Capital market regulator Securities and Exchange Board of India has decided not to tinker with the existing definition of ‘control' in its takeover code, as its impact may trickle down to other laws.
“It is felt that any change or dilution in the definition of control would have far-reaching consequences since a similar definition of 'control' is used in the Companies Act, 2013 and other laws,” said SEBI in a media release. The decision comes a year after the regulator floated a discussion paper seeking public comments on the issue.
The takeover code mandates an open offer to public shareholders whenever 25 percent or more stake is acquired in a listed entity. The acquirer also has to make an open offer for another 26 percent stake on acquiring control of the target company.
Control “includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner” according to the takeover regulations.
SEBI reached out to various stakeholders like industry bodies, advocates, investors, the Ministry of Corporate Affairs and also the Reserve Bank of India, the release said.
The MCA said a change in definition would be “prone to abuse” and suggested taking decisions on a case-to-case basis. The SEBI will continue with the practice of ascertaining ‘control' on a case-to-case basis.
Market participants had asked SEBI to provide a list of protective rights which would not amount to acquisition of control, it said in its discussion paper. However, other participants also said that it would not be possible to prepare an exhaustive list that would address all situations.
SEBI itself, in the discussion paper, proposed two options – forming a framework of protective rights, or setting the threshold for control at 25 percent and above.
It was argued that some phrases in the regulation like “affairs and management” have a much wider connotation. Not clearly defining ‘control' also meant that different regulators may arrive at different results in a given scenario, which may lead to “ambiguity and confusion in the market”, the discussion paper had said.
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