The Competition Commission of India (CCI) has penalized imposed ₹40 lakh penalty on Goldman Sachs for failure to notify investment in Biocon Biologics under Section 6(2) of the Competition Act, 2002.The Commission held that 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.
On November 7, 2020, Goldman Sachs AIF Scheme-1 (GS AIF) signed a Securities Subscription Agreement and a Shareholders Agreement (SHA). The deal was closed on December 9, 2020. GS AIF acquired access, information, and reserved matter rights under the SHA. The Goldman Sachs India Alternative Investment Trust oversees the GS AIF investment scheme, which is registered with SEBI as a Category II Alternative Investment Fund (AIF). A division of Biocon Limited, Biocon runs manufacturing plants in Bengaluru and Malaysia in addition to research and development centers in Chennai and Bengaluru.
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GS AIF was determined by the CCI to have neglected to notice the transaction prior to its conclusion. In accordance with Section 36(4) of the Act, CCI sent a letter requesting information on 4.02.2022. On August 16, 2022, GS sent in their final response. On May 18, 2023, CCI observed that the Reserved Matter Rights, Access Rights, and Minutes Right all pointed to a strategic deal rather than a simple investment. CCI concluded that Section 6(2) of the Act should have been used to notify the transaction. In accordance with Section 43A, it issued a Show Cause Notice (SCN) on May 25, 2023. On June 29, 2023, GS reacted to the SCN.
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According to GS AIF, it benefited from Item 1 Provision since the transaction was made purely for investment purposes and in the course of GS AIF’s regular business to earn a return on its investment and without any underlying strategic intent to get involved in the management and affairs of Biocon Biologics.
Minority acquisitions are exempt from the Item 1 Provision if three requirements are met: the acquisition does not result in the acquisition of control (including joint or negative control), voting arrangements, de facto control, or otherwise; and the acquisition does not grant the acquirer the right to directly or indirectly hold 25% or more of the target enterprise’s total shares (on a fully diluted basis) or voting rights (Shareholding Condition).
“Shares in the share capital of a company carrying voting rights and includes— (i) any security which entitles the holder to receive shares with voting rights; (ii) stock except where a distinction between stock and share is expressed or implied,” the CCI observed, according to the Act. Convertible securities are therefore shares.
The Commission noted that, in both form and content, the Minutes Right and Access Right beyond the rights of common shareholders. GS AIF has exclusive access to all commercially sensitive information discussed at Biocon Board meetings thanks to Minutes Right. The substantial underlying issue of Item 1 Provision is, among other things, the access to commercially sensitive information that Minutes Right grants. The Commission held that 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 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. Accordingly, the Commission imposed a penalty of Rs. 40 lakh on Goldman Sachs.
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