Independent directors to take a stand on takeovers

The Securities and Exchange Board of India (SEBI) recently announced key changes to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Accordingly, when a target company faces an open offer, its shareholders will now have to be mandatorily provided with a written reasoned recommendation on the offer by a committee of independent directors of the company. This change was proposed by the Takeover Regulations Advisory Committee (TRAC) and is in keeping with good corporate governance practices followed in most jurisdictions. The TRAC report however does not detail the scope of the recommendation or its contents.

Active role

Historically, target companies have played a passive role during open offers in India, irrespective of whether the offer is made due to a change in control or otherwise.

The role of a target company is limited to providing information about itself for inclusion in the offer documents and to assisting in the share transfer process, apart from adhering to the specific obligations relating to the conduct of the company during the offer period.

Akila Agrawal is a partner at Amarchand & Mangaldas & Suresh A Shroff & Co. She can be reached at akila.agrawal@amarchand.com. The views expressed in this article are those of the author and do not reflect the official policy or position of Amarchand Mangaldas.