takeovers code

8/11/2019 Takeovers Code

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SECURITI ES LAW

ANALYZING (SUBSTANTI AL ACQUISI TION OF SHARES AND TAKEOVERS)

REGULATI ONS, 2011

IN THE L IGHT OF

SWEDISH MATCH AB V. SECURITIES AND EXCHANGE BOARD OF I NDI A

SUBMI TTED BY: ALOK MURMU

ID No.: 2013/LL /M//024

(LL .M. F INAL TRIMESTER 2013-14)


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L ist Of Cases

Swedish Match AB v. Securities and Exchange Board of India AIR 2004 SC 4219.

Securities and Exchange Commission v. Datronics Engineers 490 F. 2d 250.

Hardy Oil Ltd. v. SEBI [2006] 68 SCL 287 (SAT).

Shirish Finance & Investment Ltd v M. Sreenivasulu Reddy (2002) 2 Com LJ 386.

Parthasarathy (N) v Controller of Capital Issues (1991) 72 Comp Vas 651 (SC).

Bina Barua v Dalowjan Tea Co Ltd (1981) 51 Comp Cas 660 (Gua).

Borland Trustee v Steel Brother and Co Ltd [1901] 1 Ch 279.


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Contents

INTRODUCTION........................................................................................................................... 4

STATEMENT OF THE PROBLEM................................................................................................ 5

SCOPE AND OBJECTIVE............................................................................................................. 6

HYPOTHESIS................................................................................................................................. 6

RESEARCH QUESTIONS.............................................................................................................. 7

CHAPTERISATION........................................................................................................................ 7

LITRATURE REVIEW.................................................................................................................... 8

FACTS LEADING TO THE CASE.................................................................................................. 9

TRANSFER OF SHARES; BASIC PRINCIPLES............................................................................ 9

1. Transferability-a vital feature................................................................................................. 9

2. What is Share?...................................................................................................................... 10

3. Free transferability............................................................................................................... 10

4. Restriction on trade of share in relation to The Company Act 2013 .................................... 11

TACK-OVER OF A LISTED COMPANY..................................................................................... 11

1. Meaning of take-over.......................................................................................................... 11

2. Take-Over of a Listed Company............................................................................................ 12

3. Case of acquisition of shares in which a public offer is required......................................... 13

SWEDEN TAKEOVER CODE...................................................................................................... 17

CONCLUSION.............................................................................................................................. 19

BIBLOGRAPHY............................................................................................................................ 20

Acts And Circulars.................................................................................................................... 20

Books......................................................................................................................................... 20

Internet Source:......................................................................................................................... 20


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INTRODUCTION

The principle rule of the Substantial Acquisition of Shares and Takeovers Regulations, 2011 is

that any person or companies, singly or together, can acquire up to 24.99% shares or voting

rights in a listed company in India (target company), provided the acquirer does not take control

over the target company.

If the acquisition results into entitlement of 25% or more voting rights in the target company, the

acquirer is required to make an open offer to acquire at least 26% shares from the existing public

shareholders of the target company in terms of the Takeover Code (open offer obligation)1.

Whereas in Swedish Match Group had acquired in the target company 52.11 per cent shares,

i.e., 46.18 per cent by Haravon and 5.93 per cent by Seed. AVP Trading Private Limited (AVP)

and Plash Floods P. Ltd. (Plash) were Indian promoters of the target company. They belong to

one Jatia Group of Companies holding 24.11 per cent of the share capital of the target company,

i.e., AVP holding 6.03 per cent and Plash holding 18.08 per cent. 3. The Swedish Match entered

into an agreement with the Jatia Group to acquire majority shareholding in Haravon and Seed

and to make a public announcement of offer to acquire 20 per cent shares in Wimco. Theobligation to make a public announcement of offer arose in view of indirect acquisition of more

than 10 per cent shares in Wimco (in view of the law as prevailing thence) attracting the

provisions of Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 19972 On or about 17th December, 1997, the public announcement of offer was

made by S.M.S. together with the Jatia Group of Companies, viz., Plash and AVP as acquirers

and persons acting in concert. In the letter of offer, it was specified that both Swedish Match

