On August 23, 2023, the CCI imposed a penalty of INR 1,00,00,000 (approx. US$ 120,000) on Bharti Airtel Limited (‘BAL’) in relation to acquisition of 20% shareholding in Bharti Telemedia Limited (‘BTL’/ ‘Target’) by BAL from LMIL (‘Step 1’) and acquisition of 0.664% shares in BAL by LMIL (‘Step 2’) (collectively, ‘Transaction’). 
BAL is incorporated in India and is engaged in the business of providing telecommunication services. BTL is a subsidiary of BAL and is engaged in the business of distributing multi-channel television programs directly to subscriber premises by using satellite systems in India. Lion Meadow Investment Limited (‘LMIL’) is a private limited investment holding company, an affiliate of Warburg Pincus LLC (‘Warburg’).
On March 22, 2021, an investment agreement was consummated between BAL, LMIL and BTL without prior notification to the CCI. In March 2022, the CCI issued a letter to BAL and Warburg in order to assess whether further proceeding is required under Sections 20(1) and 43A of the Competition Act.
The CCI noted the following:
i. BAL held 80% shareholding of BTL and LMIL held the remaining 20% shareholding in BTL along with various rights in BTL;
ii. As BAL did not have sole control over BTL prior to the Transaction, benefit under Item 2 of Schedule 1 of the Combination Regulations was not available to Step 1 of the Transaction;
iii. Step 2 of the Transaction was part consideration paid for Step 1 and therefore, LMIL was required to notify under Regulation 9(4) of the Combination Regulations;
iv. As Step 1 of the transaction was not eligible for exemption benefit under Item 2 and since Step 2 was interconnected to Step 1, it ought to have been notified along with Step 1 as a composite notice; and
v. CCI prima facie held that parties have failed to notify the Transaction to the CCI before consummation and accordingly, are in violation of provisions of Section 6 and 6(2A) of the Competition Act. Accordingly, it issued a show cause notice on August 4, 2022, to the parties.
Proceedings Under Section 43A
BAL’s Submissions: BAL submitted that prior to consummation of the Transaction, it held a majority shareholding of 80% in BTL and therefore, the Transaction meets the first test of the benefit under Item 2 provision. Further, the transaction did not fall within the exception of Item 2 provision as there was no transfer of control from joint to sole. It was in sole control of BTL before the Transaction and remains in sole control of BTL after the Transaction. LMIL’s Rights in BTL are investor protection rights and do not confer any degree of material influence, much less joint control because LMIL was not allowed to participate in the management and affairs of BTL. BAL had the right to appoint a majority of directors on board of BTL, had the ability to pass ordinary and special resolutions, and enjoyed affirmative voting rights.
It was also submitted on behalf of BAL that Joint control is a significantly higher threshold than material influence. In the instant case, LMIL did not have de jure control over BTL, as it did not have more than 50% of the voting rights of BTL, either directly or indirectly, through its group entities. Moreover, LMIL did not have any de facto control over BTL because in practice also, it does not control more than half of the votes actually cast at a meeting of BTL. With respect to Item 2, the shareholding and rights held by LMIL would need to have conferred upon it ‘joint control’ with BAL over BTL. However, in the present case, LMIL did not even have material influence over BTL, let alone joint control. Lastly, the investment made by LMIL in BTL was merely in the nature of a pure financial investment. Therefore, based on above contention, BAL submitted that the Transaction qualifies for Item 2 and/or Item 8 provisions.
LMIL’s Submissions: LMIL had submitted that Step 2 of the Transaction satisfies all the conditions of the Explanation to the Item 1 Provision as it acquired less than 25% shares in BAL and did not secure any rights over and above those conferred upon ordinary shareholders. Further, it submitted that it never exercised any control over the management and affairs of BTL. Rather, BAL was in sole control over the business affairs of BTL prior to and post the BAL acquisition. The sole purpose of its investment was to make financial gains and thereafter exit BTL without exercising any control over BTL. It submitted that since Step 1 transaction is eligible to benefit from minority acquisition exemption (Item 1 Provision) and Step 2 transaction is eligible to benefit from the Item 2 Provision, therefore, a composite merger filing covering the Step 1 and Step 2 of the Transaction was not required.
CCI’s Findings: According to the CCI, the sole issue before it was whether the Transaction resulted in transfer from joint control to sole control of BTL. The CCI referred to its order of UltraTech Cement Limited case where it had observed that all degrees and forms of control nonetheless constitute control. It noted that control is the possibility of exercising material influence rather than its actual exercise. There may be acquisition of control including material influence, irrespective of the party not intending to acquire such control. Thus, control (whether sole or joint) is defined as the possibility of exercising material influence on the enterprise on the basis of shareholding, voting rights, other rights, contracts/agreements, or any other means. In this case, the CCI said that the applicability of benefit of Item 2 Provision, ‘joint control’ and ‘sole control’ should be read to include the ability to exercise material influence over the management or affairs or strategic commercial decisions of the target. Therefore, the CCI held that the contention that the criterion for Item 2 provision hinges on joint control with a more elevated standard than material influence, lacks merit. LMIL held 20% shareholding in BTL prior to the Transaction, along with a bundle of rights such as voting rights, representation on the board, veto rights, quorum requirements, consultation rights, etc. Based on this, the CCI concluded that the LMIL has material influence over BTL and held that Step 1 is not eligible for the benefit of Item 2 Provision. Moreover, with regard to Step 2 of the Transaction, part payment for Step 1 renders the two tranches ‘interconnected’ and therefore, requires a joint notification prior to consummating any step of the Transaction.
The CCI taking into consideration the conduct of the parties, held that both the parties are liable for violation of provisions of Section 43A of the Act. Taking note of BAL during proceedings and the past violations of the Competition Act by BAL, the CCI imposed a penalty of INR 1,00,00,000 (approx. US$ 120,000) on BAL (being the acquirer in Step 1 of the Transaction) and directed both acquirers (BAL and LMIL) to notify the Transaction with the CCI.
 Item 2 of the Schedule 1 to the Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, exempts from notification, the acquisition of shares or voting rights where the acquirer or its group holds 50% and acquires additional shares; and there is no transfer of joint to sole control.
 Item 8 of Schedule 1 of the Combination Regulations, an intra-group acquisition is exempt from notification to the CCI if: (i) both, the acquirer and target, belong to the same ‘group’; and (ii) the target after the combination is not going to be under the joint control of one or more enterprises, outside such group.