Penalty Order for Part-Consummation of Combination Structure

COMPETITION COMMISSION OF INDIA Combination Registration No. C-2024/04/1139

07th March 2025

Proceedings under section 43A of the Competition Act, 2002 (Act) in relation to notice filed under sub-section (2) of section 6 of the Act by Matrix Pharma Private Limited, Mudhra Labs Private Limited, Mudhra Lifesciences Private Limited, Mudhra Pharmacorp LLP, Kotak Strategic Situations India Fund II - a fund managed by Kotak Alternate Asset Managers Limited, and Kingsman Wealth Fund PCC Aurisse Special Opportunities Fund

CORAM:

Ms. Ravneet Kaur Chairperson

Mr. Anil Agrawal Member

Ms. Sweta Kakkad Member

Appearances: Mr. Abhik Ghosh, Advocate

Order under Section 43A of the Competition Act, 2002

A. BACKGROUND

1. The Competition Commission of India (Commission) in its meeting held on $28^{\text{th}}$ May 2024 had considered the notice dated $23^{\text{rd}}$ April 2024 (Notice) received under sub-section (2) of Section 6 of the Competition Act, 2002 (Act) filed by Matrix Pharma Private Limited (Acquirer), Mudhra Labs Private Limited (Mudhra Labs), Mudhra Lifesciences Private Limited (Mudhra Lifesciences), Mudhra Pharmacorp LLP (Mudhra Pharmacorp), Kotak Strategic Situations India Fund II (KSSIF/ Investor 1), Kotak Alternate Asset Managers Limited (KAAML/ Investor 2), and Kingsman Wealth Fund PCC Aurisse Special Opportunities Fund (Kingsman) [hereinafter, Mudhra Labs, Mudhra Lifesciences, and Mudhra Pharmacorp are collectively referred to as the Acquirer Holding Entities; Investor 1 and Investor 2 are collectively referred to as the Investors; and, the Acquirer, Acquirer Holding Entities, Investors, and Kingsman are collectively referred to as Acquirers/ Notifying Parties] and passed an order under sub-section (1) of Section 31 of the Act approving the Proposed Combination (as defined below), without prejudice to any proceeding under Section 43A of the Act (Order).

Description of the Parties

2. Acquirer: The Acquirer is a private limited company incorporated in India in 2022 for the purpose of acquisition of the Tianish Laboratories Private Limited (Target). It does not have any subsidiaries or affiliates and does not presently carry out any business activity either in India or outside India [hereinafter, the Acquirers and the Target are together referred to as Parties].

3. Acquirer Holding Entities: Mudhra Lifesciences and Mudhra Pharmacorp are the shareholders of Mudhra Labs, which is the direct holding company of the Acquirer. In other terms, Mudhra Labs is a subsidiary of Mudhra Lifesciences and an affiliate of Mudhra Pharmacorp, and the Acquirer is a subsidiary of Mudhra Labs. Mudhra Lifesciences and Mudhra Pharmacorp are controlled by Mr. Venkata Pranav Reddy Gunupati (Pranav) who is also the majority owner in both entities. Accordingly, Pranav is the ultimate beneficial owner and person in control of the Acquirer and the Acquirer Holding Entities, which are all part of the same group.

4. Acquirer Group: Pranav together with certain of his family members, also holds direct and indirect investments in several other companies, several of which have been made through IQuest, which is also a party to the SPA. Accordingly, the entities over which Pranav (including his family members) has: (a) direct or indirect shareholding of 10% or more; or (b) a right or ability to exercise any right not available to ordinary shareholders (including any advantage of a commercial nature); or (c) a right or ability to nominate a director or observer, have been considered as the ‘Acquirer Group’.

5. Investor 1: Investor 1 is a scheme of Kotak Strategic Situations Trust, a trust set up under the Indian Trust Act, 1882 and registered with Securities and Exchange Board of India (SEBI) as a Category-II Alternate Investment Fund.

6. Investor 2: KAAML is the settlor and manager of Investor 1. Kotak Mahindra Bank Limited holds, directly and indirectly, 100% of its shareholding. It acts as an investment manager, engaged in the business of managing and advising funds across various asset classes.

