Global funds cautious as CCI raps Goldman and Carlyle

Earlier this year, CCI issued two orders against global funds: one against Goldman Sachs and another against Carlyle

Global funds are adopting an extra cautious approach towards combination applications filed before the Competition Commission of India (CCI) as two global funds - Goldman Sachs and Carlyle - have received a rap from the anti-trust regulator for jumping the gun.

At the core of the matter are the merger and acquisition (M&A) transactions involving purchase of smaller stakes in companies by Alternative Investment Funds (AIFs). These transactions neither involve control nor have any adverse impact on the competition landscape.

If the stake purchase by an AIF is less than 10% in the company, the AIF can exempt itself from notifying CCI regarding the purchase. If the stake sale is more than 10% and there is no adverse impact on competition, such transactions can be filed via green channel and would be considered deemed to be approved.

Following the two orders, funds are increasingly scrutinising the terms of purchase and its compliance with competition rules, say legal experts.

“The recent admonitions by the CCI against the two funds underscores a subtle but important evolution in India’s merger control regime. What these orders highlight is that the regulator is prepared to look beyond the quantum of shareholding and examine the qualitative rights attached to such investments — whether information rights, vetoes, or board representation — to determine if a filing obligation arises." said Hardeep Sachdeva, senior partner, AZB & Partners.

Two cases

In an order dated January 14 this year, CCI found Goldman Sachs guilty of not notifying its 4% stake purchase in Biocon Biologics since the transaction involved information rights to Goldman. In this case, CCI imposed a penalty of Rs 40 lakh. This verdict is prompting AIFs set up by private equity and hedge funds to proactively evaluate whether their purchases need to be notified to CCI. In most such transactions, the funds buy less than 10% stake in the company.

“Recent CCI enforcement highlights strict scrutiny of minority investments and investor protection rights, particularly where such rights may confer material influence. Investors must closely assess whether information, access or governance rights, such as access to board minutes or commercially sensitive information as these could trigger a mandatory filing notwithstanding a low shareholding,” said Vaibhav Choukse, partner, JSA Advocates and Solicitors.

The Carlyle case involves a green channel notice it filed in October 2023 to acquire 32.7% stake in Quest Global Services. However, a CCI probe found certain entities in the portfolio of AIF may have horizontal and vertical overlaps with Quest. On June 26, CCI issued an order against Carlyle fining the firm Rs 4 lakh as the acquisition was not eligible for Green Channel approval but was filed under Green Channel.

Expanded View of Control

“These orders have prompted global funds to more closely scrutinise minority deals for special rights and portfolio overlaps, and to err on the side of notification where qualitative rights might be seen as conferring influence,” said Karan Chandiok , practice head for Competition at Chandiok and Mahajan.

“The current expanded view of ‘control’, broadened scope of affiliates for assessing overlaps, and the focus on information flow means that merger control aspects may start impacting strategic calls and structuring of deals,”Chandiok added.

“The CCI’s stance underscores a shift towards strict compliance enforcement. Fund houses must now conduct far deeper competition assessment at the fund and portfolio level, ensure clean structures before claiming exemptions, and avoid relying solely on safe harbours,” said Aniket Ghosh, partner, King Stubb & Kasiva, Advocates and Attorneys.

CCI has significantly modified the rules for control under the new Competition Act which came into effect last year. Information rights are now considered control and hence anyone getting such special rights must notify CCI.