This article is written by Gautam Tomar, BBA LLB Bharati Vidyapeeth Deemed to be University during his. internship with the Le Droit India.
ABSTRACT:-
The takeover code or which is known as substantial acquisition of share and takeover regulation 2011 was truly a vital step in our Indian corporate landscape. It helps us in regulating public mergers and acquisitions. There are some changes which has been made which help in defining a lot of terms, providing exemptions and the most important giving open offer obligations to the people. When these changes were brought, they kept in mind to ensure a proper balance in flexibility as well as protecting the minor shareholders. This article will help you to analyse what was the impact of these new recent amendments made on public M&A and covering various judicial interpretations. What were the challenges incurred and how India is preparing itself from hostile takeovers in the International field or context.
Keywords, SEBI, Public M&A, Shareholders, Protection, Merger and Acquisition, Regulations
INTRODUCTION:-
As we all know, SEBI has played a very important role in ensuring a lot of things in our shareholder or the share market. The new takeover code which was brought to us by the SEBI in the year 1997. Help the corporate law in a lot of ways by helping them, preventing chaos and helping them in being strategic also. It ensures that powerful corporate giants only acquire substantial or Limited states in the public companies show that minority shareholders are not discriminated or bullied because of these giants.
As we know that SEBI regulations were introduced in 1997, but they were later on over hold in the year 2011, by bringing a lot of changes in the market. For example, open offer, triggering thresholds, exemption from the group restructuring, defining what is control, protecting the minor shareholders, limiting the major giants in the market.
Now what does this take over governance?
Governance substantial acquisition of shares and takeover of various public listed companies in India by following these three key objectives
1: Ensuring transparency in acquisition
2: Protecting the interests of various minority shareholders
3: Preventing acquisitions of companies without any disclosure
Pre-amendment framework:-
In 1997, The takeover only used to have three major frame work
1: Definition of control: Though defined what control is, and it was done in abroad, but still, it could be interpreted differently by various people which led to a lot of debate in the courts
2: Creeping acquisition limits: various acquires used to hold 25 to almost 75%, which would increase their stake by almost 5 to 10% in every financial year without having the open offer obligations
3: Trigger threshold: they ensure that any acquisition done above 25% would require an open offer. If not then proper action or punishment would be given.
Now, as we know that what functions or what objective did the SEBI have and how it used to work before the amendment, but now we need to analyse that how these changes which were made in the year 2011 affected in the working of SEBI as we know that it did affect them in a lot of ways by bringing a lot of framework, changing the old and traditional methods giving proper security and holding the interest of minor shareholders, bringing out new laws in the market to help the people, and it did have a great impact upon the public M and A or merger and acquisitions
What were the key changes made in SEBI takeover code 2011?
1: Change in trigger thresholds:-
Under the 2011 regulation, the acquisition of 25% or more used to trigger and open offer, but in the recent clarification, they reaffirm this and insured that no strategic circumvention through derivative instrument or any indirect acquisitions
Impact:
1: Prevents steal acquisition via complex group structures.
2: Ensure all significant acquires, make open offers to protect public shareholders exit rights
2: Defining and scope of control:-
In the 1997, SEBI takeover code, it was mostly ambiguous, which resulted in a lot of chaos and debates, and it majorly focused upon the decision making which needed a true change, so the SEBI expanded control
The change made:-
1: Direct or indirect write to appoint any major directors
2: Have an influence over the management or upon the policy decisions, even if the said influence is exercise negatively, for example, the veto rights
Illustration:- Subhkam ventures versus SEBI 2010
Subhkam proposed investments in the MSK projects which included his affirmative rights. The SEBI interpreted in this and they said to trigger an open offer obligation for it because they thought being a giant they are troubling the public companies and as they have proper control on it, they might miss use it later on SAT ruled that there are no such rights which do not amount to control unless or until they confer, decisive power in the management or the policy. This case helped us understanding the interpretation dilemma and helping SEBI to redefine what control means and expand its true nature
Impact:
1: Increases compliance burden for PE and strategic investors with broad rights
2: It promotes transparency by bringing in the indirect control transactions within the regulatory scope.
3: Voluntary open offer changes:-
Earlier, SEBI used to allow voluntary open over even without a breach of Threshold, which used to help the quires to consolidate the holdings of a company strategically, but after the change brought in the 2011 takeover code, it impacted SEBI a lot.
Impact:
1: Provides acquisition flexibility to help control the shareholders, wishing to enhance their stakes
2: Protected the minor shareholders by helping them and exit opportunity during the period of consolidation
4: Exemption from group restricting:
Various intra group transfers which were made among the promoters were exempted by SEBI from open offer obligations which were subjected to conditions, for example, no change in the ultimate control.
Impact:
1: This helped in easing the internal restructuring, help the mergers within the growth and helped in promoting without any unnecessary public offer obligations
2: It facilitates compliance for the conglomerates, engaging in the asset light or holding upon the company models.
5: Offer size calculation, changes:
SEBI had clarified in the rules for calculating the minimum offer size on the basis of post acquisition after the new takeover quotes (earlier, it was done on the basis of pre-acquisition)
Impact:
1: It helps in preventing enquiries from manipulating the offer sizes by staggering the acquisitions.
2: It enhances fairness in determining acquisition of a company with proper price and quantity.
6: Hostile takeover and defensive tactics:
Code didn’t explicitly facilitate any hostel takeover which was practised in the western jurisdiction, clarity in definitions and indirect threshold. This discourage stealth acquisitions and help in strengthening the target companies defensive tactics.
