When does a veto right cross the line from investor protection to strategic influence? Does nominating a single director — or even just an observer — on the board amount to control? If no, what if that nominee is a person of stature?
These are not abstract hypotheticals. They are live questions faced in deal rooms every day — particularly in the context of private equity and venture capital. The Competition Commission of India’s May 2025 FAQs attempt to offer sharper answers to these long-debated questions. In doing so, they update — and in some respects, refine — the framework previously set out in the earlier FAQs.
In this piece, we’ll look at some common investor rights to examine if they would amount to “control” basis CCI’s latest guidance. Understanding the nuances around “control” is critical since it is one of the factors to determine notifiability of a transaction. It’s even more critical in cases of indirect acquisitions, which in our view, should be the trigger for a CCI filing. Read our detailed analysis on it here.
But first, here’s a quick look at how “control” has evolved under India’s merger control regime.
The Merger “Control” Journey
The standard of "control" in Indian competition law has evolved from requiring decisive influence—such as majority shareholding or the ability to appoint majority of the board members—to recognizing "material influence" as sufficient for establishing control.
Early cases, like the IMT1 order, focused on whether an acquirer could exercise decisive influence over management and affairs, typically through significant shareholding or contractual rights. However, over the years and as seen in the UltraTech Cement case2, CCI clarified that control is a matter of degree and can arise not only from outright majority or board control, but also from factors like minority shareholding, board representation, special rights, or even industry expertise. Here, the regulator explicitly recognized "material influence" as the lowest threshold of control, where an entity can influence key decisions or policies even without majority power.
Then in 2019, the Competition Law Review Committee (CLRC) recommended adopting this material influence standard after reviewing international best practices. The Committee noted that jurisdictions such as the UK, Canada already consider material influence as a basis for control, allowing their regulators to capture a wider range of potentially anti-competitive transactions. Consequently, “Control” under Competition Act, 2002 (Act) has been expansively defined (under Section 5) to mean “…the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions by –
(i) one or more enterprises, either jointly or singly, over another enterprise or group3; or
(ii) one or more groups, either jointly or singly, over another group or enterprise”;
Material Influence hasn’t been defined as such in the Act, but CCI’s previous and latest FAQ’s shed light on the regulatory approach.
Old v New FAQs: Has CCI Changed The “Control” Standard?
In short, no. Essentially, The regulator has given stakeholders a gradient by calling out rights that are clearly non-controlling (like tag-along and information rights), to those that are likely control-conferring (like vetoes over business plans or senior management), with a nuanced grey zone in between that depends on context, structure, and ability to ‘materially influence’.
To elaborate, the earlier FAQs stated that assessment would be done basis presence of factors that give an enterprise/ person the ability to influence the affairs and management of the other enterprise, including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/ financial arrangements, etc. While CCI’s earlier guidance encapsulated the broad principle that any ability to influence management or strategic commercial decisions of the target could constitute control, it lacked granular examples of which rights cross the line. (see Annexure 1)
This gap in specificity sometimes left investors uncertain about whether common contractual rights would be viewed by CCI as mere investor protections or as conferring control.
A key addition in the 2025 FAQs is an illustrative list distinguishing rights that are presumed to be conferring control versus those considered mere investor protection.
According to the new FAQs, control-conferring rights typically include affirmative rights which give the ability to influence outcome on policy and commercially sensitive matters. For instance, appointing or removing senior management, approving budgets or business plans, vetoing changes to the target’s charter documents that affect operational matters, or any rights over the target’s operational decisions (such as R&D, production, marketing, or other day-to-day business parameters).
These are rights that allow an investor to shape the company’s direction or block significant operational changes – hence indicative of material influence.
On the other hand, the FAQs enumerate investor protection rights that generally are not presumed to be control-conferring. These include typical minority safeguards like information rights, the right to ensure proceeds are used as agreed, exit rights, tag-along rights, anti-dilution rights, restrictions on transfer of shares to undesirable third parties, changes to charter documents only to protect the investor’s agreed rights.
