Introduction:
In 1991 after the so-called command budget of the IMF was introduced in India there were huge changes made in the economic policies of the Republic of India. The situation in 1991 was quite stringent for the economy and political stability as the Chandra Shekhar government was in midst of the crises and assassination of Rajiv Gandhi led to the election of the new Congress government which was led by P.V Narshimarao. New schemes were introduced by the government to match up the changes of Neoliberalism. The government had introduced numerous rules and regulations to watchdog over all the activities that were blooming in the Indian market. The government welcomed the change in economy but it was also a duty of the government to control and stop any form of malpractice that might hamper the newly introduced economic system. The whole and sole motive of the government was to curb the fiscal deficit. After neoliberalism the foreign direct investment increased to 316.9% and the Indian economy grew from 266 billion dollar to 2.3 trillion dollar in 2018. There was huge growth observed in the telecommunication, automobile sector, professional sector etc as there was a swift money flow in the Indian market.
Introduction of SEBI Codes to people:
There were a lot of takeovers and acquisition of shares taking place in the Indian market. There was a requirement for strict and clear rules and regulation. SEBI played an important role in the planning system and regulations which are very important to avoid any form of chaos and maintain the hold of the government in the economic sector through its schemes. SEBI was a non statutory body introduced by the parliament to look after the Indian security market. SEBI became an autonomous body in 1992 and was established as statutory power under the SEBI Act 1992. On September 2011, the SEBI declared SEBI ( Substantial acquisition of share and takeover) regulation 2011 over the past SEBI ( Substantial acquisition of share and takeover) regulation 1997. The core motive of the 2011 regulation was to regulate and watchdog over the acquisition of shares and voting of Public listed companies of India and to prevent hostile takeovers and provide various opportunities of exit to the shareholders who do not wish to be associated with a particular acquirer of the public listed company. There were a large number of changes made in the SEBI declared SEBI ( Substantial acquisition of share and takeover) regulation 2011 because of the growing economy the need for stronger and stringent laws was required. This act gave a panoramic view on how acquisition of shares and takeover of companies should take place. These laws were to be strictly followed in public listed companies. The regulation applies to direct or indirect acquisition of share or voting rights or control over the Public listed company. There were numerous changes introduced in numerous key elements like acquirer, control.
Important change introduced:
As per the new regulation of 2011, an acquirer means any person who, directly or indirectly, acquires or agrees to purchase whether by himself or with persons acting in cohort with him, shares voting rights in control over a target company under Article 2(1) a . This gave a more panoramic vision to the definition of acquirer. The changes which were introduced were only with regards to the fast changing economy. Another important change introduced was about control.The definition of control is a comprehensive definition, and the ordinary meaning of “control” is ‘the power of exercising restraint on direction over something’. According to Article 2 (1)(e) “control” that this includes is the right to appoint a majority of the directors or beyond this to control the management and policy outcomes exercisable by a person or in concert, provided that a director or officer of said target company shall not be considered in control over the target company, merely by holding such position. The term “Control” is a vast term and has numerous definitions. As per the Black’s Law Dictionary, “Control is the power to direct the management and policies of an entity, whether this arises through ownership of voting securities, contract, or beyond; the power and authority to manage, direct or oversee.” The definition used for ‘Control’ has been modified in SEBI Takeover Regulations 2011 as per the recommendations of the Regulations Advisory Committee (‘TRAC’). In the 2011 Regulations, an officer or director of a company targeted will not be considered in control over that target company, simply by holding such a position. [Regulation 2(1) (e)]. The changes which were introduced had quite significance. These helped companies to have a clear idea about the laws.