Group and Jatia Group intend to exercise joint control over the affairs of Wimco. For the purpose

of the public announcement of offer, Haravon and seed being subsidiaries of Swedish Match

Singapore were deemed to be persons acting in concert in terms of Regulation 2(e )(2)( i) of the

Regulations . Upon completion of the process of public offer, the shareholding in Wimco was as

1K.R. CHANDRATRE, CORPORATE RESTRUCTRURING, 426, 2nd Ed., 2010, Bharat Law House, New Delhi.2Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997


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under: Haravon 28.28 per cent, Seed 10.33 per cent, AVP 5 per cent and Plash 15 per cent. The

aggregate of total shareholding of both the groups, thus, came to 58.61 per cent.3 The said

transaction was also brought to the notice of the SEBI (the Board) by a letter dated 28th

September, 2000. It also agreed to adhere to the lock-in restrictions applicable to the locked in

shares forming part of 21.89 per cent shares purchased from AVP and Plash (Jatia Group of

Companies). Upon receipt of the said information, SEBI by a letter dated 17th October, 2000

made a query as to whether the said transaction took place in accordance with Regulation 20

(pricing guidelines) Regulation 7 (mandatory disclosures) and Regulation 12 (change in control)

of the Regulations, in response whereto, Swedish Match by a letter dated 1st November, 2000

submitted its replies thereto. An additional query by SEBI was made as regard calculation of

market price and compliance of the provisions of the Regulations by a letter dated 30th

November, 2000; to which a reply was given on 8th January, 2001 Proceedings before SEBI 6. A

show-cause notice was served upon the Appellants by SEBI asking them to show cause as to

why no public announcement of offer had been made in terms of Regulations 10 and 11(1) of the

Regulations stating : As you have acquired the shares of WI, in the manner as stated above

without making a public announcement as required by the provisions of the captioned

regulations, you have prima facie, violated the provisions of Regulation 10 individually and

Regulation 11(1) collectively of the captioned Regulations and, therefore, you are liable for

penal action under the Regulations and SEBI Act, 1992. In view of the above, you are called

upon to show cause as to why one or more or all action(s) under Regulation 44 and Regulation

45(6) of the Regulations and section 11B of the SEBI Act, 1992, should not be initiated against

you for violation specified above.

STATEMENT OF THE PROBLEM

A Corporations practice of purchasing Securities of Listed Public companies may violate

regulation provisions of the Securities Act. Acquisition by the Corporation of the nature

mentioned ahead is likely to have an impact on the current shareholders. So to protect the interest

of the current shareholder and future shareholder the Indian legal system with the SEBI

(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (the Takeover Code) is

3Swedish Match AB v. Securities and Exchange Board of India AIR 2004 SC 4219


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being legislated on point that it is friendly to incumbent shareholders and management and is

unfriendly to raiders who buys the Securities of the Listed Public companies with the intention of

Hostile Takeovers. This (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 is

also important in the prospectus of the Anti-Competition law in India.

SCOPE AND OBJECTIVE

The Scope of this paper has been limited to know Takeover Code in India in accordance to

Substantial Acquisition of Shares and Takeovers Regulations, 2011. The Objective of the paper

is to understand the working of Substantial Acquisition of Shares and Takeovers Regulations,

2011 in the light of Swedish Match AB v SEBI.

The Establishment of independent regulatory agencies and need for expert regulations were long

felt primarily as a response to the growing complexity in human affairs and trade and business in

particular. In the case of Swedish Match AB v SEBI the Supreme Court decision in the favor of

SABI Act and Substantial Acquisition of Shares and Takeovers Regulations, 2011 that both the

Act and Regulations are very much important to deals with the technicality problem which arises

in case like Swedish Match AB v SEBI.

HYPOTHESIS

The Establishment of independent regulatory agencies and need for expert regulations were long

felt primarily as a response to the growing complexity in human affairs and trade and business in

particular. In the case of Swedish Match AB v SEBI the Supreme Court decision in the favor of

SABI Act and Substantial Acquisition of Shares and Takeovers Regulations, 2011 that both the

Act and Regulations are very much important to deals with the technicality problem which arises

in case like Swedish Match AB v SEBI.


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RESEARCH QUESTIONS

1. What are the implications of Substantial Acquisition of Shares and Takeovers Regulations,

2011 in Security Market?

