Sebi proposes public consultations on `Bright Line' test guidelines in takeovers

SEBI board today gave its nod for public consultations on proposed guidelines defining "bright lines" for change of control in merger and acquisition (M&A) deals.

Under the present takeover code, the concept of 'control' is based on certain defined principles rather than on rules.

Assessment of 'control' as defined under the Sebi (SAST) Regulations, 2011 requires consideration of facts and circumstances of each case. This results in a multitude of opinions. Further, multiple regulators apply the test of control from different perspectives and may arrive at differing results which may lead to ambiguity.

There have been many cases, including the Jet Etihad deal, where debates arose on the issue of 'control' and many felt that Sebi needs to put in place guidelines defining 'bright lines' to determine 'control' In the absence of guidelines on 'Bright Line' tests, multitude of opinions arose on 'control' based on the facts and circumstances of each case.

Also, different regulators apply the test of control from different perspectives and arrive at different results which may lead to ambiguity.

A Bright Line test generally refers to a simple and basic standard that can be applied to remove ambiguity and resolve contentious issues.

SEBI board today approved the process for initiation of public consultation process regarding "Bright Line" tests on "control".

The discussion paper inviting comments will be placed on SEBI website, a senior SebiI official said.

Considering the international practices and the current regulatory environment in India, the definition of control may be amended such that control is defined as (a) the right or entitlement to exercise at least 25 per cent of voting rights of a company irrespective of whether such holding gives de facto control and/or (b) the right to appoint majority of the non-independent directors of a company.

Or, any other option as may be decided after consultation.

The discussion paper inviting comments will be placed on Sebi website for seeking public comments.