To be clear, CCI has not laid down a brightline test and emphasised that de facto control is not a matter of presumption, but a matter of determination. It has also offered some helpful illustrations to distinguish between rights conferring control vs investor protection. Let’s now examine the repercussions for some of the common rights in light of CCI’s guidance.
At what point do investor veto rights—over capital raises, subsidiary formation, dividend distributions, or business continuity—cross the line from safeguarding economic interest to conferring strategic influence?
The key determinant is not the label attached to a right— “investor protection” vs. “strategic veto”—but its actual effect on the company’s decision-making autonomy.
Take capital raising rights: a veto over dilutive issuances at low valuations is protective—it ensures the investor’s pro rata ownership and valuation aren’t undermined. But a veto over any capital raise, including at a premium, allows the investor to gatekeep the company’s access to growth capital. That is a strategic lever, not a defensive shield.
Similarly, consent over buybacks, capital reduction, or non–pro-rata dividends is generally seen as economic protection—preserving the investor’s value or voting position.
But when rights extend to decisions like forming subsidiaries, or entering/exiting business lines, they affect how the company structures operations, deploys resources, or executes its business model. These are forward-looking decisions tied to strategy—not just downside protection.
What about information rights?
Information rights, by themselves, do not give rise to a presumption of control, as access to information alone does not enable an investor to influence the outcome of commercially strategic decisions.
Even if the information accessed through these rights is commercially sensitive (CSI), it may still not amount to control.
That said, such access has implications for exemption eligibility. Under the Exemption Rules, an acquisition of less than 25% may be exempt from notification only if it is made "solely as an investment" (SAI) and does not confer control. A key condition for qualifying as SAI is that the investor must not have access to commercially sensitive information.
Accordingly, if information rights grant the investor access to CSI, the transaction may not qualify for the SAI exemption and could trigger a CCI filing requirement—even in the absence of control.
Does an observer on the board amount to control?
The FAQs say an observer seat does not imply material influence. However, in our view, if the observer has the ability to impede or influence ‘operational dynamics’, then even an observer seat could amount to control. For instance, if without the observer presence, no board meetings can be held at all. Board observers who simply attend meetings and receive information—without voting rights, vetoes, or involvement in decision-making— will not amount to material influence.
What about director rights?
A single board seat may not be seen as exercising material influence. But what if the company has 3 board members or the investor’s board nominee possesses expertise core to the company’s operations or is a well-known individual?
Interestingly, the FAQs clarify that mere director seat or seats would not amount to control, per se, unless material influence can be established. For instance, a director could be seen as exercising material influence basis the stature, expertise and status, which could have the potential to influence board decisions — CCI is likely to treat it as “material influence”—and therefore control.
Conclusion
The 2025 FAQs do not change what constitutes control so much as they clarify when and how it arises, by shedding light on the types of rights and situations that will be viewed as conferring control. This evolution benefits the M&A community: it aligns Indian merger control with global norms and provides concrete criteria for parties to self-assess their transactions.
From a commercial standpoint, the refined guidance helps investors and companies structure deals with a fuller awareness of the regulatory implications of governance rights. In real-world scenarios, as we discussed, the framework makes it easier to predict whether an arrangement (be it a board seat, an observer with veto, or a package of affirmative rights) tips an investor into the ‘control’ category.
Annexure 1
Material Influence: Guidance as per previous FAQs
“The ability to control the management and affairs of an enterprise may be inferred from the extent of shareholding and/ or statutory rights associated with the shareholding and/ or contractual rights such as veto rights, consultation rights, participation in management and affairs. However, special rights/ veto rights are not the only basis for inferring the ability to manage/ control the affairs of an enterprise and there can be other sources of control as well, viz., status and expertise of an enterprise or person, board representation, structural/ financial arrangements, etc. In competition law practice, control is considered a matter of degree. However, all degrees and forms of control nonetheless constitute control.
