Early last year, the Securities Appellate Tribunal (SAT) had passed an order in the Subhkam case holding that protective provisions in shareholders’ agreements (such as affirmative rights) adopted by investors do not amount to “control” for purposes of the SEBI Takeover Regulations. Although SEBI had initiated an appeal before the Supreme Court, the matter has now been disposed off by the Supreme Court without a decision on the question of law as that became infructuous due to changes in factual circumstances. Bar & Bench has a report containing the Supreme Court’s order.
While the SAT order had earlier provided relief to the investor community that customarily seeks protective provisions in contractual documentation, the Supreme Court has disturbed the equilibrium by effectively nullifying the broader implications of the SAT order in the following words:
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.
After going around an entire circle, the question of law is now again left open to interpretation. It remains to be seen as to what kind of stance SEBI would adopt both as to past as well as future cases. The issue is more acute under the new Takeover Regulations of 2011 where financial investors can acquire up to 25% of the company without making a mandatory open offer as opposed to the previous 15%.
Quite right, that last statement. In fact, if the SEBI continues to press its stand, the positive implications of headroom that the new Code has created for the PE players by raising the trigger to 25% potentially stand to be nullified, for the obligation to make the open offer will than arise under the "control" provision.
A very pertinent question to ask would be whether the Supreme Court can direct the stakeholders to disregard the teaching of the order passed by a tribunal acting entirely within its jurisdiction.