Ms. Iyer submitted that regulation 10 requires the acquirer to make a public offer if his holding along with the holdings of the persons acting in concert with him entitle him to exercise 15% or more of the voting rights in a company, that it would be against the spirit of the regulation as expressed by the Bhagwati Committee, that only because the holding was short of a fraction to be 15%, regulation 10 is not attracted and consequently denial of the benefit to the shareholders in a public offer. In support, she referred to the Bhagwati Committee Observation that "The question of defining takeovers was discussed. It was noted that though the concept of take overs was easily comprehensive, it eluded precise definition. It is perhaps for this reason why regulation in most countries have not defined it. While takeover is taken to be synonymous with acquisition of control over the company, opinions vary on what constitutes change of control. According to industrialists and professionals who have involved themselves in takeovers, management control ultimately manifests itself through control over the board of directors of the company, whatever be the manner in which such change of control may be achieved. The Committee agreed that attempting a precise definition of takeover would not only be counter productive but also limit the scope of the Regulations, and it should be left to SEBI to decide whether there has been a violation of regulations in a given situation of a takeover, through investigation if necessary, and enforce the Regulations. The Committee was of the view that the Regulations should nonetheless contain an inclusive definition of the term ‘control’ which would serve to indicate the circumstances when compliance with the provisions of the Regulations would be necessitated, even where there has been no acquisition of shares, so that SEBI would not be on an uncharted sea in investigating whether there has been change in control. On the issue of change in control of a company attracting the provisions for public offer, the Committee felt that control of a company is interlinked with its fortunes and any change in control could not be without impact on company’s policies and business prospects and is thus linked to investors interest. And given that investor protection is a mandate of SEBI, takeover which entails change in control should necessarily be the concern of SEBI. This is all the more necessary because under clause (h) or sub section (2) of Section 11 of SEBI Act, SEBI is empowered to regulate not only substantial acquisition of shares but also takeovers. This was also the overwhelming view of all professionals, intermediaries and financial journalists who made submissions before the Committee. The Committee also noted that though the existing Regulations did not include change in control as triggering of a public offer, SEBI has placed continued reliance on Clause 40A and B of the Listing Agreement in such cases where the acquisition of shares has been less than the threshold limit of 10%. The Committee recognised that the Regulations should, as far as possible, be comprehensive and self contained and SEBI should not have to rely on outside rules and regulations to implement its objects. On the above considerations and given on the one hand that it would be difficult, if not impossible, to attempt at a precise and comprehensive definition of takeover, and on the other hand that takeover does ultimately result in change in control of the company, howsoever such control may be exercised, the Committee felt that change in control of a company, as opposed to change in management of a company, should be made a condition requiring a public offer to be made. When there is a change in control, the shareholders must be afforded an opportunity to exit from the company if they do not want to continue under the new acquirers. This will also obviate the need for SEBI to fall back upon Clause 40A & B of the Listing Agreement, which could now be repealed. The Committee originally thought that it would be advisable to refrain from defining "control of a company" and allow time and practice to craft a well accepted definition of control. The above decision of the Committee was incorporated in the draft report of the Committee. But, as already discussed in para 2.2 of this Report, the Committee received numerous comments advocating the need to define at least the parameters of control. Having regard to the feed back received, the Committee felt that a term of such critical relevance to the Regulations should not be left undefined. The Committee, therefore, agreed to define control. The Committee also felt that concept of joint control which is often seen in practice should also be recognised. The Regulations should make it explicit that cessor of any one person from joint control, thus giving the remaining person or persons sole control or taking of any person or persons in joint control by a person having sole control shall not be construed as ‘change in control over the company’ attracting the Regulations.