International jurisprudence considers “material influence” as the lowest form of control, alongside other higher forms such as de facto control and controlling interest (de jure control), in that order. Material influence— – the lowest level of control— – implies the presence of factors that give an enterprise/ person the ability to influence the affairs and management of the other enterprise, including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/financial arrangements, etc.
De facto control implies a situation where an enterprise holds less than majority of the voting rights but, in practice, controls over half of the votes actually cast at a meeting. Further, the factors relevant for material influence are relevant for ascertaining de facto control as well. It may be noted that the concepts of material influence and de facto control are very significant in competition law as there can be situations where commercial realities can be more telling than formal agreements and structures.
Controlling interest, or de jure control, means a shareholding conferring more than fifty per cent (50%) of the voting rights of an enterprise. It may be noted that only one enterprise can have a controlling interest in the other enterprise, but more than one enterprise can control the other enterprise (situation of joint control).
Likewise, there are other terms which are used to express control, such as negative control (by virtue of ability to block special resolutions) or operational control (by virtue of commercial cooperation agreements with or without involving equity). The control may be classified as negative control, positive control, sole control or joint control.”
1 IMT: https://www.cci.gov.in/uploads/filemanager/catalog/faqs/C-2012-03-47.pdf
2 UltraTech Cement: http://164.100.58.95/sites/default/files/Notice order document/order/OC-2015-02-246_Section%2044.pdf
3 “group” means two or more enterprises where one enterprise is directly or indirectly, in a position to—
(i) exercise twenty-six per cent. or such other higher percentage as may be prescribed, of the voting rights in the other enterprise; or
(ii) appoint more than fifty per cent. of the members of the board of directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise;
When does a veto right cross the line from investor protection to strategic influence? Does nominating a single director — or even just an observer — on the board amount to control? If no, what if that nominee is a person of stature?
These are not abstract hypotheticals. They are live questions faced in deal rooms every day — particularly in the context of private equity and venture capital. The Competition Commission of India’s May 2025 FAQs attempt to offer sharper answers to these long-debated questions. In doing so, they update — and in some respects, refine — the framework previously set out in the earlier FAQs.
In this piece, we’ll look at some common investor rights to examine if they would amount to “control” basis CCI’s latest guidance. Understanding the nuances around “control” is critical since it is one of the factors to determine notifiability of a transaction. It’s even more critical in cases of indirect acquisitions, which in our view, should be the trigger for a CCI filing. Read our detailed analysis on it here.
But first, here’s a quick look at how “control” has evolved under India’s merger control regime.
The Merger “Control” Journey
The standard of "control" in Indian competition law has evolved from requiring decisive influence—such as majority shareholding or the ability to appoint majority of the board members—to recognizing "material influence" as sufficient for establishing control.
Early cases, like the IMT1 order, focused on whether an acquirer could exercise decisive influence over management and affairs, typically through significant shareholding or contractual rights. However, over the years and as seen in the UltraTech Cement case2, CCI clarified that control is a matter of degree and can arise not only from outright majority or board control, but also from factors like minority shareholding, board representation, special rights, or even industry expertise. Here, the regulator explicitly recognized "material influence" as the lowest threshold of control, where an entity can influence key decisions or policies even without majority power.
Then in 2019, the Competition Law Review Committee (CLRC) recommended adopting this material influence standard after reviewing international best practices. The Committee noted that jurisdictions such as the UK, Canada already consider material influence as a basis for control, allowing their regulators to capture a wider range of potentially anti-competitive transactions. Consequently, “Control” under Competition Act, 2002 (Act) has been expansively defined (under Section 5) to mean “…the ability to exercise material influence, in any manner whatsoever, over the management or affairs or strategic commercial decisions by –
(i) one or more enterprises, either jointly or singly, over another enterprise or group3; or
(ii) one or more groups, either jointly or singly, over another group or enterprise”;
Material Influence hasn’t been defined as such in the Act, but CCI’s previous and latest FAQ’s shed light on the regulatory approach.
