I.                    IntroductionThe Competition Act, 2002 (‘Act’) requires the Competition Commission of India (‘CCI’) to review all domestic and international mergers, acquisitions, and other types of ‘combinations’ that exceed certain asset or turnover thresholds. Transacting parties are obligated to notify CCI and observe the applicable waiting period until approval from CCI, before taking any steps towards consummating their transactions. Given the twin objective of preserving competition and protecting consumers, CCI realized that a litmus test of financial thresholds alone could bring within the fray transactions that do not necessarily require prior review and approval.In this context,  a  set  of  combinations  were  identified  in  CCI  (Procedure  in  regard  to the Transaction of Business relating to Combinations) Regulations, 2011 (‘Combination Regulations’), that are less likely to raise competition concerns and hence “need not normally” be notified.[1] Minority acquisitions (which entitle the acquirer to hold less than 25% of the  total shares or voting rights in the target enterprise) are included in this list and are therefore exempt, to the extent they are made ‘solely as an investment’ or ‘in the ordinary course of business’, and do not lead to acquisition of ‘control’ (‘Minority Acquisition Exemption’). The Minority Acquisition Exemption is of particular use to financial investors that make routine and frequent investments without assimilating a significant market position.The Act provides no guidance on what may  constitute, ‘solely as an investment’ or ‘in  the ordinary course of business’. Whilst the Act defines the term ‘control’ to include “control- ling the affairs or management by: (i) one or more enterprises, either jointly or singly, over another enterprise or group[2]; (ii) one or more groups, either jointly or singly, over another group or enterprise”, the concept of ‘control’ continues to be a vexed issue. In this regard, a string of CCI decisions have made certain noteworthy observations regarding the applicability of the Minority  Acquisition Exemption.1.     CCI has taken the view that minority investments (i.e., less than 25%) by  an acquirer in a target enterprise where there are horizontal or vertical overlaps between the business activities of the target and the acquirer (including the controlled portfolio entities of the acquirer) may be construed as being strategic, and there- fore cannot ordinarily be treated to be ‘solely as an investment’ or ‘in the ordinary course of business’. For example, in Copper Technology/ANI Technologies,[3] the acquisition of 9.57% stake in the target along with the right to appoint a director on the board of the target was notified to CCI. CCI observed that while the acquirer and target were not involved in the production and supply of any substitutable goods or services in India, one of the portfolio companies of the acquirer in India had an overlap with the target in the mobile wallet segment. Whilst CCI in its approval order does not comment on the applicability of the Minority Acquisition Exemption, it appears that the transaction was notified because it may have been construed as being strategic.2.               CCI seems to be of the view that ‘control’ could arise from holding certain strategic affirmative voting rights in the target enterprise.By way of amendments to the Combination Regulations in January, 2016, an explanation was inserted to the Minority Acquisition Exemption in relation to investments of less than ten percent of the total shares or voting rights in the target enterprise (‘Deeming Provision’). The Deeming Provision states that every transaction involving an acquisition of less than ten per- cent shall be ‘solely as an investment’, if the following conditions are satisfied:the acquirer gets only those rights that are exercisable by ordinary shareholders of the target enterprise, to the extent of their shareholding;  the acquirer is not a member on the board of directors of the target nor has the  right or intention to appoint a board member or to nominate one;  and the acquirer does not intend to participate in the management or affairs of the target.II.                    CCI Guidance on ‘Solely as an Investment’In interpreting the term ‘solely as an investment’, CCI’s decisions hold that the Minority Acquisition Exemption does not apply to private equity transactions where there are overlaps between the activities of the target and the controlled portfolio entities of the acquirer.A strict reading of the Minority Acquisition Exemption would bring one to the conclusion that an acquisition not leading to ‘control’ would not be required to be notified, if the acquisition is either solely for investment purposes or in the ordinary course of business. The Deeming Provision states that an acquisition of less than ten percent will be considered  as ‘solely as an investment’, if the other conditions[4] laid down thereunder are satisfied.A combined reading of the Minority Acquisition Exemption and the Deeming Provision gives rise to two propositions as set out below:1.             In the absence of control conferring rights, the Deeming Provision should also exempt transactions involving competitor-to-competitor acquisitions, if the trans- action in question satisfies the thresholds specified under the Deeming Provision.2.              Arguably, the inapplicability of the Deeming Provision should not automatically render a transaction ineligible for the Minority Acquisition Exemption that has been made solely as an investment or in the ordinary course of business.Having said that, in Manta Holdings LP and Thomas Bravo Funds XII LP,[5] CCI  appears to have  interpreted the Deeming Provision to guide the assessment of  the applicability of    the Minority Acquisition Exemption. In this case, CCI held that the right to appoint a single director on the board of the target will itself mean that the Minority Acquisition Exemption will not apply. However, from a review of the said  decision, it  is  clear  that:  (i)  the  Deeming  Provision  was inapplicable due to the ability of the acquirer to appoint one director;   and (ii) there were overlaps between the activities of the target and one of the controlled portfolio companies of the acquirer which made the Minority Acquisition Exemption inapplicable to the transaction in any event. To the best of our knowledge, this conflation of the Deeming Pro- vision  and  the  Minority Acquisition  Exemption has not yet been tested in appeal. In certain other cases, CCI has considered acquisitions involving less than 10% shareholding where the acquirer also had a right to nominate a director and there were no overlaps between the activities of the parties. However, CCI has not made any specific observations in these cases on why the Minority Acquisition Exemption did not apply.[6]III.                    