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NEED FOR TAKEOVER CODE: WHY TAKEOVER CODE WAS

ENACTED

Written by Priyanka Parag Taktawala

5th Year BBA LLB, Institute of Law, Nirma University

Introduction

Takeover laws in India had always been inconsistently placed. The framework had never shown a
clear mechanism which could help in subliming the intricacies involved in the process. Justice
Bhagwati who has been a close witness of the constantly changing law on takeovers in India
reckoned “No rule, no regulation, indeed no law, which deals with dynamically evolving economic
situations and circumstances and seeks to resolve constantly varying economic interests and
problems in a fast growing economy, can possibly hope to have a permanent not even a long
ending life”1. This goes on to validate the notion that though a permanent and consistent law is
something that is always sought for but at the same time looking at the pace of growth and
constantly changing dynamism of the economy amelioration is required all point of time to cope
with the dynamic economy.

Takeover of companies is a well-accepted and established strategy for corporate growth through
inorganic route. Its appeal as an instrument of corporate growth has usually been the result of an
admixture of corporate ethos of a country, shareholding pattern of companies, existence of cross
holdings in companies, cultural conditions and the regulatory environment.2 The corporate world
exists within the competition and by the competition which, intrinsically gives rise, on the one
hand, to threats, trade rivalry and collision, antagonism and impugnation resulting into sickness
and closure of corporate enterprise and on the other hand, business enterprises flourish and expand
with cooperation and concert, collusion and combination, federation and confederation in ‘espirit

1
Report of the Justice P.N. Bhagwati Committee on Takeovers dated 18.1.1997 in N.R. Sridharam and P.H. Arvind
Pandran, Guide to Takeovers and Mergers, LexisNexis Butterworths Wadhwa, Nagpur, 2010, p. 1039.
2
J.C. Verma, Corporate Mergers Amalgamations and Takeovers, Bharat Law House, New Delhi, 2009, p. 598.

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de corpe’. Hostility and friendliness is the nature of man who manages the corporate enterprise.
Mergers and takeovers are motivated under the dominance of these pressures and influences and
are accordingly classified as friendly and hostile takeovers.3

It has been a well understood phenomenon of the subject that the takeover of companies is a well
constitutes and testified strategy of instigating corporate growth world over. This is so since the
processes of substantial acquisition of shares and takeovers ensure rational allocation and optimal
utilisation of resources. However, in order to achieve these objectives, it is one of the fundamental
prerequisites that these processes take place in orderly manner so as to ensure equity, fairness and
transparency. It is also necessary that in the process, shareholders’ interests especially, the public
shareholders interest are not compromised.4

It is significant to note that wherever economic activities and social interests are juxtaposed,
application of law with a view to regulate the activity to ensure safeguard of general public
interests, takes the prime position. In India, takeover or acquisition of a company is essentially
regulated by:

• Comapnies Act
• Listing Agreement
• SEBI Takeover Code 2011

Therefore, an acquirer should develop a broad understand of the compliance requirements under
the Regulations and also the requirements under the Listing Agreement and the Companies Act.

History of Takeover Law in India

In common parlance takeover is essentially the acquisition of shares or controlling power of one
company by the other company. However, it is important to trace the brief history of legislation
which regulated the corporate acquisitions generally, its effect on the investors and the efforts
made by the government to protect the latter. It is noteworthy that the laws relating to takeover
were not very organised or rather, hardly in existence until the emergence of Takeover Code which

3
Ibid
4
Prasad G. Godbole, Mergers Acquisitions and Corporate Restructuring, Vikas Publishing House Pvt. Ltd., Noida,
2009, p. 112

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was drafted in 1994. Barring certain provisions of the Companies Act, 1956 (section 395 and 372
regarding acquiring shares of dissentient shareholders and intercorporate loans, respectively) there
were hardly any provision or rules which could remotely fall within the paradigm of organised
takeover laws.5

In order to fill in the desperate need of significant piece of legislation that governs the takeover
activities, the government took forth the first step in the direction by introducing Clause 40 in the
Listing Agreement of the stock exchanges. Thus, to regulate the activities of substantial acquisition
of shares and takeover of a public limited company, government pulled in the medium of stock
exchanges where the shares of such companies are listed in order to safeguard the interests of
minority shareholders.