Old v New FAQs: Has CCI Changed The “Control” Standard?
In short, no. Essentially, The regulator has given stakeholders a gradient by calling out rights that are clearly non-controlling (like tag-along and information rights), to those that are likely control-conferring (like vetoes over business plans or senior management), with a nuanced grey zone in between that depends on context, structure, and ability to ‘materially influence’.
To elaborate, the earlier FAQs stated that assessment would be done basis presence of factors that give an enterprise/ person the ability to influence the affairs and management of the other enterprise, including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/ financial arrangements, etc. While CCI’s earlier guidance encapsulated the broad principle that any ability to influence management or strategic commercial decisions of the target could constitute control, it lacked granular examples of which rights cross the line. (see Annexure 1)
This gap in specificity sometimes left investors uncertain about whether common contractual rights would be viewed by CCI as mere investor protections or as conferring control.
A key addition in the 2025 FAQs is an illustrative list distinguishing rights that are presumed to be conferring control versus those considered mere investor protection.
According to the new FAQs, control-conferring rights typically include affirmative rights which give the ability to influence outcome on policy and commercially sensitive matters. For instance, appointing or removing senior management, approving budgets or business plans, vetoing changes to the target’s charter documents that affect operational matters, or any rights over the target’s operational decisions (such as R&D, production, marketing, or other day-to-day business parameters).
These are rights that allow an investor to shape the company’s direction or block significant operational changes – hence indicative of material influence.
On the other hand, the FAQs enumerate investor protection rights that generally are not presumed to be control-conferring. These include typical minority safeguards like information rights, the right to ensure proceeds are used as agreed, exit rights, tag-along rights, anti-dilution rights, restrictions on transfer of shares to undesirable third parties, changes to charter documents only to protect the investor’s agreed rights.
To be clear, CCI has not laid down a brightline test and emphasised that de facto control is not a matter of presumption, but a matter of determination. It has also offered some helpful illustrations to distinguish between rights conferring control vs investor protection. Let’s now examine the repercussions for some of the common rights in light of CCI’s guidance.
At what point do investor veto rights—over capital raises, subsidiary formation, dividend distributions, or business continuity—cross the line from safeguarding economic interest to conferring strategic influence?
The key determinant is not the label attached to a right— “investor protection” vs. “strategic veto”—but its actual effect on the company’s decision-making autonomy.
Take capital raising rights: a veto over dilutive issuances at low valuations is protective—it ensures the investor’s pro rata ownership and valuation aren’t undermined. But a veto over any capital raise, including at a premium, allows the investor to gatekeep the company’s access to growth capital. That is a strategic lever, not a defensive shield.
Similarly, consent over buybacks, capital reduction, or non–pro-rata dividends is generally seen as economic protection—preserving the investor’s value or voting position.
But when rights extend to decisions like forming subsidiaries, or entering/exiting business lines, they affect how the company structures operations, deploys resources, or executes its business model. These are forward-looking decisions tied to strategy—not just downside protection.
What about information rights?
Information rights, by themselves, do not give rise to a presumption of control, as access to information alone does not enable an investor to influence the outcome of commercially strategic decisions.
Even if the information accessed through these rights is commercially sensitive (CSI), it may still not amount to control.
That said, such access has implications for exemption eligibility. Under the Exemption Rules, an acquisition of less than 25% may be exempt from notification only if it is made "solely as an investment" (SAI) and does not confer control. A key condition for qualifying as SAI is that the investor must not have access to commercially sensitive information.
Accordingly, if information rights grant the investor access to CSI, the transaction may not qualify for the SAI exemption and could trigger a CCI filing requirement—even in the absence of control.
