The Securities and Exchange Board of India (Sebi) is planning a string of major amendments in the takeover regulations to give effect to decisions handed down by the courts or the Securities Appellate Tribunal (SAT).
Following the recent SAT ruling in the Modipon vs Sebi case, the regulator is considering to allow passive promoters to participate in public offers made in cases of acquisitions taking into consideration the conduct of the promoter in question and the entity which has made the open offer.
The regulator had ruled in the first place that M K Modi , the promoter of Modipon, is not eligible to participate in the open offer made by Modi Rubber on the ground that he was a promoter and as such was "deemed to acting in concert with the acquirers".
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But SAT overturned the ruling holding "that a promoter is not necessarily an acquirer or a person acting or deemed to be acting in concert with the acquirers" and that there is no legal backing to make a promoter ineligible to participate in the public offer made by acquirers under the Sebi takeover regulations.
Following this, the markets regulator is learnt to be seeking legal opinion as to the consequences of making amendments to the regulations. Market-watchers said that it would produce more flexibility in the takeover code and would also enable promoters without any interest in their holdings to rid themselves of an unwanted investment.
The tribunal has made a distinction between active and passive promoters - saying that "it is the conduct of the party that decides the identity". A dormant promoter, or what it calls a 'promoter simpliciter', SAT has ruled, is one "who neither acquires or agrees to acquire shares or voting rights or control over the target company is not an acquirer" and more importantly "the law does not prohibit a promoter simpliciter participating in the public offer."
Sebi's argument while barring Modipon from participating in the offer was that if promoter shareholders (who hold major chunks) participate in the offer then it would effectively reduce the opportunity for the public (or minority) shareholders to tender their shares.
The judgment given by the tribunal has pointed out that a promoter simpliciter is also a shareholder "and he also should be treated fairly and in a non-discriminatory manner vis-