2. Is itsmandatory to do public announcement by the Acquiring Companies of its acquisition of

the 25 % shares or voting rights in a listed company in India?

3. What are the International practise regarding Controlling Substantial Acquisition of Shares

and Takeovers of the Listed Companies?

CHAPTERISATION

1stChapter will deals with the Introduction and functions of the Substantial Acquisition of Shares

and Takeovers Regulations, 2011 in Security Market.

2nd

Chapter will deals with Safeguards Mechanism in the Securities Market regarding this

mischief of can acquiring more than 24.99% shares or voting rights in a listed company in India

for Example Role of SEBI, Stock Exchanges, Ministry of Commerce and other regulatory body

regarding this matter.

3rd

Chapter will deals with conclusion part that do there is need for checking of Companies

which acquire the Securities of listed Public Companies and if yes then to what extent regulating

bodies can regulate this acquiring of the Securities.


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LI TRATURE REVIEW

In Ramaiya Section 108 to 123 of Company Act 1956 which deals with Transfer and Issue of

Shares and Debentures have been explain. To know the History of Substantial Acquisition of

Shares and Takeovers Regulations, 2011 as how this Regulations works in Securities Market

relevant Circular of SEBI like SEBI (Substantial Acquisition of Shares and Takeover) 1997,

Standardized Formats of Reports/Records, Etc. in terms of Specific Provisions of the SEBI

(Substantial Acquisition of Shares and Takeovers) Regulation, 1997 and SEBI Regulation

Scheme 2002 under SEBI (Shares and Takeovers) Regulation, 1997 [Press Release 19-9-2002]

have been looked through. Reports of Various Committees like Justice P.N. Bhagwati

committee report on takeovers, Dr. N.L. Mitra Committee, Eradi Committee and others have

been looked through to understand the recommendation and reforms is Takeover Code in India.

In Sumit Agarwal and Robin Joseph Babys SEBI ACT, Taxman Publication the Role of SEBI in

matter of Takeover code have been looked through and power and jurisdiction of SEBI have also

looked upon. In H.K. Saharays Company Law, the practice of buying shares in primary and

secondary market have been look through to understood the problem of Hostile Takeover of the

company. In S.S. Grewal & Navjot Grewals Profitable investment in shares, investor interest

have been look through in Primary and Secondary Shares Market. In Dr. K.R. Chandratres

Corporate Restructuring Tack-Over of an Unlisted and Listed Company by acquiring controlling

interest and other mode for tack over is been look through and in Transfer & Transmission ofShares & Debentures another Book by Dr. K. R. Chandratre the practice of buying shares in

primary and secondary market have been look through to understood the problem of Hostile

Takeover of the company.In Gower International practise regarding Controlling Substantial

Acquisition of Shares and Takeovers of the Listed Companies have been looked upon.

In Swedish Match AB v SEBI, Swedish Match AB have been found guilty of acquiring more

than 24.99% shares or voting rights in a listed company without Public Notification done by the

Swedish Match AB. In Securities and Exchange Commission v. Datronics Engineers, Inc. it was

found that a Corporations practice of purchasing and merging private companies may violate

registration provisions of the Securities Act. In Hardy Oil Ltd. v. SEBI signifies the mandatory

nature of the public announcement which could be made before or after the acquisition.


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FACTS LEADING TO THE CASE

Swedish Match Group (a foreign group) holding 52% and Jatia Group holding 24% were

exercising joint control over affairs of target company Wimco Limited (Wimco). Pursuant to

letter of Government increasing foreign collaboration to extent of 74 per cent, Swedish Match

Group acquired 22 per cent shares of Jatia Group at a price much higher than market price - As a

consequence of aforesaid acquisition, joint control of Jatia Group with Swedish Match Group

over Target Company ceased leading to sole control of latter group only. As it was a case of

cessation of joint control to sole control, the acquirer did not give any public announcement.

However, SEBI held that this acquisition also attracted the provisions of regulation 11(1),

therefore SEBI directed them to do so in terms of regulation 11(1).

