Abstract Any acquisition, takeover or change in control of a listed Indian company attracts the provision of SEBIs Substantial Acquisition

of Shares and Takeovers, Regulations 1997. Takeover Code has been amended several times since inception, still they havent been in line with the need of the hour. The paper has tried to analyse various critics of Takeover Code have tried to recommend amendments to the Takeover Code. Vast number of amendments needs review and be amended. This paper argues the complexity that the trigger points for acquisition of shares and tender Offer introduced over the years

lacks philosophy, and many other regulations can be amended. A very simple structure needs to beintroduced making compliance of the regulations straight forward and easy to comprehend by management of these listed companies. With Takeover Regulatory Advisory Committee (TRAC) reviewing the amendments to be made to the existing regulations, the paper provides recommendations to trigger points to keep up the pace the ever changing economic conditions. The paper discusses various areas where an amendment is required and recommendations for same have been provided. Chief amongst these are the provisions relating

to acquisition of shares, minimum open offer size, creeping acquisition limits, inter-se transfer amongst promoters, the chain principle and disclosure requirements. The recommendations are provided after comparing the Takeover regulations with UK and Singapore.

Merger and acquisition (M&A) activity in India is booming. The Indian economy grew by 9.2% in 2006, but M&A deal volumes grew much faster, up 54% to $28.2 billion in 2006 1. From senior politicians to ordinary citizens, Indians have joined the business community in celebrating the recent M&A boom, confident that it is yet another indicator of Indias recent and rapid economic ascent. The beginning of 2007 saw the signing of the largest inbound deal in India's history Vodafone's $11.1 billion acquisition of a controlling interest in Hutchison Essar, India's fourth-largest mobile phone company2," while Tata Steel's $13.2 billion dollar acquisition of the European steelmaker, Corus, which closed in early January 2007 headlined a frenzy of
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India on Fire, ECONOMIST, Feb. 1, 2007, available at http://www.economist.com Phineas Lambert, Vodafone: Hutchison Essar on Track to Close, DAILY DEAL, Mar'. 29, 2007, available at http://www.thedeal.com.

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011. acquisitions of foreign companies by Indian corporate enterprises in the past year3. Even the wholly European takeover of Arcelor by Mittal Steel, was orchestrated by Indian-born Lakshmi Mittal.

The primary forms of business combinations in India resemble those found in the United States: mergers and tender offers. Because the merger process in both countries requires the consent of the board of directors of the target company, hostile transactions necessarily entail utilization of the tender offer route. The tender offer mechanism is governed by the Securities and Exchange Board of India ("SEBI") Takeover Code (the "Takeover Code" or the "Code")." The Takeover Code imposes disclosure requirements and governs the conditions for mandatory tender offers4. When a shareholder or shareholder group" accumulates holdings in an Indian company exceeding 5%, 10%, 14%, 54%, or 74%, the Takeover Code requires the shareholder to disclose this shareholding to the company and to the relevant stock exchange." This disclosure requirement serves as an early warning system to both the target corporation and its public shareholders, alerting the corporation to a potential threat and signaling to shareholders that in anticipation of a potential change of control they should demand a control premium for sales of their shares on the open market prior to any tender offer5. Introduction Numerous listed companies were off their highs and were trading at attractive valuations during the recent financial crisis. During these times promoters and acquirers try to increase their stake or gain control in their listed companies. These times are also used by competitors or companies scouting for good acquisition targets as valuations are very attractive. Any acquisition, takeover or change in control of a listed Indian company attracts the provision of SEBIs Substantial Acquisition of Shares and Takeovers, Regulations 1997 (Takeover Code /Takeover Regulations).Indian M&A is coming out of its age and time has now come for review of
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See Jonathan Braude, Tata Wins Corus Auction, DAILY DEAL, Jan. 1, 2007, available at http://www.thedeal.com.

See Sean J Mathew, Hostile Takeovers in India: New Prospects, Challenges and Regulatory Opportunities, Columbia Business Law Review, Volume 2007, Number 3, available at http://papers.ssrn.com /sol3 /papers.cfm?abstract_id=1693821. 5 Id.