7. Kingsman: Kingsman is incorporated as a protected cell public company limited by shares in Mauritius and holds a Global Business License issued by the Financial Services Commission (FSC), Mauritius. It is regulated by the FSC as an open-ended fund classifying as a self-managed expert fund for the purposes of the Securities Act, 2005 and the Securities (Collective Investment Schemes and Closed-End Funds) Regulations,

8. It is also registered as a foreign portfolio investor with SEBI.

9. Target: The Target is a private limited company incorporated in India in 2023. It is a wholly owned subsidiary of Mylan India, which in turn is an indirect subsidiary of Viatris Inc. (Viatris), the ultimate parent company of the Viatris group (Viatris Group). The Target does not have any subsidiaries or affiliates. The Target has taken over the active pharmaceutical ingredients (API) manufacturing business (API Business) of Mylan Laboratories Limited (Mylan India) and is engaged in the manufacture of APIs in India, which business was formerly carried out by Mylan India and transferred to the Target pursuant to a scheme of demerger which was made effective from $1^{\text{st}}$ March 2024. Currently, the API Business of the Target comprises 290 APIs in its portfolio.

Transaction

9. The Notice was filed with the Commission for approval of the following Combination:

• (i) Purchase of equity shares of the Target by the Acquirer, constituting 100% of the issued and paid-up share capital of the Target on a fully diluted basis (Proposed Acquisition);
• (ii) Proposed subscription to optionally convertible debentures of Mudhra Labs by Investors (Proposed KSSIF/KAAML Investment);
• (iii) Subscription to compulsorily convertible preference shares of Mudhra Lifesciences by Kingsman (Kingsman Funding).

Since the Acquirer was receiving funding pursuant to the Proposed KSSIF/KAAML Investment and Kingsman Funding, both were considered as inter-connected with the Proposed Acquisition [together, the Combination].

10. In addition to above, it was submitted in the Notice that in order to ensure funding for the Acquirer to undertake the Proposed Acquisition, the Acquirer Holding Entities had partly funded the Acquirer by way of investments from: (i) Mudhra Lifesciences by way of subscription to equity shares and compulsorily convertible preference shares (CCPS) in Mudhra Labs and (ii) Mudhra Pharmacorp by way of subscription to equity shares in Mudhra Labs. Mudhra Labs in turn invested the proceeds of these investments received by it in the Acquirer by way of subscription to equity shares, to be utilized by the Acquirer for its acquisition of the Target in the Proposed Acquisition. The investments by Mudhra Lifesciences and Mudhra Pharmacorp in Mudhra Labs and by Mudhra Labs in the Acquirer are collectively referred to as the ‘Acquirer Funding’.

11. Regarding entities investing in Mudhra Lifesciences, it was mentioned that other than Kingsman, Mudhra Lifesciences had received equity investment from Pranav, who is the ultimate beneficial owner and person in control of Mudhra Lifesciences.

12. Regarding entities investing in Mudhra Pharmacorp, it was stated that the minority partners of Mudhra Pharmacorp are Govipri Infra LLP and Sujatha Ravuri, who had contributed capital to Mudhra Pharmacorp in accordance with the Amended and Restated Limited Liability Partnership Agreement dated $5^{\text{th}}$ April 2024 entered into between Pranav, Govipri Infra LLP and Sujatha Ravuri. Govipri Infra LLP is wholly owned by family members of Mr. Pranav Reddy. Other than the above, Mudhra Pharmacorp LLP had not received investments from any other person or entity.

13. Regarding investment by Investors in Mudhra Labs through Optionally Convertible Debentures (OCDs), it was submitted that the amount to be invested by the Investors towards subscription of the OCDs was not yet remitted to Mudhra Labs and accordingly, OCDs were yet to be issued by Mudhra Labs. It was stated that the investment amount will be remitted and the OCDs will be issued only after all the conditions precedent to the closing of the proposed investment by the Investors had been satisfied, including obtaining the approval of the Commission. Upon receipt of the investment from the Investors towards subscription of the OCDs, this amount would be further invested by Mudhra Labs in the Acquirer, towards subscription of Compulsorily Convertible Debentures. Further, it was clarified that the Investors’ knowledge of the Proposed Acquisition was only limited to its own investment in Mudhra Labs which had not been completed.