TRANSFER OF SHARES; BASIC PRINCIPLES

1. Transferabil ity-a vital feature

Transferability of shares is the one of the most vital features of a company limited by shares. It is

this attribute of a share that endows a company with perpetual and uninterrupted existence. Upon

incorporation, a company acquires its own independent legal personality and distinct entity, and

its shareholders acquire the right to hold and transfer their share in the company. Transferability

of shares (which includes all kinds of corporate securities) is a great beneficial feature of

incorporation. The investor in shares of an incorporated enterprise cannot withdraw his money

from the company. He can only convert his investment into cash outside the company in the

share market or by private sale. The company gets a permanent capital, the shareholder liquid

investment. That is why from the very inception of the public companies, free transferability of

shares has been considered to be of primary importance4. In India, with the enactment of The

Company Act 2013, and the Security Contracts (Regulation) (Amendment) Act, 2007, the

4A RAMAIYA, GUIDE TO THE COMPANIES ACT, 1437, 17thEd., LexisNexis Butterworths Wadhwa, Nagpur.


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legislative law relating to transfer of the corporate securities, namely, share and debentures, has

undergone a considerable transformation5.

2. What i s Share?

Section 2(46)6

define share as share in the share capital of a company and includes stock except

where a distinction between stock and shares is expressed or implied. A share in a company is

the interest of a shareholder in the company measured by a sum of money, for the purpose of

liability in the first place, and of interest in the second, but also consisting of a serious of mutual

covenants entered into by all the shareholders inter se. The contract contained in the articles of

association is one of the original incidents of the shares7.

3. Free transferabi li ty

The Companies Act does not expressly declare that shares of a company are freely transferable.

Section 828 merely states that the shares shall be moveable property and transferable in the

manner provided by the articles of the company. It has, however, been consistently held by the

courts that subject to the restrictions imposed by the articles, a shareholder is free to transfer his

shares to a person of his choice and that the articles cannot put a complete ban or unreasonable

restrictions on the right to transfer. Likewise, the directors cannot decline to register a transfer

whimsically, arbitrarily or unreasonably. A shareholder, whether in a public or in a private

company, has a property in his share which he has a right to dispose of, subject only to any

express restriction which may be found in the article of association of the company9.

It is no doubt correct that any person or company is lawfully entitled to purchase shares of

another company in the open market, but if the transaction is done surreptitiously with a mala

fide intention by making use of some public financial institutions as a conduit in a clandestine

manner, such deal or transaction would be contrary to public policy and illegal. Public financial

institutions while making a deal in respect of a very large number or bulk of shares worth several

crores of rupees must also make some inquiry as to who was the purchaser of such shares. Suchtransactions should be made with circumspection and care to see that the deal may not be to

5K.R. CHANDRATRE, TRANSMISSION OF SHARES & DEBENTURES, 1, 4 thEd., 2005, Bharat Law House,

New Delhi.6Section 2(46) of the Companies Act, 19567Borland Trustee v Steel Brother and Co Ltd [1901] 1 Ch 2798Section 82 of the Companies Act, 19569Bina Barua v Dalowjan Tea Co Ltd (1981) 51 Comp Cas 660 (Gua).


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camouflage some illegal contrivance or in-built conspiracy of a private monopoly house in order

to usurp the management of a public company and which, in its opinion, may not be in public

interest10

.

4. Restr iction on trade of share in relati on to The Company Act 1956

108A to 108G of the Companies Act, 1956 have imposed certain restrictions on the acquisition

and transfer of shares in certain cases11

. The object of these provisions was stated in the

statement of object and reasons as following:

A striking unhealthy phenomenon which has appeared in the corporate sector in recent times is a

trend towards take-over of well established companies by individuals or groups or combines. So

to protect Company from Hostile Tack-over these restrictions are being imposed.

TACK-OVER OF A LI STED COMPANY

1.Meaning of take-over

One of the salient features of a company is perpetual succession, which is enabled by free and

easy transferability of shares. Shares of a company limited by shares are transferable by

shareholder to another person. The transfer is easy as compared to the transfer of interest in a

business run as a proprietary concern or a partnership. Where it is proposed to sell the business

of a company as a going concern, all that is required is to transfer the entire shareholding to thepurchaser and thus facilitate easy change in management and ownership

12.

