On August 16, 2024, the CCI imposed a penalty of INR 10 lakh (approx. USD 12,000) on India Business Excellence Fund-IV for incorrectly opting for Green Channel as it had a vertical relationship with VVDN Technologies. ^[1]

Parties

India Business Excellence Fund-IV (‘Acquirer’) is a Category II Alternative Investment Fund (‘AIF’), part of the Motilal Oswal group, investing in various companies. VVDN Technologies Private Limited (‘Target’) is an Indian company engaged in electronic manufacturing services and product design, particularly in sectors like 5G and Internet of Things.

Transaction

As per the proposed combination, the Acquirer would acquire 8.12% to 10.57% shareholding in the Target on a fully diluted basis, through a combination of secondary share purchases of equity shares and subscription to compulsory convertible debentures.

Main Allegations in Show Cause Notice

The CCI alleged that: (i) the Acquirer did not disclose the supply chain relationship with the Target. The Acquirer’s portfolio company manufactured COVID-19 test kits (downstream market) whereas the Target provided Printed Circuit Board (‘PCB’) assembly services which is a critical component used in the manufacturing of COVID-19 test kits (downstream market); and (ii) the vertical/complementary relationship between the Acquirer and Target disqualifies it from Green Channel approval.

Response to Allegations

The Acquirer submitted that: (i) PCB assembly was triggered by the COVID-19 pandemic and temporary in nature. Thus, it did not form part of the Target’s regular business; (ii) PCBs are basic input, and their sale did not indicate a vertical relationship between the parties; and (iii) there was no intent to mislead the CCI, which was evidenced by the transparency in their submissions to the CCI.

CCI’s Order

The CCI observed that: (i) the Target’s assembly services for COVID-19 kits, including PCBs, created a vertical/complementary relationship with the Acquirer’s portfolio company. This disqualified the transaction from the Green Channel approval; and (ii) sales continued for more than two years and generated revenue for the Target, indicating that it was not ad hoc as contended by the Acquirer.

The CCI held that the Notice filed by the Acquirer was void ab initio. Taking into consideration mitigating factors such as cooperation and transparency, it ordered a penalty of INR 10 lakh (approx. USD 12,000) on the Acquirer.

[1] India Business Excellence Fund-IV/VVDN Technologies Private Limited (Combination Registration No.C-2023/04/1021).