However, the Capital Issues Control Act, 1947 also held a gritty significance in this evolution of
takeover laws which provided the ‘control over issues of capital’. This piece of legislation
protected the Indian Investors from subscribing to shares which are over-priced, through the
pricing method adopted for public issues of shares by the controller of capital issues,6 Public sector
banks and public financial and development institutions are the other faces of corporate sector
which affected the takeovers in India. Historically these institutions and banks which were
governed and owned by the government acquired a large chunk of shareholding in private sector
companies and played a role of development catalysts in the initial phase of Indian Corporate
Sector. Just like their counterpart the world over, these institutions have a definite role in the
takeover game.7

Provisions of Companies Act, 1956/Companies Act, 2013

The Board of Directors of a company while considering a takeover will have to comply with the
provisions of section 372A of Companies Act, 1956 (section 186 of 2013 act) in addition to the
SEBI Takeover Code, 2011. Section 372A(1) of 1956 Act/Section 186 (2) of the 2013 Act says
that a company can directly or indirectly make any loan to any other body corporate, give any

5
Abhinav Singh, “Takeover Code-Basic Concepts”, retrieved from http://www.goforthelaw.com/
articles/fromlawstu/article64.
6
K.R. Sampath, Law and Procedure for Mergers/Joint Ventures, Amalgamation, Takeovers and Corporate
Restructuring, Snow White Publications, Mumbai, 2008, p. 870.
7
Corporate Restructuring, Snow White Publications, Mumbai, 2008, p. 870. 7 Id., p. 871

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guarantee or provide security in connection with a loan made by any other person to or to any other
person, by any body corporate, and acquire by way of subscription, purchase or otherwise, the
securities of any other body corporate for a value not exceeding 60 percent of its paid-up share
capital and free reserves or 100 percent of its free reserves, whichever is more. Proviso to section
says that if the giving of any loan or guarantee or providing any security or the acquisition under
sub-section (2) exceeds 60 percent of its paid-up share capital and free reserves or 100 percent of
its free reserves, prior approval by means of a special resolution passed at a general meeting is
mandatory.8

Further section 186(4) mandates a company to make a full disclosure to all of its members of the
financial statement with all the particulars of loans advances, guarantees extended and investments
made and the security provided, if any alongwith with the purpose of use. The provision further
increases the stringencies by mandating a board resolution with consent of all the directors and/or
the public financial institution in case if any tern loan is in subsistence.

It further provides that prior approval of a public financial institution is not necessary where the
aggregate of the loans, investments and guarantee/security given or provided alongwith loans,
investment and guarantee/security to be given does not exceed the limit specified above and
moreover there is no default in repayment of loan instalment or payment of interest as per the terms
and conditions of the said loan to the public financial institution.9

Effect of default

Under the arms of section 230(8) a company has been restricted from providing any security or
giving any loan guarantee or making any acquisition if the company has defaulted in the repayment
of deposits or interest thereon and such restriction will be in place till the time such default is in
subsistence.10

Maintenance of Register

8
Section 278A, Companies Act, 1956 & Section 186, Companies Act, 2013.
9
Proviso to Section 372-A(2) of the Companies Act, 1956/Proviso to section 230(5) of the Companies Act, 2013.
10
Section 230(8) of the Companies Act, 2013 corresponds to section 372-A(4) of the Companies Act,1956.

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Every company shall mandatorily keep a register which shall provide all the information and
particulars related to the loans given, security provided, guarantee extended and the details of all
the acquisitions made, in such form and manner as may be prescribed.11 The register shall be kept
at the registered office of the company and it shall be open for inspection and extracts may be
taken thereof by any member and he can have copy of the register on payment of prescribed fees.12

Exemption in Case of Certain Companies

The acquisition made by the companies mentioned hereunder was exempted from the provisions
section 186, except sub-section 1.