There was more emphasis given on public announcement. These public announcements made the system of takeover and acquisition swifter and clearer. As per the Regulation 4 of the SEBI Takeover Regulations 2011, “any acquirer acquiring, directly or indirectly, control over a target company must make a public announcement of an open offer for acquiring shares of such target company.” This gave the shareholders the power and liberty to either accept or reject the offer. This regulation safeguarded the power of each and every shareholder of the target company. Another crucial change which was introduced was the offer period. As per Article 2 (1) (p) under the SEBI Takeover Regulations 2011, “offer period” means the period between the date of agreement to acquire shares, voting rights or control over the company requiring a public announcement. The sole purpose of regulation of 2011 was to fill in the lacunas in the past regulation and to have a law which is flexible and convenient enough for the people and the government to govern. In this regulation there is also inclusion of person acting in concert. As per Article 2 (1) (q) under SEBI, persons acting in concert means, persons who while having a common objective or purpose to acquisition shares or voting rights or control over a company, according to an agreement or understanding, directly or indirectly co-operate for the acquiring of voting rights or shares in, or exercise of control over the target company.
One of the most crucial changes which was introduced was Regulation 3 of the SEBI Takeover Regulations 2011. According to this regulation the initial threshold limit provided for open offer obligations which were 15% of the voting rights within a company has increased to 25% in a public company. In addition to this, if a party already holds at least a quarter of the target’s voting rights, a mandatory open offer will be triggered if that party acquires more than 5% of the target’s voting rights in any financial year. SEBI Takeover Regulations, 2011 also provides certain trigger events wherein the Acquirer is required to give an offer to the shareholders of the Company being targeted to provide them with the exit opportunity. The SEBI Takeover Regulations, 2011 provides a threshold for a binding open offer. The Regulations make the provision that whenever an acquirer acquires the shares more than the limit as mentioned in Regulation 3 and 4 of the SEBI Regulations, 2011, then the acquirer id is required for a public announcement of the offer to the shareholders of the target company. Regulation 3 of the SEBI Takeover Regulations, 2011 provides the following:
Shares or voting rights shall not be acquired by a target company which, when taking together shares or voting rights held by them and by persons acting in concert with him in such target company, entitling them to exercise twenty-five percent or more of the voting rights in such target company.
The single exception to this is if the acquirer makes a public announcement of an open offer for acquiring shares of such target company following these regulations.
Regulation 5A of SEBI Takeover Regulations, 2011 deals with delisting offer in case of some instances arising out of open proposal as discussed below:
In the event the acquirer makes a public announcement of a free offer on shares of a target company concerning regulations 3, 4 or 5, he may delist the company under provisions of the SEBI (Delisting of Equity Shares) Regulations, 2009. However, the acquirer shall have declared upfront his intention to delisting at the time of making the detailed public statement. Another important element in the SEBI Takeover Regulations, 2011 is voluntary open offer. Voluntary Open Offer refers to an offer which is given by the acquirer voluntarily without triggering the mandatory open offer obligations. In case of a voluntary open offer, an acquirer along with the persons acting in concert can hold at least 25% or more shares in the target company. The acquirer along with the persons working with them cannot acquire any shares from the target company in the 52 weeks preceding without attracting the obligation to make a public announcement. One of the most clear-cut elements of the 2011 regulation is that the minimum size of an open offer regarded as mandatory is 26% of the target’s voting rights. As such if a party who already holds minimum 25% of the target’s voting rights, that party are in a position to make a “voluntary” open offer for 10% or more of the target’s voting rights, with the condition that certain other provisions meet fulfilment. SEBI Regulation 2011 mentions that whenever the acquirer acquires the shares and the voting rights of the target company in the exercise of the limit is required to make a public announcement of an Open Offer. There are few regulations on public announcements. The Regulation has mentioned the separate timelines for Public Announcement and the Detailed Public Statement. There should also be a short public announcement also to be made after the purchase of shares of the target company. A quick public announcement on the same day the offer finalizes should follow. Sending a copy of the general statement to SEBI and the Target Company within one working day of the date of the short public announcement should also be performed.According to regulation 14(3) and (4) the acquirer can make a complete public announcement within the five working days from the date of the short public statement. The detailed public notification is required to be announced to publish in all the editions of anyone English national daily, anyone Hindi national daily and any one regional language daily at the place where the registered office of the targeted company is situated.
Conclusion:
In today’s corporate world, shareholding in companies and ownership in business has created a significant impact. Ensuring smooth corporate governance in a progressive nation is essential Nowadays, the concept of control has become a complicated issue; as such SEBI has adopted various measures and established the regulations which can suit with the investors and can bring a smooth functionality in the corporate governance of a country.
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