What constitutes ‘control’ to be decided another day

The concept of “control” in takeover regulations in India has evolved and developed over time. If one were to trace the history of the definition of control, it might appear that the draftsmen consciously decided to keep the definition wide and to allow the Securities and Exchange Board of India (SEBI) great flexibility and discretion in a given case.

Recent change

The Takeover Regulations Advisory Committee, in its report to SEBI in July 2010, sought to make this definition even wider by recommending the inclusion of “ability” (in addition to the “right”) to appoint a majority of the directors or to control the management or policy decisions of a company. Fortunately, this recommendation was not integrated into the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (takeover code), as it would have raised the apprehensions of potential investors about being deemed to be “in control” of a company when they intended only to invest. This change in the definition would also have introduced a grave element of uncertainty, throwing it open to myriad interpretations.

The current takeover code has a slightly altered the definition of control from its predecessor. A new proviso has been added to the definition and, on a plain reading, it is clear that control is defined in an inclusive manner. Control includes the right to: (a) appoint a majority of the directors; (b) control the management or policy decisions exercisable by a person or persons acting individually or in concert, whether directly or indirectly, including by virtue of their shareholding or management rights or shareholders’ agreements or voting agreement or in any other manner. Further, the emphasis is on control being de facto and not de jure.

Pankaj Agarwal is a partner and Neha Udeshi is an associate at Amarchand Mangaldas, Delhi. The views expressed in this article are those of the authors and do not reflect the position of the firm.