• Acquisitions made by Non-Banking Financial Company (NBFC) registered under Chapter

III B of the RBI Act, 1934 and whose principal business is acquisition of securities.
Exemption of NBFC shall be in respect of investment and lending activities.
• Acquisition made by a company whose principal business is the acquisition of securities.
• Acquisition of shares allotted in pursuance of section 62(1)(a).

Government Guidelines

The Central Government has further made it clear that they possess the authority to enumerate the
necessary guidelines which shall be applicable under these provisions. Consequently, companies
are required to comply with such guidelines as well, in addition to the compliance which they have
to make under this provision, as and when they may be prescribed.13

Default

It further provides for the penalty in case of the contravention of the provisions. It prescribes that
the company which contravenes shall be inflicted with the fine which shall not be less than 25,000
but which may be extended upto 5,00,000 and all the officers who are in such default shall be

11
Section 186(9) of the Companies Act, 2013
12
Section 186(10) of the Companies Act, 2013
13
Section 372-A (7) of the Companies Act, 1956/Section 186(12) of the Companies Act, 2013

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punishable with the imprisonment for a term which may extend upto 2 years and fine which shall
not be less than 25,000 but which may be extended upto 1,00,000.14 These penalty provisions have
been modifies under 2013 Act. However, under 1956 Act a major modification was introduced
which says by fully repaying the inter-corporate loan one could escape punishment of
imprisonment or could reduce the punishment by making a part payment of the loan.

Restriction on Multi-Layered Structures

The Companies Act, 1956 doesn’t provide for any restrictions on multilayered structures.
Accordingly, several multi-layered structures have been set up for holding investments in
operating entities to suit business or commercial needs.15 However, the provisions under the new
act provide for the imposition of restrictions on two layers for investment companies.16

Section 186(1) further specifies that unless otherwise prescribed investment through not more than
two layers of investment companies can be made by a company. However, the said provision shall
not affect:

• Any acquisition made by a company of an another company incorporated in a country

outside India if such company has investment subsidiaries beyond two layers as per the
requirement of the laws of such other country.
• A subsidiary company from having any investment subsidiary for the purposes of meeting
the requirements under any law or under any rule or regulation framed under any law for
the time being in force.17

14
Section 186(13) of the Companies Act, 2013.
15
Ernst and Young, “Companies Act 2013: Impact on Transactions”, in EY and Assocham (ed.), Mergers and
Acquisition in the New Era of Companies Act, 2013.
ey.com/Publication/vwluAssets/Assocham_White_paper_Companies_Act.pdf,
16
Explanation to section 186 of the Companies Act defines ‘Investment Company’ as a company whose principal
business is the acquisition of shares, debentures or other securities.
17
Proviso to section 186(1) of the Companies Act, 2013.

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A thorough analysis would entail that the rationale behind such a change is to control the diversion
of funds and to keep a check on the practices of the avoidance of tax through the webs of complex
corporate structure.

The Provisions of Listing Agreement:

Every company wants to get registered on a stock exchange and has to sign an agreement with
that stock exchange. This agreement is known as the listing agreement.18 Clauses 40A and 40B
are important from the point of view of our subject. The very first attempt at regulating takeover
of companies was done in a way by incorporating clauses 40 and 41 in the listing agreement,
which talks about public offer to shareholders of a company by the acquirer who acquirers 25%
or more of the shares or voting rights of the company.

