Acquisition of control: Sebi to continue with existing norms

In March 2016, the watchdog had launched a public consultation for defining control by way of bright-line tests and proposed fixing 25 per cent voting rights as a threshold.

PTI| Last Updated: Sep 08, 2017, 23:15 PM IST

New Delhi: More than a year after suggesting bright line tests for ascertaining 'control' in a listed company, Sebi has decided not to tweak the existing takeover norms as it received feedback that such a move could be "prone to misuse".

"Considering the current regulatory environment, it has been decided to continue with the practice of ascertaining acquisition of 'control' as per the extant definition in the takeover regulations," Sebi said on Friday.

In March 2016, the watchdog had launched a public consultation for defining control by way of bright-line tests and proposed fixing 25 per cent voting rights as a threshold.

A bright-line rule or a bright-line test generally refers to a simple and basic standard that can be applied to remove ambiguity and resolve contentious issues.

Under Sebi regulations, control is based on certain defined principles rather than on rules and there have been cases when a multitude of opinions give rise to different assessments of control over a listed company.

In a statement today, Sebi said that while a number of comments were received from various stakeholders, including industry bodies and intermediaries, no particular option garnered overwhelming support among the stakeholders.

Among others, the regulator received views from the Reserve Bank of India (RBI).

"The Ministry of Corporate Affairs and a few other stakeholders have opined that changing the current definition of 'control' may reduce the regulatory scope and may be prone to abuse and that the current definition of 'control' may not be changed and it would be more appropriate to take decisions on a case-to-case basis," it said.

The ministry implements the Companies Act.

The Justice Bhagwati Committee, set up in 1995, to review the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 1994, had recommended a broad definition of control.

The panel had also opined that it should be left to Sebi to decide whether there has been an acquisition of control on the basis of facts of each case.

The view of the panel was reiterated by the Takeover Regulations Advisory Committee (TRAC) in its report in July 2010.

"It is felt that any change or dilution in the definition of control would have far-reaching consequences since a similar definition of 'control' is used in the Companies Act, 2013 and other laws," the statement said.