Regulation Title: Acquisition of fifteen per cent or more of shares or voting rights of any` Company

Facts: Ambujas acquired 14.45 per cent equity share capital of Target Company, ACC. Two directors of
Ambujas were appointed as directors in target Company. The shareholders of Target Company filed a
complaint before SEBI for violation of provisions of regulations 10 and 12 by Ambujas. SEBI held that
there was no merit in company’s complaint and it was disposed off by SEBI without any directions

Issues:1.Whether regulation 10 empowers SEBI to ignore specific bench-mark level and enforce
compliance of regulation 10?

2.Whether the shares held by a person who is not in a position to exercise voting rights for one reason
or other, shall be excluded for the purpose of calculating the percentage of voting rights acquired by the
acquirer?

3.How is the term ‘control’ describe in regulation 12?

Decision: 1.No, SEBI has no power to ignore specific bench-mark level of regulation 10 even where
acquisition is below bench-mark only by a fraction. SEBI has power to grant exemption from compliance
of regulations in deserving cases, if acquisition is above limit but there is no power to include acquisition
which is below bench-mark.

3.The expression ‘control’ in regulation 12 means effective control, in other words control must be taken
to mean de facto control also and not de jure control alone. While determining control for the purpose
of regulation 12, following points must be remembered: • A pure assessment of numerical composition
of Board by itself would lead one too far to identify seat of control. • The fact that a company is
professionally managed does not mean that nobody is in control over Company. • Even majority holding
of shares is not a decisive factor in determining effective control. • On the other hands, sometimes a
person not holding majority shares, say even less than 15%, can be said to have control over the
Company if he has effective de facto control over the Company. Therefore, the acquirers with just 14.4
per cent shareholding, not in majority, does not necessarily mean that they were not in a position to
exercise control over company, and absence of majority shareholding by itself is not a conclusive factor
in that regard. Therefore, SEBI’s finding that regulation 12 was not attracted on the ground that
promoters do not hold majority of shares requires reconsideration.
Rhodia S.A. v SEBI

Synopsis

Regulation Title: Acquisition of control over a company

Facts: Due to some business considerations, appellant(Acquirer), in arrangement with a company ‘D’,
made a special-purpose-vehicle-company ‘ISPG’ for acquisition of a UK company. Under terms of said
arrangement, ISPG was to be wholly-owned subsidiary of H, which was a subsidiary of D. Funds for
acquisition were to be arranged by appellant(Acquirer) and it was given powers to control H and ISPG,
and a call option to get shares of H after acquisition. D was given a call option for a part of appellant’s
(Acquirer) business in case later was unable to exercise said call option. UK company was acquired under
said arrangement. AW was an indirect subsidiary of said UK company. Appellant(Acquirer), through ISPG
made an application to SEBI for an exemption to make public offer for the purpose of acquisition of AW.
However, it made a public announcement and all information, viz., call options etc. were declared . SEBI
did not give exemption and issued a direction to the appellant(Acquirer) to make a public offer for the
purpose.

Issues:Whether appellant’s(Acquirer) claim for exemption in terms of regulation 3(1)(e)(i) of Takeover

Decision: Since there was no evidence of compliance of requirement in Explanation to the said
regulation 3(1)(e)(i) and the appellant had already made a public announcement , therefore, appellant
claim for exemption is not tenable.
CHAPTER -II

SUBSTANTIAL ACQUISITION OF SHARES, VOTING RIGHTS OR CONTROL

Substantial acquisition of shares or voting rights.

3. (1) No acquirer shall acquire shares or voting rights in a target company which taken together with
shares or voting rights, if any, held by him and by persons acting in concert with him in such target
company, entitle them to exercise twenty-five per cent or more of the voting rights in 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 regulations.

(2) No acquirer, who together with persons acting in concert with him, has acquired and holds in
accordance with these regulations shares or voting rights in a target company entitling them to exercise
twenty-five per cent or more of the voting rights in the target company but less than the maximum
permissible non-public shareholding, shall acquire within any financial year additional shares or voting
rights in such target company entitling them to exercise more than five per cent of the voting rights,
unless the acquirer makes a public announcement of an open offer for acquiring shares of such target
company in accordance with these regulations:

Provided that such acquirer shall not be entitled to acquire or enter into any agreement to acquire
shares or voting rights exceeding such number of shares as would take the aggregate shareholding
pursuant to the acquisition above the maximum permissible non-public shareholding.

Explanation.— For purposes of determining the quantum of acquisition of additional voting rights under
this sub-regulation,—

(i) gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding
or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue
of shares by the target company.

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(ii) in the case of acquisition of shares by way of issue of new shares by the target company or where
the target company has made an issue of new shares in any given financial year, the difference between
the preallotment and the post-allotment percentage voting rights shall be regarded as the quantum of
additional acquisition .

(3) For the purposes of sub-regulation (1) and sub-regulation (2), acquisition of shares by any person,
such that the individual shareholding of such person acquiring shares exceeds the stipulated thresholds,
shall also be attracting the obligation to make an open offer for acquiring shares of the target company
irrespective of whether there is a change in the aggregate shareholding with persons acting in concert.

Acquisition of control.
4. 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
regulations.

General exemptions.

10. (1) The following acquisitions shall be exempt from the obligation to make an open offer under
regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefor,—

(a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,—

(i) immediate relatives;

(ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the
listing agreement or these regulations for not less than three years prior to the proposed acquisition;

SIGNIFICANT INFLUENCE

Company Act, 2013

2. DEFINITIONS

(6) “associate company”, in relation to another company, means a company in which that other
company has a significant influence, but which is not a subsidiary company of the company having such
influence and includes a joint venture company. Explanation.—For the purposes of this clause,
“significant influence” means control of at least twenty per cent. of total share capital, or of business
decisions under an agreement;

SIGNIFICANT INFLUENCE

6. If an investor holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting
power

of the investee, it is presumed that the investor has significant influence, unless it can be clearly
demonstrated

that this is not the case. Conversely, if the investor holds, directly or indirectly (eg through subsidiaries),
less

than 20 per cent of the voting power of the investee, it is presumed that the investor does not have
significant

influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by
another
investor does not necessarily preclude an investor from having significant influence.

7 The existence of significant influence by an investor is usually evidenced in one or more of the
following

ways:

(a) representation on the board of directors or equivalent governing body of the investee;

(b) participation in policy-making processes, including participation in decisions about dividends or

other distributions;

(c) material transactions between the investor and the investee;

(d) interchange of managerial personnel; or

(e) provision of essential technical information.