Seven years after retiring as head of the Securities and Appellate Tribunal, C Achuthan remains as busy. On the revamp board of Satyam Computers, he was then asked to head a committee for overhauling the country’s takeover regulations. In an interview with Palak Shah and Vishal Chhabria, he talks about the rationale for doing so. Edited excerpts:
What was the rationale behind the review of the takeover code?
The process is now over. Our object was to suggest a legal framework for orderly takeover activity in a transparent manner. The purpose was to protect the interest of all stakeholders, including target companies, acquirers, other shareholders and also some conflicting interest. In such cases, the focus is mainly on ordinary shareholders and our perception is that we have done a fair job.
Why was the threshold limit for open offers raised from 15 per cent to 25 per cent?
The logic was the changing economic scenario. The legislature mandated Sebi (the markets regulator) to regulate substantial acquisition of shares, which in a sense is related to the economic environment. Earlier, 10 per cent was substantial acquisition; then, it became 15 per cent. Now, if you look at promoter holdings, 25 per cent has been taken, as it is easily justified. To pass a resolution, 25-plus per cent stake is required. Globally, substantial acquisition is 30-35 per cent.
How long will it take for these recommendations to become law?
The onus is now on Sebi. We have made their job easy by also recommending a new set of regulations to the code. If you visit the Sebi website, there is a report along with the draft regulations. However, it is not necessary that Sebi will agree with what we suggested. Any changes will be incorporated. Then there is a due process, of recording public comments and getting approval from the Sebi board, before the changes are notified. In the normal course, it may take three months.
Was the decision of your committee unanimous?
Yes, 100 per cent. Else, we would have recorded the voices which did not agree with the suggestions. It is not a majority report but a unanimous one.
Will the new norms put India on a par with global standards in mergers and acquisitions?
We have attempted to be on a par with every standard. If fact, instead of we trying to reach others' level, we would like takeover codes in other countries to be updated to our level.
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If a non-promoter corners just over 24 per cent stake and tries to block special resolutions by forming a cartel, is there any way to stop this misuse? Also, isn’t it a loss of opportunity for investors if a company is de-listed?
The issue here is not of promoter or non-promoter. The Takeover Code is for the purpose of acquisition by the acquirer and persons acting in concert. The promoters may sometimes fall in this category, along with the rank outsider. So, if somebody who crosses the first threshold of 25 per cent has to make a 100 per cent open offer, the question of whether some people are blocking resolutions depends on their equation. Even now that happens, as large financial institutions, which have common understanding, defeat a particular resolution by the promoters. It is a question of the level of understanding among shareholders, which cannot be restricted. There is no question of misuse. It is a right of anybody, unless it is proved that persons acted in concert.
If an open offer is made and a company is de-listed, it is not a loss of opportunity for investors. If a newcomer makes an open offer, he has to announce his intention also, after which it is up to shareholders to decide if they want to respond. But once the threshold for de-listing is crossed, it is compulsory to de-list the company. Again, it is not compulsory for investors to give away their shares. There is a further process.
You have widened the scope of appointment of directors?
While we have retained the phrase ‘right to appointment of directors’, we have also added ability to it to widen the scope. Sometimes, I may not have any right but I’ll be in a position to be on the board. Many a time, people use methods like backseat driving to have control. The question is how this ability is gauged.
Have you defined ability in this case?
It has not been defined, as it is not tangible. Companies might not be happy, as takeover in India will be expensive. Expense is a voluntary action. If you are incapable of raising money for this, you better not indulge in this. It is a commercial call.
Do any other Sebi regulations require a re-look?
They have already converted investor guidelines to regulations, a good step. Similarly, a clean-up is required in the Prohibition of Fraudulent and Unfair Trade Practices Act. It is difficult to go into details right now. But these sort of regulations require periodic reviews.