Does an observer on the board amount to control?
The FAQs say an observer seat does not imply material influence. However, in our view, if the observer has the ability to impede or influence ‘operational dynamics’, then even an observer seat could amount to control. For instance, if without the observer presence, no board meetings can be held at all. Board observers who simply attend meetings and receive information—without voting rights, vetoes, or involvement in decision-making— will not amount to material influence.
What about director rights?
A single board seat may not be seen as exercising material influence. But what if the company has 3 board members or the investor’s board nominee possesses expertise core to the company’s operations or is a well-known individual?
Interestingly, the FAQs clarify that mere director seat or seats would not amount to control, per se, unless material influence can be established. For instance, a director could be seen as exercising material influence basis the stature, expertise and status, which could have the potential to influence board decisions — CCI is likely to treat it as “material influence”—and therefore control.
Conclusion
The 2025 FAQs do not change what constitutes control so much as they clarify when and how it arises, by shedding light on the types of rights and situations that will be viewed as conferring control. This evolution benefits the M&A community: it aligns Indian merger control with global norms and provides concrete criteria for parties to self-assess their transactions.
From a commercial standpoint, the refined guidance helps investors and companies structure deals with a fuller awareness of the regulatory implications of governance rights. In real-world scenarios, as we discussed, the framework makes it easier to predict whether an arrangement (be it a board seat, an observer with veto, or a package of affirmative rights) tips an investor into the ‘control’ category.
Annexure 1
Material Influence: Guidance as per previous FAQs
“The ability to control the management and affairs of an enterprise may be inferred from the extent of shareholding and/ or statutory rights associated with the shareholding and/ or contractual rights such as veto rights, consultation rights, participation in management and affairs. However, special rights/ veto rights are not the only basis for inferring the ability to manage/ control the affairs of an enterprise and there can be other sources of control as well, viz., status and expertise of an enterprise or person, board representation, structural/ financial arrangements, etc. In competition law practice, control is considered a matter of degree. However, all degrees and forms of control nonetheless constitute control.
International jurisprudence considers “material influence” as the lowest form of control, alongside other higher forms such as de facto control and controlling interest (de jure control), in that order. Material influence— – the lowest level of control— – implies the presence of factors that give an enterprise/ person the ability to influence the affairs and management of the other enterprise, including factors such as shareholding, special rights, status and expertise of an enterprise or person, board representation, structural/financial arrangements, etc.
De facto control implies a situation where an enterprise holds less than majority of the voting rights but, in practice, controls over half of the votes actually cast at a meeting. Further, the factors relevant for material influence are relevant for ascertaining de facto control as well. It may be noted that the concepts of material influence and de facto control are very significant in competition law as there can be situations where commercial realities can be more telling than formal agreements and structures.
Controlling interest, or de jure control, means a shareholding conferring more than fifty per cent (50%) of the voting rights of an enterprise. It may be noted that only one enterprise can have a controlling interest in the other enterprise, but more than one enterprise can control the other enterprise (situation of joint control).
Likewise, there are other terms which are used to express control, such as negative control (by virtue of ability to block special resolutions) or operational control (by virtue of commercial cooperation agreements with or without involving equity). The control may be classified as negative control, positive control, sole control or joint control.”
1 IMT: https://www.cci.gov.in/uploads/filemanager/catalog/faqs/C-2012-03-47.pdf
2 UltraTech Cement: http://164.100.58.95/sites/default/files/Notice order document/order/OC-2015-02-246_Section%2044.pdf
3 “group” means two or more enterprises where one enterprise is directly or indirectly, in a position to—
(i) exercise twenty-six per cent. or such other higher percentage as may be prescribed, of the voting rights in the other enterprise; or
(ii) appoint more than fifty per cent. of the members of the board of directors in the other enterprise; or
(iii) control the management or affairs of the other enterprise;
Author
Payaswini Upadhyay
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