Illustration- FORTIS healthcare takeover battle, 2018:
They were multiple bidders who were competing to acquire the fortis amidst the governance concerns. This highlighted the SEBI role in ensuring proper transparency while protecting the minority shareholders in the competitive acquisitions. The bidders were giants in the healthcare sector like Manipal, TPG, IHH healthcare. They plan to takeover FORTIS as they had proper stakes of it and being the global giants they had proper control over the bidding. Later on SEBI ensured that everyone should know that how the bidding is taking place, which stopped these giant from troubling another public company.
Now, as we know that the takeover codes which are brought in the year 2011, they played a lot of rules and brought various changes in the shareholder market, but it also impacted a lot of public merger and acquisition as well by giving proper structure, helping in takeovers, ensuring proper foreign investment and protecting the minor shareholders
Now let’s see the Impact on public measure and acquisition:-
1: Minority shareholder protection:
1: Ensure that open offers would be mandatory, which helped in providing exit option to the shareholders
2: They brought in clarity on how to control these acquisitions and how to structure them show that they can avoid the open offer obligations
2: Merger and acquisition deal structure:
1:SEBI made sure that investor should carefully draft agreements just to avoid unintended control classification during the period of merger and acquisition.
2: Various strategic investors often used to restructure these bills like changing the board rights, converting various instruments, et cetera, just to remain compliant in the market.
3: Hostile takeover:
1: India still remains conservative with respect to the hostile bedding
2: Recent changes do not directly encourage any sort of Hostel takeover, but they improve the transparency which helps them in making these more feasible to the general public
4: Foreign investment impact:
1: Various foreign enquiries used to find Indian takeover regime more of a protective one, but not proceed clear which used to trouble them a lot later on. SEBI changed it, but still it is same as the old one.
2: It helped in enhancing investors, confidence in merger and acquisition with proper define threshold and the timelines show that there is no case of ambiguity between the companies.
Now let’s take one illustration or an hypothetical example, which will help us to understand that how this new SEBI takeover code 2011 has changed and how it has impacted the shareholders of the share markets
Let suppose there is a company name A which has been listed properly, but it has scattered public shareholding. Similarly, there is a company named B which acquires a total of 24% via open markets just to increase their control. They buy an additional 2% stake, which now crosses the mark of 25% Threshold as stated under the takeover code and open offer has to be made if the threshold crosses the 25% mark so they have to make an offer for at least 26% shares of company a for a total voting capital at price which is determined as per the guidelines. This case helps us to understand that how this new takeover code works earlier on when they was a merger or acquisition between companies. No open offer was made and there was just away and acquisition or a merchant between two companies and the public wouldn’t even know about it so to make it more transparent say be decided to bring the new court Code.
Now what judicial cases which has happened, which will help us to understand more about it
1: ArcelorMittal Indian Pvt Ltd versus Satish Kumar Gupta 2019 Supreme Court:
It was primarily an IBC case, but it showed us the importance of SEBI compliance in acquisition as there was a transaction during corporate resolution process, and it was important for the SEBI to help the company and smooth and legal acquisition
2: Hindustan Unilever Limited, open offer for Glaxo Klein consumer healthcare 2019:
There was a strategic acquisition structure to comply with the SEBI open offer rules just to ensure that the minority shareholders are protected in large cross-border merger and acquisition
CONCLUSION:-
The Takeover Code, 2011, remains a cornerstone of India’s corporate regulatory framework, effectively governing public mergers and acquisitions to ensure market fairness and shareholder protection. It plays a vital role in safeguarding minority shareholders, granting them equitable exit opportunities during mergers or acquisitions, and fostering transparency throughout the acquisition process. The recent key changes – including the redefinition of control, modifications to trigger thresholds, and exemptions for intra-group restructuring – have significantly reshaped how deals are structured, negotiated, and executed within the Indian market.
While these amendments do not actively encourage a hostile takeover culture similar to that of the United States, they nonetheless enhance legal clarity, protect investor interests, and ensure that acquisitions are carried out with comprehensive due diligence and compliance. Moving forward, the effectiveness of these reforms will largely depend on SEBI’s proactive enforcement and the judiciary’s interpretative support in resolving ambiguities and ensuring consistent application of the law. Together, these developments will continue to shape and strengthen India’s evolving public M&A landscape, making it more robust, transparent, and aligned with global corporate governance standards while maintaining necessary protections suited to India’s unique economic environment.
CITATIONS:-
1:Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, SEBI (2011), available at https://www.sebi.gov.in/legal/regulations/aug-2011/sebi-substantial-acquisition-of-shares-and-takeovers-regulations-2011-last-amended-on-january-15-2024-_34664.html.
2: Subhkam Ventures Pvt. Ltd. v. Sec. & Exch. Bd. of India, Appeal No. 31 of 2009, Securities Appellate Tribunal (SAT) (Jan. 15, 2010), available at https://indiankanoon.org/doc/1929904/.
3: ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 (India), available at https://indiankanoon.org/doc/12273642/.
4: Fortis Healthcare Takeover: Latest News & Videos, The Economic Times (Apr. 2018), available at https://economictimes.indiatimes.com/topic/Fortis-Healthcare-Takeover.
5:HUL completes merger with GSK Consumer Healthcare, Business Standard (Apr. 18, 2019), available at https://www.business-standard.com/article/companies/hul-completes-merger-with-gsk-consumer-healthcare-119041800160_1.html.