This helps the shareholders to actively participate in the company taken over (target company),
the takeover process. In India, companies are controlled by acquirer who acquired less than 25%,
the main objective of this clause would be defeated by acquiring shares less than the prescribed
threshold of 25% and still having control over the company19. It was also possible earlier that a
company could be acquired even with 10% holding directly. In 1990, even before SEBI became
a stutuory body, the legislature along with SEBI decided to replace clause 40 with clause 40A
and 40B and lowered the threshold of acquisition for making a public offer by the acquirer to
10% from 25% .20 it was also provided that even though there was no change in the shareholding
structure, even a change in the management of the target company will invoke the need to make
a public offer to the shareholders. It also mentioned a minimum price rate at which the offer had
to be made and the shareholder had to disclose his shareholding at 5% or more to be considered
as an advance notice to the target company. In a situation of acquisition of shares that exceed
10% of the voting rights of the company, the acquirers shall have to make an open offer to
acquire minimum 20% shares from the public through an open offer. These clauses have now
been amended. 21These changes in the takeover provisions helped making the acquisition process
transparent, because it provided for protection of investors and introduced an element of equity

18
Prasad G. Godbole, 2009, p.156.
19
J.C. Verma, 2009, p. 602.
20
K.R. Sampath, 2008, p. 870.
21
Original Clause 40A of the Listing Agreement.

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between the various parties involved in the process by increasing the disclosure obligations. But
even after the changes, the clauses had many flaws- limited applicability and weak enforcement.
It was unable to provide for a regulatory framework governing takeover.

SEBI later came out with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1994. Along with this statute Clause 401A and 40B of the Listing Agreement was in force.
Though the regulation retained the basic framework and jurisprudence of clauses 40A and 40B,
but the new law did make a significant change by dropping ‘change in management’ as a ground
for making a public offer.22

Justice Bhagwati Committee’s recommendations were that the clauses have now become
obsolete and hence should be replaced by a new appropriate one wit the changing times, in 2006
new clauses of 40A and 40B were enacted. In order to ensure easily available flowing stock
continuously and greater transparency of disclosure of shareholding pattern of companies, SEBI
decided to bring a few changes to clauses 40A and 40B of Listing agreements.23

Minimum Level of Public Shareholding (Clause 40A) :

1) All listed companies have to have a minimum shareholding of 25% of the total number of
issued shares if a class of shares for continuous listing purpose24. Exceptions to this are :
a) Companies that had at the time of listing its hares had offered 10 to 25% of the total
number of issued shares of a class, in the terms of rule 19(2)(b) of Securities Contract
(Regulations) Rules 195725
b) The second exception is that irrespective of the percentage of the shares with the public at
the time of listing, if it reached a size of 2 crore or more in the terms of shares listed and
Rs 1000 crore or more in the terms of capital captalization26

22
Initial disclosure at the level of 5 percent, threshold limit of 10 percent for public offer to acquire
minimum percentage of shares at a minimum offer price and making of a public announcement by
the acquirer followed by a letter of offer.
23
Circular No. SEBI/CFD/DIL/LA/2006/13/4, Dated 13 April 2006, retrieved from www.nse-india.
com/corporates/content/eq-listcompanies.htm,
24
Sub-clause(i) to clause 40A of the Listing Agreement.
25
Sub-clause (ii) to clause 40A of the Listing Agreement.
26
Sub-clause (iii) to clause 40A of the Listing Agreement.

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The companies in the above exceptions are required to maintain a minimum level of
shareholding with the public at 10% of the total number of issued shares

2) The companies that do not comply with the above mentioned clause will have to comply
with it within 2 years from the date as granted by Specified Stock Exchange (SSE). This
period can be extended further but not more than 1 year by SSE only after verifying the
steps taken by the company to increase the shareholding and genuineness of the reasons27
3) In respect of companies whose public shareholding is bellow the minimum level pursuant
to:
a) The transfer of shares due to extraordinary events like: Compliance with directions of any
authority ( court/ tribunal) or in compliance with the Take over code
b) Reorganization of capital by arrangement scheme- the sock exchange would provide
additional 1 year time to the company to comply with the specific minimum
requirements28
4) Where the public shareholding has reduced below the minimum level, the company will
not further dilute the same shares except in extraordinary events 29
5) The company cannot issue shares to promoters, entities belonging to the promoter group (
except in extra ordinary circumstances, or any offer for buy back of shares etc) if it
results in reducing the public shareholding below 10% 30
6) Nothing contained in the above clauses would be applicable to government companies (
defined under Companies Act, 1956), infrastructure companies defined in SEBI
(Disclosure and Investor Protection Guidelines, 2000, or companies referred to the Board
for Industrial and Financial Reconstruction under Sick Industrial Companies Act, 1985
7) If the company agrees that in case if its public shareholding reduces below the specified
minimum level, it shall take measures to increase the same by any of the following ways
a) Issue shares to public
b) Offer for sale of shares that are held by promoters
c) Sale of shares of promoters through secondary market

