OCDs into equity shares at any point, and the rights granted under the shareholders agreement demonstrated that the transaction was not merely for short-term financial gains. Therefore, it did not meet the criteria for being in the ordinary course of business. 

Key takeaways 

The decision of the CCI is in line with its long-standing and ever-increasing scrutiny of minority investments, particularly involving investor protection rights. The key takeaways for businesses while planning future M&A activity are as follows:

a. For minority share acquisitions, investors must carefully assess whether the rights they intend to acquire go beyond the nature of a passive financial investment. Even non-voting rights (such as board minutes access) can disqualify the benefit of an exemption and trigger a merger notification.

b. Rights acquired cannot be considered “ordinary” merely because they are granted to a specific class of shareholders or investors. The nature and substance of the rights, rather than their availability to multiple investors, will determine whether an acquisition requires notification. If such rights grant material influence over the target or provide access to CSI, it is unlikely that the exemption for minority share acquisitions will apply.

c. Confidentiality safeguards (whether under law or in transaction documents) are irrelevant to the question of whether the transaction requires merger clearance from the CCI.

d. The exemption for “ordinary course of business” is interpreted narrowly by the CCI. Long-term financial holdings and conversion rights are likely to indicate strategic intent rather than a purely financial investment.

Related Link(s): The order of the CCI can be accessed here (https://www.cci.gov.in/combination/order/details/order/1518/0/orders-section43a_44).

Authors – Sonam Mathur – Partner; Dhruv Dikshit – Managing Associate and Devika Dhawan –  Associate

Disclaimer: This article only highlights key issues and is not intended to be comprehensive. The contents of this article do not constitute any opinion or determination on, or certification in respect of, the application of Indian law by Talwar Thakore & Associates (“TT&A”). No part of this alert should be considered an advertisement or solicitation of TT&A’s professional services. This communication is confidential and may be privileged or otherwise protected by work product immunity.