Take-over means succeed to the management or ownership of or take control of; the assuming of

control, ownership or management of, e.g. a corporation, are an instance of this; the acquisition

of a going business by another through outright purchase; (as noun) the buying of one company

or most of the share in it, by a person or another company, (as verb) to buy a company or gain

control of it, by buying shares in it from the shareholder. Thus, take-over implies acquisition of

control of a company, which is already registered, through the purchase or exchange of shares.Take-over takes place usually by acquisition or purchase from the shareholders of a company

10Parthasarathy (N) v Controller of Capital Issues (1991) 72 Comp Vas 651 (SC).11K.R. CHANDRATRE, TRANSMISSION OF SHARES & DEBENTURES, 16, 4 thEd., 2005, Bharat Law House,

New Delhi.12K.R. CHANDRATRE, CORPORATE RESTRUCTRURING, 426, 2nd Ed., 2010, Bharat Law House, New Delhi.


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their shares at a specified price to the extent of at least controlling interest in order to gain control

of that company13

.

2. Take-Over of a Listed Company

The SEBI (Substantial Acquisition of Share and Takeovers) Regulations 2011 regulate takeover

and substantial acquisition of shares. However, in the context of Takeover Regulations, takeover

of a listed company means acquisition of shares beyond a particular percentage and below a

particular percentage of the company called target company. A listed company means a public

company of which any securities are listed in any recognized stock exchange.

The Takeover Regulations do not give the definition of takeover. However, the definition of

Target Company in Regulation 2(1) (o) indicates that takeover of a company means acquisition

of its shares or voting rights or control, directly or indirectly, of a listed company. Accordingly,

what the Takeover Regulations really regulate in the acquisition of shares carrying voting rights

in a listed company beyond certain limits in terms of percentage of the equity share capital of the

company so as to put acquirer in a position to control the composition of the board of directors of

the company and thereby taking over the company management of the company and thereby the

company.

Regulation 10, 11 and 12 of the Takeover Regulations contain the provisions regarding takeover

of a listed company. Any of the following would amount to take-over of a listed company and

such acquisition would require compliance with the requirements of the Takeover Regulations:-

1. Acquisition of shares (which carry voting rights); or

2. Acquisition of voting right (without acquiring the shares to which the voting rights relate); or

3. Acquisition of control of a listed company (without acquiring shares or the voting rights the

shares to which the voting rights relate).

In certain circumstances, acquisition of shares of an unlisted company may trigger the Takeover

Regulations requiring a public announcement under regulation 10, 11 and 12 due to the effect of

regulation 3 (1) (k).

13K.R. CHANDRATRE, CORPORATE RESTRUCTRURING, 426, 2nd Ed., 2010, Bharat Law House, New Delhi.


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The basic of the takeover of a company is acquisition of shares. In other words, acquisition of

shares in a listed company paves the way for takeover of the company as explained above. The

Takeover Regulations, however, seek to regulate the takeover in relation to acquisition of

shares, voting rights and control. These three things are mutually exclusive and hence one

of them may exist without another and yet the Takeover Regulations would be attracted. Thus, if

a person acquires voting rights or control without acquiring shares, the Takeover Regulations

would be attracted, although, usually, all the three things exist simultaneously and, rather, voting

rights and control emanate from shares. It is, however, not inconceivable that while voting rights

or control is in one persons hands, shares which give rise to the voting rights or control are in

somebody elses hands. For example, if the older ofsubstantial shares (say 51%) in a company

enters into an agreement with the acquirer that the latter would have management control of the

company (meaning the right to appoint majority of directors on its board) despite that the shares

would continue to be with the former, till certain conditions as stipulated in the agreement are

fulfilled (when the agreement would be consummate), this is the case of having control over a

company without having controlling interest, i.e. shares and voting rights. Therefore, the

Takeover Regulations seek to bring the latter phenomenon within the regulatory framework of

these Regulations.

A person who acquires the shares subjects himself of the compliance with the requirements

under the Takeover Regulations. The centre of compliance in the context of takeover of a

company is, therefore, the acquirer. It is the acquirer who has to make sure that these

requirements are complied with in connection with the acquisition of shares.

