Voting arrangements in listed companies clarified

The question of acquisition of control in listed companies gets even more complex when voting arrangements come into play. The Securities and Exchange Board of India (SEBI) has considered this previously but its recent informal guidance on Cipla offers clarity and consistency on the issue.

The Cipla guidance is an interesting development for private equity players investing in, as well as promoters of, listed Indian companies. In summary, SEBI recently exempted the promoters of Cipla from making a mandatory open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations), based on proposed voting arrangements within the promoter group.

The Hamied family, through various individuals and promoter entities, collectively own about 37% of Cipla. The family proposed to enter into arrangements whereby the entire family shareholding would vote as a single unit in board and shareholders meetings under the overall direction and supervision of YK Hamied, and after his demise or upon his incapacity, his brother MK Hamied. Upon the demise of both YK and MK Hamied, the voting rights would vest with the family member who owns the highest number of shares in Cipla. These arrangements also provide for pre-emptive rights in case any member of the Hamied family proposes to transfer his or her shares.

Aakash Choubey is a partner and Nayantara Kutty is an associate at Khaitan & Co. The views of the authors are personal, and should not be considered as those of the firm.