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011. Takeover Code. A lot of interpretation has taken place in the last ten years by SEBI, the takeover panel and the courts. Also, the economic condition has changed drastically in the past decade. First and foremost just a composition of corporate India in 1997 or around that period when the Code was originally formed and today it is completely different. The levels of promoter holdings now are vastly different, their aspirations and their financing needs are different. Also, there has been emergence of new asset class like private equity and when the law was originally written, it did not have things like private equity in mind and private equity today is very valuable source of capital for Indian market today. SEBI has set-up Takeover Regulatory Advisory Committee (TRAC) in September 2009 to look into changes that can be amended in the existing Takeover Code. The significant amendments required are pertaining to issues like share acquisition triggers, minimum open offer size, creeping acquisition, inter-se transfer between promoters, indirect acquisition (the chain principle) and disclosures.

Meaning and concept of a takeover

A high level of competitive pressure and an increasing appetite for growth have led firms across the geographies and industries to choose the inorganic growth path. Mergers and Acquisitions provide a robust growth vehicle often best suited for such firms seeking an entry into a market, geography, product category or broadening its product and client base. Takeover, an inorganic corporate growth device whereby one company acquires control over another company, usually by purchasing all or majority of its shares. Takeover implies acquisition of control of a company, which is already registered, through the purchase of exchange of shares. Takeovers usually take place when shares are acquired or purchased from the shareholders of a company at a specified price to the extent of at least controlling interest in order to gain control of that company. Takeover of management and control of a business enterprise could take place in different modes. The management of a company may be acquired by acquiring the majority stake in the share capital of a company through what is called the acquisition under 3956 of the Companies Act, 1956. Where the shares of the company are closely held by a small number of persons, a takeover may be effected by agreement with the holders of those shares. However, where the

395: Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011. shares of a company are widely held by the general public, it involves the process as set out in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011.

Role of the takeover panel

Bhagwati Committee appointed under the chairmanship of Justice P N Bhagwati for plugging loopholes7. On the basis of recommendations suggested SEBI notified 1997 regulations. The Committee. The Committee recommended that SEBI may be vested with power to grant exemption in residuary cases and for this purpose SEBI shall set up a Panel. The Panel would be recommendatory in nature. Any order granting or refusing exemption passed by the Board shall be a reasoned order and shall be published. This, procedure, while bringing transparency, would also serve to create precedents and help develop jurisprudence on the subject through case law. (Reference : Part II of the Report - clause (l) of sub-regulation (1) of regulation 3 and Regulation 4)8 An acquirer who proposes to acquire shares through a mode which is not specifically covered under regulation 39 may seek exemption from the applicability of the provisions of the offer process by making an application. SEBI has constituted a panel consisting of independent persons to examine such applications which is called the Takeover Panel. The constitution of the Takeover panel had been dealt with under Regulation 4 of Shares and Takeovers) Regulations, 1997.
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of the SEBI (Substantial Acquisition

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Justice P.N.Bhagwati Committee Report On Takeovers, 1997 Infra note 4, note 3 9 Regulation 3 10 4. (1) The Board shall for the purposes of this Regulation constitute a Panel of majority of independent persons from within the categories mentioned in sub-section (5) of Section 4 of the Act. (2) For seeking exemption under clause (l) of sub-regulation (1) of Regulation (3), the acquirer shall file an application 27[supported by a duly sworn affidavit] with the Board, giving details of the proposed acquisition and the grounds on which the exemption has been sought.[Format of application] (3) The acquirer shall, along with the application referred to under sub-regulation(2), pay a fee of 27a [one lakh rupees] to the Board, either by a bankers cheque or demand draft in favour of the Securities and Exchange Board of India, payable at Mumbai. (4) The Board shall within 5 days of the receipt of an application under sub-regulation(2) forward the application to the Panel. (5) The Panel shall within 15 days from the date of receipt of application make a recommendation on the application to the Board. (6) The Board shall after affording reasonable opportunity to the concerned parties and after considering all the relevant facts including the recommendations, if any, pass a reasoned order on the application under sub-regulation (2) within 30days thereof. (7) The order of the Board under sub-regulation(6) shall be published by the Board.