Existing Jurisprudence on ‘Ordinary Course of Business’The term “ordinary course of business” while not specifically defined, has been widely interpreted to apply to those acquisitions which are not strategic in nature and are made by an entity which usually makes such investments as a part of its ongoing business. While there is limited guidance from CCI on what constitutes “ordinary course of business”, the meaning of this phrase has been examined by various courts in India and offer some guidance. “Ordinary course of business” has been defined to imply “a certain degree of routine in business practice”.[7] The expression “‘in the ordinary course of business’ is susceptible of one meaning viz., that there should be a series of transactions as distinguished from one transaction…A stray transaction may not be said to constitute an ordinary course of business”.[8]Further, CCI has observed that minority acquisitions of less than 25% shares in the target, where there are overlaps between the acquirer and target, may not be considered as being in the “ordinary course of business” and would generally be construed to be strategic in nature (Abbott/Mylan[9] and Zuari Fertilizers[10]).IV.                    CCI’s Perspective on ‘Control’ Conferring RightsThe final step in analyzing whether the Minority Acquisition Exemption applies to a given transaction is to ascertain whether the acquirer is also acquiring any control over the target. The concept of what constitutes ‘control’ has been examined by various regulators in India including CCI. Although there are no bright-line tests available, in order to make an assessment in relation to what would constitute the acquisition of control, in the past, CCI has provided an indication  of  the  nature  of  affirmative  voting  / consent rights that may result in conferring control in favour of an acquirer. “Control” has been defined merely as ‘control’ over the affairs and management of another enterprise and no substantive test for “control” has been laid out under the Act.[11] Certain rights that have been considered as conferring control as per certain decisions of CCI are veto rights over: (i) approval of the business plan/annual operating plan including budget; (ii) discontinuing an existing line or commencing a new line of business; (iii) setting up new offices in other cities or expanding to new cities; (iv) appointment of key managerial personnel including key terms of their employment and compensation; and(v) material terms of employee benefit plans.[12]In interpreting “control”, CCI has, in the past, examined the entire bundle of rights secured by the acquirer and their bearing on the strategic commercial decisions of the target enterprise. The European Commission’s (‘EC’) Consolidated Jurisdictional Notice under Council Regulation No. 139/2004 on the control of concentrations between undertakings (2008/C 95/01) (‘EC Jurisdictional Notice’), states that control is acquired where minority shareholders have additional rights which allow them to veto decisions which are essential for strategic commercial behavior of the joint venture.[13] These veto rights must be related to the strategic decisions on the business policy of the joint venture.[14] They must go beyond the veto rights normally accorded to minority shareholders in order to protect their financial interests as investors in the joint venture.[15]Based on a review of CCI decisions and the EC law, it appears that to assess whether the affirmative rights available to an investor may be said to confer control, it is essential to examine the rights as a whole and ascertain whether they could be said to confer control over the strategic business decisions of the company in question.V.                    Conclusion It is possible that certain competitor-to-competitor minority acquisitions may reduce the minority shareholder’s incentive to compete with the target. For example, if the benefits through dividends (flowing from minority shareholding) outweigh the costs associated with market expansion attempts in the target’s geography, the minority shareholder may well desist from making  such  efforts.  Second,  a  minority  stake  is   sometimes  enough   to  secure  access   to business sensitive information, which could reduce competitive uncertainty between two competitors which must otherwise compete with each other. These concerns appear to inform conservative outcomes in the current trend of CCI decisions. However, these concerns should be weighed against the very objective of  introducing the Minority Acquisition Exemption,  i.e., exempting minority acquisitions made routinely that do not lead to any strategic influence over the activities of the target and do not raise the concerns highlighted above. Applying a conservative lens to such situations is likely to result in ‘false positives’ where scarce regulatory resources are expended in assessing transactions which have not likely to have any effect on the competitive dynamics of the market. Although the jurisprudence on this issue will continue to evolve, it would benefit all stakeholders if CCI were to issue any formal guidance on the applicability of the Minority Acquisition Exemption.

[1]  Regulation 4 read with Schedule I of the Combination Regulations. [2] The term ‘group’ means two or more enterprises which, directly or indirectly, are in a position to: (i) exercise 50% or more of the voting rights in the other enterprise; or (ii) appoint more than 50% of the members of the board of directors in the other enterprise; or (iii) control the management or affairs of the other enterprise. [3] Combination Registration No. C-2017/08/525[4] As mentioned in the introduction section the ‘other conditions’ are as follow: (i) the acquirer gets only those rights that are exercisable by ordinary shareholders of the target enterprise to the extent of their shareholding; (ii) the acquirer is not a member on the board of directors of the target nor has the right or intention to appoint a board member or to nominate one; and (iii) the acquirer does not intend to participate in the management or affairs of the target [5] C-2016/10/439[6] P5 Asia Holding/Indus Towers Limited, C-2016/10/452, Aceville Pte. Ltd/ Flipkart Limited, C-2017/04/501[7] Kalapnath Singh v. Surajpal Singh and Ors, AIR 1949 All 425 [8] Peddi Virayya v. Doppalapudi Subba Rao and Anr AIR 1959 AP 647 [9] C-2014/08/202 [10] C-2014/06/181.[11] The term ‘control’ has been defined to include controlling the affairs or management by: (i) one or more enter- prises, either jointly or singly, over another enterprise or group, (ii) one or more groups, either jointly or singly, over another group or enterprise. ‘Control’ was clarified in Independent Media Trust (C-2012/03/47) to mean, “the ability to exercise decisive influence over the management or affairs” of another enterprise [12] Alpha TC Holdings Pte Limited, C-2014/07/192 [13] Para 65, EC Jurisdictional Notice [14] Ibid. [15] Ibid.