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The recent order issued by the Competition Commission of India (“CCI”) against Goldman Sachs (India) Alternative Investment Management Private Limited under Section 43A of the Competition Act, 2002 (“Order”) has sparked considerable discourse and unease amongst PE funds. The Order underscores the need for PE funds to tread carefully, even in cases of minority investments of less than ten percent, to safeguard their interests and ensure compliance with competition laws.
The Order is a reminder and reinforcement of the principles echoed by the CCI in the Competition (Criteria for Exemption of Combinations) Rules, 2024 (“Exemption Rules”). The Exemption Rules state that entities acquiring shares or voting rights shall be entitled to avail the exemption of being an investment only if the acquirer does not have access to commercially sensitive information of the enterprise.
Rights that constituted access to commercially sensitive information were unclear prior to this Order. In this Order CCI has observed that certain standard minority protection rights such as information rights and access rights to minutes of board/committee/shareholder meeting or access to changes in shareholding pattern of the target constitutes commercially sensitive information. For PE funds, minority investments often come with the expectation of securing certain rights—inspection, information access, reserved matters, and exit rights. These rights are not merely privileges but essential tools to protect their investment and the interests of their investors to whom they owe a fiduciary duty.
The illogical fallacy of equating PE investors with retail shareholders and expecting PE funds to have the same rights as an ordinary shareholder undermines the benefits that a company reaps from access to vast pools of capital and expertise that PE funds bring with them. There is a pressing need for a clear demarcation between strategic and financial investments and the need to provide greater flexibility to PE funds who are undertaking minority investments with bare bone protective rights such as consent for identified reserved matters, information rights viz critical information which may impact their investment and access rights to premises and personnel of the target.
In order to navigate such choppy waters, while ensuring that neither are deal timelines significantly enhanced nor PE funds subject to extraordinary costs, PE funds can explore availing the green channel route. Green Channel is an automatic system of approval for certain combinations where there are no business overlaps of any kind, be it horizontal, vertical or complementary in nature, between the parties to combination. This can significantly reduce time and costs, aligning with the government’s vision of promoting ease of doing business. However, its applicability remains limited and must be carefully evaluated on a case-by-case basis.
This Order serves as a stark reminder for PE funds to proactively assess the impact of the competition law framework at the time of evaluating deals with strategic overtones while at the same time aligning their long-term investment objectives with their fiduciary duties. On the other hand, for the government, the need of the hour is to recognize the unique role of PE funds in fostering economic growth and strike a harmonious balance between oversight and facilitation.
– Vedika Shah (Principal Associate) and Shreya Masalia (Associate)