There may be a one person who would be acquirer or there may be two or more persons each of

whom would be acquirer in relation to take-over of a company. Where there are two or more

persons involved is one take-over, they are called persons acting in concert with the acquirer14

.

3. Case of acquisition of shares in which a publi c offer i s requir edRegulation 10, 11 and 12 have two-fold objectives, namely to require a person who acquires

(whether by buying or otherwise) voting shares or voting rights in a listed company called target

company) beyond certain limits specified in those regulations:

14K.R. CHANDRATRE, CORPORATE RESTRUCTRURING, 428, 2nd Ed., 2010, Bharat Law House, New Delhi.


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to make a disclosure of the acquisition to the stock exchanges and/ or SEBI; and to

make an offer to the public shareholders of the company.

The Bombay High court has in elucidated the object of these provisions of the Takeover

Regulations in these words:

The Regulations disclose a Scheme to bring about transparency in the transactions relating

to acquisition of large block of shares which may ultimately lead to a take-over. That is why

it insists on public announcement being made when the shareholding and, consequently, the

voting power is increased beyond the extent contemplated by regulations 9 and 10. By

obliging the acquirer to make a public announcement or a public offer, it ensures that a

member of the company or an investor is able to take an informed decision on such public

announcement/offer. The particulars which are required to be disclosed in the public

announcement/offer are intended to give a clear picture to a member of the company or a

prospective investor, as the case may be, as to the purpose for which such shares are being

acquired and by whom. It also ensures to existing shareholders a fair return on their

investment, and permits any other person to make a matching bid which may ultimately

benefit the shareholders of the company. On the basis of the particulars furnished, the

shareholder is enabled to take a decision as to whether he should retain his holding or

dispose of them for the price offered. Thus, transparencies in dealings as well as fairness to

the shareholders of the company are ensured15

.

The said Regulation like Regulations 10 and 11 also speaks of public announcement. Such

public announcement is required to be made irrespective of whether or not there has been

any acquisition of shares or voting rights in a company. In either of the case, the acquirer is

statutorily required to make public announcement of acquisition of shares and control of the

target company in accordance with the regulations. The proviso appended to Regulation 12

curves out an exception as regard necessity of making public announcement. Explanationappended to Regulation 12, however, states that it would have no application where a

change in control takes place pursuant to a resolution passed by the shareholders in a general

meeting. As would be noticed shortly hereinafter, the proviso to Regulation 12 cannot be

15Shirish Finance & Investment Ltd v M. Sreenivasulu Reddy (2002) 2 Com LJ 386


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said to have any application in the instant case as by reason of the Explanation appended

thereto, Regulation 12 would have no application.. Result in change in control over the

target company in terms of Regulation 12 would come into being in two situations; viz. (i)

by acquisition of share, or voting rights; or (ii) where there has been none. A control over

the target company may be achieved by amending the memorandum of association or by any

other mode which necessitates a resolution to be passed by the shareholders in a general

meeting. The expressions "in pursuance to a resolution passed by the shareholders in a

general meeting" are crucial as the proviso will apply only when the change of control over

the target company takes place otherwise than by acquisition of shares or voting rights.

The primal question would be as to whether Explanation (i) appended to Regulation 12

would bring the matter out of the purview of the regulation? In the fact of the present case, it

does. Explanation appended to Regulation 12 postulates that where there are two or more

persons in control over the target company (here Swedish Match Group and Jatia Group),

the cessor of any one such person (Jatia Group) from such control shall not be deemed to be

a change in control of management nor shall any change in the nature and quantum of

control amongst them constitute change in control of management. By reason of the said

Explanation, a legal fiction has been created pursuant whereto or in furtherance whereof

applicability of Regulation 12 is excluded. Change of control contemplated under

Regulation 12 calls for a public announcement when the same is sought to be achieved by

acquiring shares or voting rights. A change of control in terms of Regulation 12 may also

take place pursuant to a resolution passed by the shareholders in a general meeting. Only in

the latter case the proviso which carves out an exception would be attracted. The effect and

purport of the first proviso may also be construed having regard to the second proviso

appended thereto. The second proviso appended to Regulation 12 takes within its fold a case

where the joint control to sole control is through sale at less than the market value of the

share. It, therefore, speaks of a different situation, namely, control by transfer of jointcontrol to sole control through sale was at less than the market value of the shares. In a case

where the second proviso is attracted, the Explanation (1) will have no role to play.