27
Sub-clause (iv) to clause 40A of the Listing Agreement.
28
Sub-clause (vii) to clause 40A of the Listing Agreement.
29
Sub-clause (v) to clause 40A of the Listing Agreement.
30
Sub-clause (vi) to clause 40A of the Listing Agreement.

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d) Any other method31

8) If a company fails to adhere to the compliances , shares would be liable to be delisted in
terms of the SEBI Delisting Guidelines and shall be liable for penalty under Securities
Contracts (Regulations) Act, 1956 and Securities and Exchange Board of India Act,
199232

Take Over Offer (Clause 40B):

It is pre conditioned for a continued listed company that whenever there is a takeover offer, or
there is a change in the management of the company, the acquirer (the person who secured the
control of the management) and the target company (the company whose shares have been
acquired) shall have to comply with the provisions of Take Over Code.

The amended clause are still not able to provide for a comprehensive regulatory framework that
govern takeover due to its limited application and enforceability

1) This clause is binding on listed companies only and cannot be enforced against an
acquirer unless the acquirer is a listed company itself that is a listed company as a listed
agreement is a contract between the stock exchange and the company.
2) The penalty for non compliance is common to all violations by a listed company that fails
to adhere to the listing agreement ie. Delisting the company’s shares which is more
detrimental to the interests of the interests of the investors that are to be protected

SEBI Takeover Code 2011

In 1991, the Prime Minister Late Mr. P.V. Narsimha Rao, initiated economic reforms, consisting
of liberalization and de regularizing the economic policy of India. The Monopolies and
Restrictive Trade Practices Act, 1969 was amended and thus the Indian economy was opened33

31
Proviso to sub-clause (viii) of clause 40 A provides that for the purpose of adopting methods
specified in sub-clauses (c) and (d) above, the company agrees to take prior approval of the SSE
which may impose certain conditions as it deems fit.
32
Sub-clause (ix) to clause 40 A of the Listing Agreement.
33
S. Chakravarthy, “Why India Adopted a New Competition Law”, Cuts International, Jaipur, 2006, p.
13 retrieved from http://www.cuts-international.org/pdf/wiancl.pdf

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Prior to the SEBI ( Substantial Acquisition of Shares and Takeovers) Regulations, 1994 transfer
of shares under listed companies was governed by Clause 40 of the Listing Agreement. But later
clause 40 was amended and new clauses 40A and 40B were inserted. This reduced the threshold
from 25% to 10%.34 It was an attempt to regulate the takeover of a listed company. Within 2
years of the regulation, it was felt that regulations had to be improved and were to be made more
comprehensive. Government constituted a committee who’s chairman was Hon’ble Justice P.N.
Bhagwati, former Chief Justice of Supreme Court of India35 to:

1) To examine the defective areas in the pre existing regulations

2) Suggest any amendments in the regulations to strengthen them and make them fair,
transparent and protect the interest of investors and concerned parties in the acquisition.

