THE CONTROL

CONUNDRUM OF THE
TAKEOVER CODE
Parth Prachi Shrivastava – 18090
Overview
◦ What is control – More than what Meets the Eye
◦ When and Where the Debate Began
◦ SAT vs SEBI – The Different Routes
◦ VCPL vs SEBI – Let's settled the unsettled
◦ What’s in for the Investors?
 WHAT IS CONTROL UNDER THE TAKEOVER CODE?
HOW IS IT DEFINED BY SEBI AND SAT?
HOW DOES IT IMPACT THE INVESTOR?
CONTROL:
THE SAST REGULATIONS, 2011, UNDER REGULATION 2(E) DEFINED CONTROL AS:
§ THE RIGHT TO APPOINT MAJORITY OF DIRECTORS; OR
§ THE RIGHT TO CONTROL THE MANAGEMENT; OR
§ THE RIGHT TO CONTROL POLICY DECISION
When and Where the Debate began
 •amendment of the articles of
association;
• changes in share capital;
• approval of the annual business
plan;
• restructuring of the investee
company;

SAT vs SEBI – The Different Routes • the appointment of key officials

of the company;
• approval for dilution in
• Control is a proactive right and not a reactive right shareholdings;
• Proactive right is to take initiative • approval for merger, demerger,
• Reactive is to react or response to one’s initiative re-organisation;

• One is to steer the company, to provide direction • creating of charges, interests,

liens;
• Driver seat test to be applied
• Effective control • appointment of directors;
• effecting any change in the
statutory auditors of the company;
• material divestment, transfer or
disposal of an undertaking or
material
• subsidiary of the target company
• winding up of the Target
Company and the likes
 VCPL VS SEBI
VCPL to not increase its holding more VCPL to appoint one out of 3 directors of
NDTV took a loan from VCPL than 26% in NDTV without the consent the RRPR board, without whose presence
of the promoters quorum cannot be formed

convertible to equity shares aggregating

99.99% of RRPR to be exercised anytime
during the loan tenure or thereafter, (ii).
The loan was for a period of 10 years, till Purchase option to buy all the equity VCPL to not interfere with the editorial
July 2019 shares of RRPR at par value, (iii). call policies of NDTV
options to purchase 26% equity share
capital of NDTV from RRPR
(collectively “Options”)

Three options as safety net were RRPR to not transfer any equity of NDTV
Loan was without any interest payment
provided: (i). Convertible Warrant without VCPL’s permission
What’s in for the Investors?
• Wording to be made specific and clear
• Balanced rights to ensure unambiguity
• Keep the scale of – Driver Seat Test – in Mind

• Investors shall abstain from having the right to appoint majority of the
directors;
• Shall remain at bay from influencing policy decisions/editorial policies;
• Shall have rights to the extent required for protecting their financial
interest only;
• Shall have clauses restricting arrangements which can be construed as
control.
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NAMASTEY