CCI penalises investment manager of Goldman Sachs AIF for failing to notify Biocon deal

Further, Goldman Sachs AIMPL argued that the transaction was a routine investment within the ordinary course of its business and did not give any control over Biocon Biologics.

The Competition Commission has imposed a penalty of Rs 40 lakh on the investment manager of Goldman Sachs AIF for failing to notify the regulator about a more than four-year-old deal that gives the option to buy up to 3.81 percent stake in Biocon Biologics.

The penalty was levied on Goldman Sachs (India) Alternative Investment Management Pvt Ltd (GS AIMPL), the investment manager of Goldman Sachs AIF, for a contravention of Section 6(2) of the Competition Act, which mandates prior approval for certain combinations. Under the deal, Goldman Sachs AIF Scheme-1 (GS AIF) had acquired optionally convertible debentures (OCDs) issued by Biocon Biologics. The regulator has penalised GS AIMPL for failing to notify the transaction to it and rejected the argument that the deal was done in the ordinary course of business.

“Any transaction which is made with the intent of remaining invested for a relatively longer period and involves the acquisition of any additional rights (compared to the rights of an ordinary shareholder) cannot be considered as…ordinary course of business,” the Competition Commission of India (CCI) said in a 13-page order.

“The competition dynamics are influenced by the substance of arrangements between the parties and not the form of their organisation. The regulatory framework is agnostic to the form of an organisation and therefore the same is applicable to all enterprises in equal measure,” CCI said. According to the regulator, there is no separate framework for optionally convertible debentures and the fact that such securities have been acquired is irrelevant to the assessment.

In an order passed on Tuesday, the CCI stated that Goldman Sachs AIMPL, through GS AIF, had subscribed to debentures issued by Biocon Biologics in December 2020. The debentures, upon conversion, would have granted GS AIMPL a 3.81 percent stake in Biocon Biologics on a fully diluted basis. The transaction also provided GS AIMPL with rights to access critical information and participate in key decisions of Biocon Biologics.

The competition watchdog observed that these rights went beyond those available to ordinary shareholders, raising concerns about their potential strategic impact. The CCI concluded that the investment was not merely a passive financial transaction but carried strategic elements, which necessitated prior notification under the Competition Act.

Further, Goldman Sachs AIMPL argued that the transaction was a routine investment within the ordinary course of its business and did not give any control over Biocon Biologics. It also claimed that the rights acquired were standard protections for minority investors. However, the CCI dismissed these arguments, stating that the rights included access to sensitive business information and the ability to influence reserved matters, thereby crossing the threshold of an ordinary investment.

Accordingly, the regulator levied a penalty of Rs 40 lakh, determined under Section 43A of the Competition Act, which allows the CCI to impose fines up to 1 percent of the total turnover or assets of the combination, whichever is higher, for failure to notify a transaction.