The Bhagwati Committee while giving its suggestions for the amendments recognized that the
takeover process is very complex and interlinked to the dynamic behavior of the market place. 36
The Committee took into consideration 10 general principles which should always be taken as
general guiding factors that are not covered by the regulation and in case there is an ambiguity
while interpreting. 37

Based on the recommendations of Bhagwat Committees, new regulations were notified on

20-02-1997 entitled SEBI (Substantial Acquisitions of Shares and Takeovers) regulations, 1997.
The economic culture of India was changing at a fast pace and hence the regulations had to be
reviewed and amended time to time.38 Major amendments were made in 1998 and 2001.
Takeover Code of 1997 help to set the basic framework for mergers and acquisitions but these
rules had loopholes that left lacunas for interpretations leading to disputes. This resulted to
reconstitution of Bhagwati Committee in 2001. The takeover regulations went for a toss and
major changes took effect from 9-9-2002 based on the 2nd report of Justice P.N. Bhagwati. The

34
Vinayak Mishra and Priyanka Rathi, “SEBI (Substantial Acquiring of Shares and Takeovers)
Regulations, 1997: An Overview”, SEBI and Corporate Laws, 28 July- 3 August 2008, Vol. 85, pp.
91-102, p. 91.
35
K.R. Sampath, 2008, p. 865.
36
Vinayak Mishra and Priyanka Rathi, 2008, p. 92.
37
For details on the ten general principles, see, N.R. Sridharan and P.H. Arvind Pandian, 2010, pp.
605-606; also see J.C. Verma, 2009, p. 713.
38
C.S. Balasubramaniam, “An Appraisal of SEBI Takeover Code, 2011”, SEBI and Corporate Laws,
19-25 December, 2011, Vol. 110, pp. 95-105, p. 98.

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committee made its recommendations taking into consideration every aspect of the regulation
including takeover panel, consolidation, creeping acquisitions, preferential allotment, minimum
offer price etc. on the basis of this, new amendments were made in 2002 to this regulation. These
changes were because SEBI wanted to protect small investors and regulate the market. The
Takeover Code was amended 23 times in 13 years and created more confusion39.

Constitution of TRAC:

Because of India’s rigidity in the legal system, the process of takeover has been outstretched.
Business and number of organizations has been increasing manifold. There has been intense
activities in the past few years.40 The number of takeovers has increased from 69 a year in 1997
to 2005 to 99 a year during 2006 to 2010.41 Because of the growing Mergers and Acquisition
activity in India, the regulatory experience and judicial pronouncements it was necessary to
review the 1997 Code.

SEBI ordered a Takeover regulations Advisory Committee TRAC on 4th September 2009with
the sole objective to review and amend the Code. The committee’s chairman was the former
presiding officer or Securities Appellate Tribunal to bridge the gap between the regulations and
the global market. TRAC submitted the report to SEBI on 19th July 2010 with new regulations
considering court decisions and rulings of Securities Appellate Tribunal and international
practices42. With many changes in the local tax and regulatory laws, such as Income tax, Goods
and services tax, Competition Law, etc.43

Necessity, Purpose and Object of SEBI Code:

39
N.R. Sridharan and P.H. Arvind Pandian, 2010, pp. 606-608.
40
Albin George Thomas, “Merger and Acquisition–Future in the Light of Impending Changes in the
Takeover Code”, Corporate Law Advisor, November 2010, Vol. 99, No. 1, pp. 217-222, p. 217.
41
Report of Takeover Regulations Advisory Committee under Chairmanship of Mr. C. Achuthan,
Dated 19.7.2010, in Anand G. Srinivasan, Law Relating to New Takeover Code 2011, Taxmann
Publication (P.) Ltd., 2011, pp. 2.130-2.186, p. 2.131, para 4.
42
Karan Talwar and Nivedita Saksena, “Anti-acquirer and Pro-shareholder? An Analysis of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011”, retrieved from www.
niylslawreview.org/.-/karan-talwar-and-nivedita.saksena.pdf
43
Rekha Bagry and Mahavir Lunawat, “A Progressive Code of a New Era”, retrieved from www.
financialexpress.com/news/a-progressive-code-of-a-new-era/853624/8,

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The Code is based on transparency, fairness and equality. The effect of SEBI’s takeover Code is
in the interest of investors and has benefited the shareholders by 4250 crores. The Code was
enacted to protect the investors and business from hostile takeovers. The regulation has been
formed to provide transparent transfers in transactions. The regulations are intended to protect
the interest of small shareholders so that they get a fair price for the shares.44

