21 November 2011

Big event on definition of control - ends in a whimper. Subhkam Ventures

Everyone amongst the securities/corporate lawyers was waiting for the legal issue pending before the Supreme Court of India (SEBI versus Subhkam Ventures) on whether negative veto rights amount to control under the SEBI takeover regulations. The case was an appeal  from  the Securities Appellate Tribunal ruling that "every fetter of any nature in the hands of any person over a listed company cannot result in "control" of that person over that company".

Disappointingly, not only has the Supreme Court not decided the issue, but has said that the question of law is open to a future ruling and that the order of SAT shall not be taken as a precedent. So if there was lack of clarity - which everyone was hoping would get clearer, it is now officially as muddled as ever. Here is the SC order:

"Securities and Exchange Board of India                     ...Appellant(s)
M/s. Subhkam Ventures (I) Private Limited                 ...Respondent(s)

                               O   R    D    E   R

This civil appeal is filed against the impugned order by the Securities Appellate  Tribunal   [`SAT',   for   short] wherein the SAT has held on the facts of this case that the respondent has not acquired any control in the Target Company and, therefore, not required to make any public offer under Regulation 12 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 [`Takeover Regulations', for short].

During the pendency of the appeal before this Court, an application has been filed by the respondent in January, 2011, whereby it is stated that there have been subsequent developments    in    the    matter    as stated       therein whereby    the respondent had not appointed their Director on Board and had not exercised any such power and they had already sold their stake in the Target Company and had retained only about six per cent shareholding of the Target Company.               

Further, it was also informed that a company by name of M/s. Welspun had already acquired majority stake in the Target Company and the said   M/s.   Welspun   had   also   taken   control   of   the   Target Company and, accordingly, complied with the requirements of both Regulation 10 as well as Regulation 12 of the Takeover Regulations.

Keeping in view the above changed circumstances, it is in the interest of justice to dispose of the present appeal by keeping the question of law open and it is also clarified that the impugned order passed by the SAT will not be treated as a precedent.

The civil appeal is, accordingly, disposed of.
No order as to costs.

New Delhi,  November 16, 2011."

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