The Securities Appellate Tribunal (SAT) recently passed an order in favour of Subhkam Ventures India, clarifying that veto rights do not constitute “control” under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the takeover code).
Subhkam had acquired more than 15% in MSK Projects (India), triggering the requirement to make an offer to acquire at least 20% of the public shareholding. While Subhkam wished to make an offer solely under Regulation 10, SEBI directed that the open offer would also have to be made under Regulation 12, which relates to a change in control. Subhkam filed an appeal against this requirement before the SAT.
According to the SAT, control is a “proactive and not a reactive power”. In other words, if an acquirer can only prevent a company from doing what it wants to do, this does not in itself constitute control.
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The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.
