Govt redefines term 'control' to provide clarity to investors
New Delhi: The government Thursday "widened" the definition of term "control" for the purpose of mergers and acquisitions involving overseas companies, a move which will provide more clarity to foreign investors.
As per the decision, 'control' will include "the right to appoint a majority of directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreements".
"...We decided to broaden and widened the definition and aligning as far as possible with the SEBI and Companies Bill regulations. The Cabinet has considered the proposal of new definition which is not entirely identical to the Companies Bill and SEBI regulations for understandable reasons as this particular definition deals specifically with the FDI," Commerce and Industry Minister Anand Sharma said.
The revision in the definition will help in calculation of total foreign investment -- direct and indirect-- in Indian companies.
Sharma said the revised definition of the 'control' will be prospective. The decision regarding this was taken by the Cabinet Committee on Economic Affairs (CCEA).
There have been uncertainties about the exact definition of 'control' with respect to various deals in recent times including the proposed Jet-Etihad transaction, which was cleared by the Foreign Investment Promotion Board (FIPB) recently.
Under the current policy, 'control' rests with one who has power to appoint majority of its directors in a company.
According to sources, the justification given by the government for widening the definition is that "a foreign company could avoid this test if it did not appoint the majority of directors but otherwise exercised control over the Indian company in indirect ways such as lien over voting rights or shareholders agreements".
The revised definition of 'control' will expand the scope of the term to cover "management and policy decisions, shareholding, management rights, shareholders agreements". It will also be in line with definition provided in the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 and the Companies Bill, 2012.