14. The Parties confirmed that certain considerations relating to Acquirer Funding had been paid prior to the filing of the Notice, as set out below:

• i. Kingsman Funding: On $5^{\text{th}}$ April 2024, the investment by Kingsman in Mudhra Lifesciences by way of subscription to CCPS was completed after being deemed to have been approved by the Commission pursuant to the submission of a notice in Form I (bearing registration no. C-2024/04/1130) under the green channel (Green Channel Notice) which was acknowledged by the Commission on $4^{\text{th}}$ April 2024.
• ii. Acquirer Funding
  • a. Investment by Mudhra Lifesciences in Mudhra Labs: It was stated that the entire investment that was proposed to be made by Mudhra Lifesciences in Mudhra Labs by way of subscription/ purchase of 44.23% equity shareholding of Mudhra Labs (on a fully diluted basis) and by way of subscription to CCPS (constituting 30.33% equity shareholding of Mudhra Labs on a fully diluted basis) was completed by $6^{\text{th}}$ April 2024. Further, other than the rights available to it as an equity shareholder of Mudhra Labs and in terms of the CCPS, there were no other rights available to Mudhra Lifesciences with respect to Mudhra Labs.
  • b. Investment by Mudhra Pharmacorp in equity shares of Mudhra Labs: It was stated that the entire investment that was proposed to be made by Mudhra Pharmacorp in Mudhra Labs by way of subscription to 25.44% equity shareholding of Mudhra Labs was completed by $6^{\text{th}}$ April 2024. Further, other than the rights available to it as an equity shareholder of Mudhra Labs, there were no other rights available to Mudhra Pharmacorp with respect to Mudhra Labs.
  • c. Investment by Mudhra Labs in equity shares of the Acquirer: Regarding investment by Mudhra Labs in equity shares of the Acquirer, it was submitted that on $1^{\text{st}}$ March 2024 the consideration was paid for secondary purchase from original shareholders of the Acquirer and on $16^{\text{th}}$ April 2024 the consideration was paid and allotment was completed on the same date. The percentage of equity shareholding held by Mudhra Labs in Acquirer was 100%.
• iii. Investment by Pranav in Mudra Lifesciences: It was stated that the investment by Pranav in Mudhra Lifesciences was made towards subscription of 54,79,99,999 equity shares (out of which 1,00,09,999 equity shares were fully paid-up). Further, a portion of the investment by Mudhra Lifesciences in Mudhra Labs had been funded through debt, where Mudhra Lifesciences had borrowed by issuing unlisted, secured, redeemable, non-convertible debentures to institutional investors. However, this was a pure debt transaction and none of the institutional investors had any voting rights, control or any special rights over Mudhra Lifesciences. Regarding the pre and post shareholding in Mudhra Lifesciences, it was stated that while Pranav held 100% of the outstanding equity share capital and Kingsman only held CCPS, upon conversion of the CCPS Kingsman would receive equity shares amounting to 42.75% of the post-conversion equity share capital on a fully diluted basis, whereas Pranav’ equity shareholding would be diluted to 57.25%.
• iv. Capital Contribution in Mudhra Pharmacorp by the partners of Mudhra Pharmacorp: It was stated that the following partners of Mudhra Pharmacorp had contributed the capital: (i) Mr. Pranav Reddy, (ii) Govipri Infra LLP, and (iii) Ms. Sujatha Ravuri. It was submitted that notwithstanding the capital contribution ratio, the partners of Mudhra Pharmacorp had agreed that Pranav has the right to control and manage the affairs and assets/investments of Mudhra Pharmacorp and other than their respective partnership interest, neither Govipri Infra LLP nor Sujatha Ravuri enjoy any rights or control in Mudhra Pharmacorp.

15. Pertinently, the Acquirer and the Investors had earlier submitted a notice in Form I (bearing Registration No. C- 2024/01/1100 (Original Notice)) seeking approval from the Commission for the Acquirer’s acquisition of the Target and investment by the Investors in the Acquirer to fund such acquisition. The Commission granted approval for this transaction by way of an order dated $13^{\text{th}}$ February 2024. However, subsequent to the receipt of the said approval the structure of the transaction underwent a change.

16. The Acquirer submitted that such change was pursuant to commercial discussions between the Acquirer and the Investors. It was submitted that further to the Acquirer’s efforts to secure funding for the acquisition, in particular, the Kingsman Funding and Acquirer Funding (as described above) became necessary to capitalise the Acquirer sufficiently to complete the Proposed Acquisition, whereas the subscription of OCDs by the Investors had to take place at the Mudhra Labs level rather than the Acquirer level (as was envisaged in the Original Notice) as per the requirements of the lenders to the Acquirer.