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011. Regulation 4 of the takeover code authorizes SEBI to constitute a panel of majority of independent persons from within the categories mentioned in 4(5) of SEBI Act. This panel is empowered to recommend exemption for certain acquisitions from the compliance requirements of the Regulation 3 (1) (1). The procedure in this regard is that any acquirer for seeking exemption under Regulation 3 (1) (1) shall file an application to the Board, verified by an affidavit giving full details of the acquisition and the grounds on which exemption is sought. The application shall also be accompanied by a fee of Rs. 25000/- by way of a cheque or a demand draft in favour of SEBI. The Board shall within 10 days of the receipt of application forward to the panel for its recommendations. The panel shall make its recommendations to the Board within 15 days on receipt of the application. The Board after giving reasonable opportunity to all pass a reasoned order within 30 days. The order of the Board shall also be published. In the case of Punjab State Industrial Development Corporation Limited v. SEBI11 it was held that though Regulation 4 (6) provides for reasonable opportunity being given to concerned parties' while considering cases to grant exemption, it cannot be construed to mean all the shareholders of the target company. The applicant seeking exemption is no doubt is a concerned party. It is for SEBI to decide who else is to be given the right to representation. Each and every shareholder of the target company cannot be considered to have a vested right to be heard. In this case it was decided by the Securities Appellate Tribunal (SAT), that it was up to SEBI, to decide what was the relevant material and who was the concerned party to be heard. SAT also held in this case that, the appellant being a co-promoter holding 8.69% of the paid up capital of the company was the aggrieved party' and hence entitled to file an appeal u/s 15 T of SEBI Act against the SEBI's order of exemption. Regulation 3 enumerates the types of acquisitions exempted from purview of Regulations 10, 11 and 12. While some exemptions are automatic, some are subject to fulfilment of certain conditions. There is an enabling provision in Regulation 3 (1) (1) and Regulation 4. The exemption under regulation 3 (1) (j) (ii) being an automatic one, cannot be taken away.

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APPEAL NO.13/2001

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011. RECOMMENDATIONS MADE BY THE ACHUTHAN COMMITTEEE The Takeover Regulatory Advisory Committee (TRAC) popularly known as the Achuthan Committee Report recommended major regulatory rules guiding mergers and acquisitions of enterprises.12 The Takeover Regulations currently provide for fourteen categories of transactions which are exempted from the requirement to make an open offer subject to satisfying the conditions specified therein, if any, without the need to seek SEBIs approval for the same. Further, for the transactions that are not covered in the aforesaid fourteen categories, an application can be made for seeking exemption from SEBI. Such applications are referred to a takeover panel for its recommendations. SEBI considers the recommendations received and passes an appropriate order. The Committee has classified the exemptions on the basis of the specific charging provisions which deal with the obligation to make an open offer, and has sought to distinguish between acquisitions involving change in control and those involving only consolidation shareholding.13 of

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Takeover Regulatory Advisory Committee (TRAC) 1997 Report, The Committee was headed by C.Achuthan IICA Seminar on Capital Markets and the Takeover Code Emerging Reform Issues available at h.ttp://www.iica.in/images/Papers.pdf as on 11/08/2012.

Role of the Takeover Panel under the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011. BIBLIOGRAPHY

Online Resources 1. http://www.law-essays-uk.com/resources/sample-essays/business-law/liabilities-of-apublic-company.php as on 11/08/2012 2. IICA Seminar on Capital Markets and the Takeover Code Emerging Reform Issues available at http://www.iica.in/images/Papers.pdf as on 11/08/2012.

List of Statutes 1. The Companies Act, 1956 2. SEBI (Substantial Acquisition of Shares and Takeovers) 1997