CCI’s Market Study on Private Equity: Time to Clear the Air?

[Priya Maharishi is a 4th-year B.A., LL.B. (Hons.) student at Jindal Global Law School, Sonipat, Haryana]

The issue of common ownership and its impact on the competition landscape has preoccupied the Competition Commission of India (CCI) for a long time. The concern has become pressing in the light of increase in private equity (PE) investments in India. To show some teeth in the game, the CCI has decided to conduct a market study on PE investments in India. This post will examine how PE investors skip the radar of CCI, the regulator’s past attempt at scrutinising PE investments, the dire need of the market study and the need for the balance required in the study.

On 4 December 2020, Ashok Kumar Gupta, Chairman of CCI stated that the CCI will conduct a market study on investments made by PE investors in India. The market study is motivated by increase in PE investments in India exceeding strategic investments and foreign direct investment during the pandemic. It is projected that India will see $40 billion worth of PE investments in the current year, which has highlighted the apprehension for common ownership and dilution of competition in the relevant market. The aim of the study is to understand the concerns vis-à-vis common ownership and its bearing on competition in the relevant market. The empirical market study will be focused on PE investors who have acquired up to 10% shareholding in the target enterprise and have the right to appoint at least one seat on the board. The aim of the market study is also to evaluate the incentives and motives behind the investments made by PE investors. To determine control, it will analyse the rights enjoyed by the PE investors for protection of financial interest and whether such rights can translate into material influence on the target enterprise.

Common Ownership and Issues Thereof

The concern for common ownership or horizontal shareholdings held by PE investors arises from frequent investments in the portfolio enterprises which are in the same industry and are competitors. Hence, there is ample product-market overlap. If PE investors exercise material influence on the portfolio enterprises, there is a probability for the investors to earn undue profits by altering the product pricing between the competing portfolio enterprises or encouraging collusive actions between the management of such enterprises. The exercise of material influence results in shrinking the competition in the relevant product market. However, it is difficult for the CCI to address the competition concerns due to loopholes in the de minimis exemption and Item 1 in Schedule 1 (item 1) of the CCI (Procedure in regard to the transaction of Business relating to Combinations) Regulations, 2011.

Notification under De Minimis Exemption

Under the Competition Act, 2002, various minority investments are not notifiable to the CCI due to the de minimis exemption. This exemption is applied if the investment falls under sections 5 and 6 of the Act, which addresses the acquisition of shares in enterprises engaged in identical businesses. Such investments include PE investments in enterprises involved in identical businesses and have assets and turnover below the prescribed threshold. In the case of Meru Travels Solution, the CCI was forced to look at the investment of Softbank through the perspective of ‘notifiable control’ rather than notifiable for appreciable adverse effect on competition. Hence, before parting, the CCI posed a question of whether common ownership can be interpreted as control and, if the answer is in affirmative, whether such ownership have any competitive risk and the need of a market study. The lack of market study in the area of PE makes the assessment of common ownership and competition difficult. Therefore, the PE investments which have common ownership skip the radar of the notifiability to the CCI.  

Restriction in the Application of Item 1 of Schedule 1

While the issue of common ownership is not notifiable, the single proposed acquisition of shares which are in terms of investment is to be notified to the CCI if the investors exercise control subject to such acquisition. This is under the exemption of item 1. The item states that any acquisition of less than 10% shall be deemed to be an investment in the ordinary course of business or solely as an investment. However, if such investor has the intention to have a board seat or to nominate a board seat and to exercise influence on the working of the target enterprise, it will fail to get the exemption under item 1. To understand control under item 1, it is important to look at the past CCI decisions.

Judicial Approach in this Regard

The CCI has held that when a PE investment overlaps between the activities of the target and its portfolio enterprises which are controlled, then such transactions will be unsuccessful in getting an exemption under item 1. In Lazarus Holdings/ ANI Technology, the CCI considered all the portfolio investments by the acquirer in the related sector and held that the PE funds would not be under the exemption if they exercise rights for investment protection or corporate governance, which will amount to material influence on the enterprise. In Manta Holdings LP /Thomas Bravo funds XII LP, the CCI held that a right to appoint even a single director on the board of the target enterprise and investment in other competing enterprises will remove the exemption available under item 1 schedule 1. In Copper Technology/ ANI Technologies, the CCI held that it must be notified under section 6(2) of the Act regarding the investment of 9.57% by Copper Technologies and a right to nominate a director on the board of the target enterprise. It can be understood that the scope of control is wider under item 1. However, in Meru Travels Solution, the CCI was forced to take an ex-ante approach through section 5 and had to allow the acquisition due to lack of evidence. Nevertheless, this exemption can only be referred to under section 5(a)(i) and (ii) and is limited to the financial thresholds. The CCI is constrained from addressing the issues of the abuse of dominance and anti-competitive agreements while referring to control under item 1.

An Analysis of Past Actions by the CCI

In the past, CCI has taken certain actions to bring common ownership by the PE investors under the notifiable criteria. In April 2020, there was an increase in requirements from the PE funds to disclose their portfolio investments and were subject to wider assessment. Also, the CCI has included the right to appoint an observer as a condition to determine if the target enterprise will that form a part of the group. A hindrance is created for the PE investors as a right to appointment of observers is often exercised in the jurisdictions which provide for high liability on the directors. Such a right, as it can result in control, creates overlaps. To be eligible for the green channel, the parties of the combination must have no horizontal, vertical or complementary overlaps. This has made it difficult for PE investors to adopt the ‘green channel’ route. However, these actions have been unsuccessful in understanding the common ownership, control in the portfolio enterprises and its exact impact on the overall competition in the relevant market.

Need for Balance

The CCI has finally decided to conduct a market study to analyse the above-mentioned issues. The market study is expected to answer several questions that have interfered in the effective competition assessment. It will also help PE investors obtain a concrete understanding of the adverse competition issues vis-à-vis the degree of rights they enjoy. Nevertheless, the CCI needs to promote increase in foreign investment and have a concrete idea of competition assessment. It is also important to create a balance between the economic prosperity of the nation and the growth of healthy competition in the Indian market. The CCI has to consider the idea of control and financial protection rights along a spectrum. Due to flexibility in rights and control exercised by the investor, the CCI cannot take a ‘one size fits all’ approach. Therefore, during the assessment of translation of financial protection rights to control, it is necessary to have a flexible yet concrete approach to maintain the balance. The approach can be established through policy analysis and flexible guidelines.


It is finally time for the CCI to make amends and take concrete steps such as the present market study for analysis of common ownership in PE investments. To achieve the aim of the market study, it is also necessary for the CCI to have a flexible approach. The market study points towards an effective policy regulation for competition law which will bring about certainty and growth of healthy competition in the Indian markets.

Priya Maharishi

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