In March 2016, SEBI had issued a discussion paper containing proposals to overhaul the definition of ‘control’ within the Takeover Regulations, 2011. The definition necessitates a subjective case to case determination of whether an acquirer has acquired the right to appoint majority of the directors or to control the management or policy decisions of a target company. The paper proposed to either introduce a clear numerical threshold for determining control or to adopt a framework whereby certain protective rights would be excluded from amounting to control when bestowed on an acquirer.
In a recent press release, on reviewing the comments received on the discussion paper and the various committee reports pertaining to the takeover regulations created over the years, SEBI has announced that it will retain the original definition as is. They have observed that a change as proposed in the discussion paper may be prone to abuse, may reduce the scope of the definition and would have far reaching consequences since a similar definition of control is used in the Companies Act, 2013, and other laws. This is a welcome move as an objective threshold would result in incorrect findings of acquisition of control and failure to reach a finding of control despite actual acquisition of control. For the sake of simplicity of understanding and ease of working, changes to securities law cannot be made with shortcuts in reasoning.