Situation, however, would be different when the transfer of joint control to sole control takes

place through sale at a price which is higher than the market value of the shares leading to

change in control over the target company, which cannot be done pursuant to a resolution


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passed by the shareholders in a general meeting in terms of the first proviso. In other words,

in the event, the change in control is sought to be achieved by sale of shares at a price higher

than the market value of the share, Regulation 12 will clearly be attracted making public

announcement imperative. Such public announcement evidently is required to be made

having regard to the fact that the interest of investors is required to be protected; pursuant

whereto and in furtherance whereof the shareholder would be informed of the value of the

share at which the transfer of control would take place so as to enable him to exercise his

option to sell his shares at the price offered by the acquirer or continue to keep the same16

.

Any person, singly or together with PACs (together referred to as acquirer), can acquire up

to 24.99%17

shares or voting rights in a listed company in India (target company), provided

the acquirer does not take control over the target company.

If the acquisition results into entitlement of 25% or more voting rights in the target

company, the acquirer is required to make an open offer to acquire at least 26% shares from

the existing public shareholders of the target company in terms of the Takeover Code (open

offer obligation)18

.

The acquirer holding 25% or more voting rights in the target company can make a voluntary

offer for at least 10% of the total shares of the target company. This is subject to fulfillment

of the following conditions:

Total shareholding of the acquirer post open offer should not exceed maximum permissible

non-public shareholding (generally 75%).

The acquirer should not have acquired shares of the target company in the preceding 52

weeks without attracting open offer obligation.

If maximum permissible non-public shareholding exceeds, say 75%, pursuant to open offer

the acquirer is required to bring down his or her shareholding to 75% within the timespecified as per SCRR.

16Swedish Match AB v. Securities and Exchange Board of India AIR 2004 SC 421917Regulation 3 (1) of the Securities And Exchange Board Of India (Substantial Acquisition Of Shares And

Takeovers) Regulations, 2011

18Vivek Mehra, Takeover code Referencer on SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,

2011, https://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-final-lowres.pdf, (last access on 14.5.14)


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The acquirer, whose shareholding exceeds 75% pursuant to an open offer, cannot make a

voluntary delisting offer under the SEBI Delisting Regulations, for one year from the date of

completion of open offer19

.

Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer

shall acquire, directly or indirectly, control over such target company unless the acquirer makes a

public announcement of an open offer for acquiring shares of such target company in accordance

with these regulations20

.

Therefore, Swedish Match AB v SEBI acquirer Swedish Match Group has a statutory obligation

to make public announcement. No, only because regulation 12 also speaks of public

announcement, same by itself would not exempt acquirer from making a public announcement in

terms of clause (1) of regulation 11. Moreover, merely because in a case where acquisition of

additional shares may result in change of control over company, same by itself would not exempt

acquirer from complying with statutory requirement of making public announcement under

section 11.

SWEDEN TAKEOVER CODE

Since the takeover does not require a corporate decision on the part of the target company, there

is no obvious act of the target upon which company law can fasten for the purpose of regulating

the transaction for this reason, most European countries treat takeover as part of their securitieslaw, i.e. they rightly take the transfer of the shares as the central act

21. The Sweden follows this

pattern. Swedens regulatory regime aims to protect the shareholders of a target company and to

create a system of rules for participants in a takeover.

The Swedish takeover rules are based on the European Parliament and the councils directive

2004/25/EG on takeover bids. The regulation is based on a number of key principles. According

to these principles, in order to promote an efficient, competitive and informed market, it is

necessary to ensure that the shareholders:

19Vivek Mehra, Takeover code Referencer on SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,

2011, https://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-final-lowres.pdf, (last access on 14.5.14)20Regulation 4 of the Securities And Exchange Board Of India (Substantial Acquisition Of Shares And Takeovers)

Regulations, 2011

21PAUL L DAVIES, GOWER AND DAVIES PRINCIPLE OF MODERN COMPANY LAW, 1012, 8th Ed. ,

(2008), Sweet & Maxwell Ltd, London.


