The Competition Commission of India (CCI) has imposed a ₹40 lakh penalty on Goldman Sachs (India) Alternative Investment Management Private Limited (GS AIMPL) for failing to notify its investment in Biocon Biologics Limited (Biocon) under the Competition Act, 2002. The regulator found that Goldman Sachs’ acquisition of optionally convertible debentures (OCDs) in Biocon, which would have translated to a 3.81 per cent stake in the company on a fully diluted basis, should have been reported as a notifiable transaction.

Undisclosed transaction sparks regulatory action

Goldman Sachs had entered into a Securities Subscription Agreement and a Shareholders Agreement (SHA) with Biocon on November 7, 2020, closing the deal by December 9, 2020. The investment, however, was made without seeking CCI approval, a violation of Section 6(2) of the Competition Act, 2002.

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According to CCI, the investment granted Goldman Sachs Reserved Matter Rights, Information Rights, and Access Rights, which were beyond those available to ordinary shareholders. These rights, including access to board meeting minutes and the ability to influence strategic decisions, raised concerns that the investment was not purely financial but strategic in nature.

Regulator rejects Goldman’s defence

Goldman Sachs argued that the transaction fell under Item 1 of Schedule 1 of the CCI Combination Regulations, 2011, which exempts minority acquisitions from mandatory notification if they do not grant control or material influence. The firm maintained that the investment was solely for financial returns and aligned with its ordinary course of business.

However, the CCI rejected these claims, stating that:

The Minutes Right provided Goldman Sachs access to confidential and commercially sensitive information, raising concerns about strategic influence.

The Access Rights allowed direct engagement with Biocon’s premises and personnel, indicating deeper involvement than a passive investment.

The investment structure gave Goldman Sachs the option to convert OCDs into equity shares, showing an intent to remain invested for a longer period, rather than benefiting from short-term price movements.

Penalty and industry implications

While the maximum penalty under Section 43A of the Competition Act could have been 1 per cent of the total turnover or assets of the combination, the CCI imposed a fine of ₹40 lakh, considering the circumstances and Goldman Sachs’ conduct during proceedings.

The ruling sends a strong signal to private equity firms, venture capitalists, and institutional investors, emphasising the need for strict compliance with competition laws when structuring minority investments. Industry experts believe this could lead to greater scrutiny of similar transactions where financial investors acquire special rights that could be deemed strategic.

With this decision, the CCI reinforces its stance on transaction transparency, ensuring that even minority investments do not escape regulatory oversight if they involve elements of control or influence over the target company, economy watchers said.