In Sultania (GL) vs. SEBI:45 The Supreme court held that the entire scheme is designed for the
protection of the investors interest, specially the smaller ones who have the risk of getting an
unfair deal in such transactions.
In K.K. Modi vs SAT:46 The Regulations have been framed with a view to protect the interests
of investors in securities, and to promote development of and to regulate the securities market
and for matters connected therewith or incidental thereto. The regulations deal inter alia with
substantial acquisition of shares in companies by an acquirer. They do not, in any manner, inhibit
the right of the owner of shares to sell his shares to a willing purchaser. In fact, the law leans in
favour of free transferability of shares.”
In Kishore Chhabana vs. Chairman47, SEBI the Tribunal held that the purpose of the Code was
to be for remedies and regulations for:
• Ensuring that the management of the target company is aware of the acquisition
• Ensuring that the process of acquisition in the market is not distorted
• Ensuring that the small investors are offered a choice to remain or exit the company

Objectives of the 2011 Code: (as per the TRAC report)48

1) Providing transparent legal provisions for takeover of companies
2) Protect the investors’ interest in the security market and provide for a fair, equitable and
transparent framework for protection of interest

44
Mahesh Kumar Tambi, “Indian Takeover Code in Search of Excellence: A Case Study Approach”,
retrieved from http://ideas.repec.org/p/wpa/wvwpma/0504021.html,
45
(2007) 76 SCL 473 (SC).
46
(2002) 35 SCL 230 (Bom.).
47
(2003) 46 SCL 385 (SAT-Mum.).
48
Report of Takeover Regulations Advisory Committee under Chairmanship of Mr. C. Achuthan,
Dated 19.7.2010, in Anand G. Srinivasan, Law Relating to New Takeover Code 2011, Taxmann
Publication (P.) Ltd., 2011, pp. 2.132-2.133, para 12.

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3) Balancing the conflicting objectives and interests of shareholders in relation to the

acquisition shares of listed companies
4) Providing shareholders with an exit opportunity in the target company
5) Provide the acquirer with a legal framework to allow him to acquire shares in the target
company and make an open offer
6) Ensuring that the affairs of the target company are conducted according to the ordinary
course during open offer
7) Ensuring that there is fair and accurate disclosure of the material information by the
acquirer to the shareholders to allow them to take informed decisions
8) Regulating and providing fair competition among various acquirers who desire to take
over the same target company
9) Ensuring that only those who are willing and capable of fulfilling their obligations should
make an open offer

Conclusion:
The principal endeavor at directing takeovers was the presentation of statement 40 in the
Listing Understanding. In any case, the statement experienced significant lacunas because of
which it was supplanted in 1990 by presentation of condition 40A and 40B in the Listing
Agreement. Be that as it may, as of now talked about, the revised conditions were not able
give a far reaching administrative structure representing takeovers because of their
constrained appropriateness and powerless enforceability. Yet at the same time they made a
decent starting towards controlling takeovers and acquisitions in India. As the procedure of
takeovers is mind boggling and is nearly interlinked to the flow of the commercial center, the
SEBI in as per the forces vested in it under regulation 30 of the SEBI Act, 1992 turned out
with SEBI (Substantial Acquisitions of Shares and Takeovers) Regulations in 1994. Inside
two years of the working of controls, a need was felt to enhance the controls to make them
more thorough. Thusly, Bhagwati Committee was constituted which turned out with another
arrangement of controls in 1997. Thinking about, the developing level of M&A action in
India, the expanding advancement of takeover market, the decade long administrative
experience and different legal declarations, it was felt important to audit the 1997 Code and
to bring it in accordance with the present comprehension of the worldwide market. The

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Indian capital advertise has seen a considerable measure of changes since the Takeover Code
was authorized in 1997. In light of the proposals of the TRAC board of trustees, universal
practices and input from intrigue gathering and overall population, the SEBI informed
another Takeover Code in 2011.

Indian Corporate Law Review

Volume 4 – June, 2017