You are using an older browser version. Please use a supported version for the best MSN experience.

Sebi scraps plan to alter definition of ‘control’

LiveMint logoLiveMint 08-09-2017 Anirudh Laskar

Mumbai: The Securities and Exchange Board of India said on Friday it intends to retain its definition of ‘control’ and drop the suggestions it had made to alter the definition after its March 2016 board meeting.

The capital markets regulator said it has taken this decision after considering comments from various stakeholders including the ministry of corporate affairs and the Reserve Bank of India.

Currently, Sebi’s takeover norms define ‘control’ as the power to appoint a majority of a company’s directors, the right to control the management or policy decisions of the company directly or indirectly, either through shareholding or management rights, or shareholders agreements or voting agreements.

After its March 2016 board meeting, Sebi released a note for public comments where it noted that this definition of control was at odds with definitions in various other laws such as the Competition Act, 2002 and the Companies Act, 2013.

In that note, it proposed two options to sharpen the definition of control.

First, it proposed to create a new framework for protective rights which would not amount to exercise of control. This may include decisions such as appointment of a non-executive chairman; appointment of observer who does not have any voting or participation rights; and exercising agreements specified by lenders, if such rights are customary to the lending business and the lender has granted the loan strictly on a commercial basis. Sebi also proposed that veto or affirmative rights in matters that are not part of the ordinary course of business or involve governance issues could also be considered protective in nature and may not amount to exercise of control over the target firm.

Under the second option, Sebi had proposed to adopt a numerical threshold. It defined control as the right or entitlement to exercise at least 25% of voting rights of a company irrespective of whether such holdings gives de facto control and/or the right to appoint majority of the non-independent directors of a company.

However, none of these options got significant support from various stakeholders and some said that changing the definition “may reduce the regulatory scope and may be prone to abuse,” the Sebi statement said. Moreover, the ministry of corporate affairs said that it would be “more appropriate for Sebi to take decisions on a case-to-case basis.

More From LiveMint

image beaconimage beaconimage beacon