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FIGURING OUT CONTROL

As mergers and acquisitions become more complex and multi-layered, requiring multiple regulatory clearances and compliances, the understanding of the ‘C’ word has become more crucial than ever

Definitions of control under different Indian laws
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Differences between control as seen byCCI and Sebi: | CCI approaches it from business sense, Sebi looks at it from the stock market perspective > ACCOUNTING STANDARD 21 * | CCI looks through multiple | The ownership, directly or indirectly through subsidiary(ies), of more layers. Sebi usually stops at than half of the voting power of an enterprise; or one layer above for | Control of the composition of the board of directors to obtain determining voting rights. economic benefits from its activities But, control is decided on a case-to-case basis > COMPANIES ACT | CCI sees convertible No direct definition. But defines holding company and subsidiary. securities as shares from day Accordingly, a company shall be deemed to be a subsidiary of another one, Sebi sees those taking if, and only if, effect on the day of | The other controls the composition of its board of directors; conversion | Holds more than half in nominal value of its equity share capital; | The first-mentioned company is a subsidiary of any company of which | CCI says control can be exercised either jointly or its holding company is a subsidiary singly, Sebi sees control > SEBI TAKEOVER REGULATIONS being exercised individually or in concert, directly or Includes the right to appoint a majority of the directors, or to control the indirectly management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly. This could be by | Sebi rules apply only to listed virtue of their shareholding or management rights or shareholders’ firms. CCI covers both listed agreements or voting agreements, or in any other manner and unlisted companies Includes controlling the affairs or management by: | One or more enterprises, either jointly or singly, over another enterprise or group; | One or more groups, jointly or singly, over another group or enterprise

COMPETITION ACT

> Definition of control under the International Takeover Laws UK
An interest, or interests, in shares carrying 30% or more of the voting rights in aggregate

Hong Kong & Singapore
Control shall be deemed to mean a holding, or aggregate holdings, of 30% or more of the voting rights

US
Takeovers in the United States are governed by a combination of state laws and case laws in the Delaware court of Chancery

Australia
An entity controls another if it has the capacity to determine the decisions about financial & operating policies of the other

> How Achuthan committee on takeover regulations saw control
| Control can differ, depending on facts, circumstances and nature of each company | The existence or non-existence ofcontrol would be a question of fact, or at best a mixed question of fact and law, to be answered on a case-to-case basis. Any blanket provision may be liable to misuse | It is desirable to underline and emphasise that acquisition of de facto control, and not just de jure control, should expressly trigger an open offer obligation | The panel recommended inclusion of ‘ability’ in addition to ‘right’ to appoint a majority of the directors or to control the management or policy decisions in definition. But, this change was not made law
*An accounting standard issued and enforced by Institute of Chartered Accountants of India Achuthan committee: Formed by Sebi in 2009 to rewrite takeover law. Its recommendations formed the basis of the new takeover code that took effect in October 2011. Source: takeovercode.com, Achuthan panel report & News reports; CCI: Competition Commission of India; Sebi: Securities & Exchange Board of India

ILLUSTRATION: AJAY MOHANTY