Financial investors’ veto on strategic decisions is control

Under the Competition Act, control is broadly and vaguely defined to include control of the affairs or management by: (i) one or more enterprises, either jointly or singly, over another enterprise or group; (ii) one or more groups, either jointly or singly, over another group or enterprise. On account of this definition, private equity investors and other financial investors in the past have often sought to benefit from the relaxation under entry 1 of Schedule I of the Combination Regulations on the grounds that their veto rights do not afford them control of the target.

The relaxation provides that if less than a 25% shareholding is acquired solely as an investment or in the ordinary course of business without acquisition of “control”, it ordinarily is not likely to have an appreciable adverse effect on competition and so notice need not normally be filed.

Recent case

Recently, the Competition Commission of India (CCI), in its order approving the proposed acquisition of a 17.3% stake of Standard Greases & Specialties Private Limited (SGSPL) by Alpha TC Holdings (Alpha) and Tata Capital Growth Fund (TCGF), dispelled any doubts that there may have been on what constitutes strategic matters and that a veto on such matters including in favour of a financial investor will be viewed as control by the CCI.

Kunal Chandra is a counsel at Trilegal and Gautam Chawla is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Bangalore and Hyderabad.