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Knowthe identity of the bidder;

have enough information to assess the merits of the takeover proposal;

have reasonable time to consider and assess the proposal; and

have a reasonable and equal opportunity to share in the benefits of the proposal.

The regulation on takeovers is essentially governed by the Law (2006:451) on public takeover

bids on the stock market (the Takeover Act). Other important rules relating to takeovers are

implemented in the rules of the Swedish stock exchanges and in one case a Swedish MTF.

In addition, the Swedish Securities Council (Swedish: Aktiemarknadsnmnden) provides

substantial guidance on conduct which is or is not permissible.

Takeovers are about control. A takeover is only one way of obtaining control of a company.

Other methods to achieve control include schemes of arrangement, selective reductions of capital

and share buy-backs. The Takeover Act is applicable both to voluntary bids and mandatory bids.

The level of control selected under Swedish law as the trigger for mandatory bids is 30% of the

voting power in a company22

.

22Per Berglof & Anders Bjrk, Sweden Takeover Guide,

http://www.ibanet.org/Document/Default.aspx?DocumentUid=25F6AC17-156B-4ADC-B8ED-CED5CACFF2BB,

(last access on 14.5.14)


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CONCLUSION

So in the light of Swedish Match AB v SEBI we can conclude that public announcements for

Open offer under 10 and 11(1) should be made by acquirer. The Substantial Acquisition of

Shares and Takeovers Regulations, 2011 is very important Regulation because it safeguards the

Targeted Company from Hostile Tack-over and also protects the interest of investors.

Since its introduction, the Takeover Code has weathered many a challenge and SEBIs efforts to

keep the Takeover Code abreast of the latest global developments in the public M&A scenario

seem to be bearing dividends. Whilst the rapidly evolving public M&A landscape will, no doubt,

throw up new challenges and questions for SEBI to address, it can be safely said that the

Takeover Code in its present form is at par with any foreign code governing public mergers and

acquisitions. The management becomes more accountable.

Advantages of the Tack-Over Code are that Promoters of Indian companies have never been

answerable to small shareholders for their business practices. Even if they had minority holdings

and indulged in mismanagement, Indian promoters didn't contend with threats of losing control.

It is a powerful corrective mechanism, in a mismanaged business; the minority shareholder

suffers more than the management. The management lives off expense accounts while profits

erode, dividends dwindle, and share price falls. The management performs because of fear of

being replaced. The management may also be forced to make an open offer to increase its ownstake. It may have to share powers by allowing minority shareholders onto the board and thus

create greater transparency. The share price automatically climbs. The rising share price gives

minority shareholders an exit option at higher prices as well, as an option of siding with

potentially better management in the event of an actual takeover bid.


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BIBLOGRAPHY

Acts And Circulars

The Companies Act 2013

The Companies Act 1956

The Securities and Exchange Board of India Act, 1992

The Substantial Acquisition of Shares and Takeovers Regulations, 2011

The Substantial Acquisition of Shares and Takeovers Regulations, 1997

Books

SUMIT AGRAWAL & BABY ROBIN JOSEPH, AGRAWAL & BABY ON SEBI ACT,

(2011),Taxmann Publication Pvt. Ltd., New Delhi.

PAUL L DAVIES, GOWER AND DAVIES PRINCIPLE OF MODERN COMPANY

LAW, 8th Ed. , (2008), Sweet & Maxwell Ltd, London.

K.R. CHANDRATRE, CORPORATE RESTRUCTRURING, 2

ndEd., 2010, Bharat Law

House, New Delhi.

K.R. CHANDRATRE, TRANSMISSION OF SHARES & DEBENTURES, 4th

Ed.,

2005, Bharat Law House, New Delhi.

A RAMAIYA, GUIDE TO THE COMPANIES ACT, 17th

Ed., LexisNexis Butterworths

Wadhwa, Nagpur.

I nternet Source:

Vivek Mehra, Takeover code Referencer on SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations,2011, https://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-final-lowres.pdf

Per Berglof & Anders Bjrk, Sweden Takeover Guide,

http://www.ibanet.org/Document/Default.aspx?DocumentUid=25F6AC17-156B-4ADC-

B8ED-CED5CACFF2BB.

takeovers code

Documents