The Competition Commission of India (CCI) recently imposed a penalty of Rs40 lakh on Goldman Sachs (India) Alternative Investment Management Private Limited (GS AIMPL) for failing to notify its investment in Biocon Biologics Limited under the Competition Act, 2002.
“The Commission is of the opinion that the Transaction was notifiable and by consummating the same without filing a notice under Section 6(2) of the Act, GS is liable to penalty under Section 43A of the Act. Section 43A of the Act provides that if any person or enterprise fails to give notice to the the Commission under Section 6(2) of the Act, the Commission shall impose on such person or enterprise a penalty which may extend to 1% of the total turnover or the assets, whichever is higher, of such a combination,” the order said.
The case pertains to Goldman Sachs’ investment in Biocon Biologics through optionally convertible debentures (OCDs) in November 2020. The investment, if converted, would have given Goldman Sachs a 3.81% stake in Biocon on a fully diluted basis. The transaction was executed under a Securities Subscription Agreement and a Shareholders Agreement (SHA), granting Goldman Sachs certain rights, including access to board meeting minutes and premises.
The CCI sent a show cause notice to Goldman Sachs observing that it was not informed of the transaction, as required under Section 6(2) of the Competition Act. The Commission initiated proceedings after determining that the rights granted to Goldman Sachs under the SHA were not typical of an ordinary shareholder and indicated a strategic investment rather than a passive one.
Goldman Sachs defended its investment in Biocon by asserting that the transaction was purely an investment and qualified for exemption under Item 1 of Schedule I of the Combination Regulations. The firm argued that its shareholding in Biocon remained below 10%, thereby satisfying the shareholding condition. Furthermore, it contended that the rights granted under the SHA did not amount to control or material influence over Biocon’s operations.
Additionally, Goldman Sachs maintained that the investment was made in the ordinary course of business, with no intent to participate in Biocon’s management. The firm emphasised that similar rights were available to other investors, reinforcing the argument that its involvement was not unusual. It also highlighted the existence of confidentiality safeguards, which were designed to prevent the misuse of sensitive information, ensuring that no competitive advantage was derived from the transaction.
However, the CCI rejected these arguments, ruling that the minutes rights and access rights granted to Goldman Sachs extended beyond those of a typical shareholder. The Commission pointed out that access to board meeting minutes provided privileged insights into Biocon’s strategic plans and financial data. This, according to the CCI, could potentially influence competitive dynamics and was not consistent with a passive investment.
It said,
“Considering the facts of the impugned Transaction, the Commission observed that GS acquired OCDs in 2020 and the final maturity date was fixed as 9th January 2026 which implies a significant holding period. Further, GS AIF had a right to convert the OCDs into equity shares at any time prior to the final maturity date (Conversion Right). The acquisition of Conversion Right allows GS to weigh whether to exit the Target on final maturity date or to convert the debentures into shares and stay invested.”
CCI found that Goldman Sachs acquired “reserved matter rights” and “information rights,” indicating that the transaction was not intended for short-term gains. The Commission emphasised that the “frequent, routine, and usual” test for ordinary business transactions considers both the duration of the investment and the investor’s role. According to the CCI, an investment made for a longer period with additional rights beyond those of a regular shareholder does not qualify as an 'ordinary course of business' transaction.
The CCI stated that “competition dynamics are influenced by the substance of arrangements between the parties and not the form of their organization.” It clarified that regulatory requirements apply equally to all enterprises, regardless of their structure. Based on these findings, the Commission concluded that the transaction was notifiable, and that Goldman Sachs should have sought approval under Section 6(2) of the Competition Act.
By completing the transaction without notifying the CCI, the firm was found liable under Section 43A of the Act, the CCI noted. It thus imposed a penalty of 40 lakh on the firm.
