The Securities and Exchange Board of India (SEBI) very recently passed an order in a matter involving New Delhi Television Limited (NDTV or Target Company) stirring-up the issue of what amounts to `Control` under the Takeover Code.


In 2008, the promoters of NDTV i.e. RRPR, Prannoy Roy and Radhika Roy (collectively referred as Promoters) made an open offer under the old SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (Takeover Code) to acquire shares of NDTV which is a listed company.

A loan of Rs 350 crores was taken from Vishvapradhan Commercial Private Limited (VCPL) in order to finance this open offer. There were extensive loan and other agreements entered into between the Promoters and VCPL which granted VCPL the following packaged rights:

  • warrants in RRPR - which conferred upon VCPL the right to convert warrants into 99.99% of the equity share capital of RRPR;
  • purchase right by which VCPL could acquire the shares of RRPR from its shareholders;
  • call option in respect of shares that RRPR held in NDTV;
  • veto rights by which several actions could not be carried out by RRPR and NDTV without the prior approval of VCPL.

SEBI investigated whether the above packaged rights, conferred upon VCPL, amount to acquiring control in the Target Company thereby triggering the requirement of an open offer under Regulation 12 of the Takeover Code (i.e. change of control of the Target Company without acquisition of its shares).

Regulation 2(1)(c) of the Takeover Code defines Control as ``shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner``

There have also been a few attempts by the SEBI and the Securities Appellate Tribunal (SAT) to address the question of control in the following cases:

  • In the Subhkam Case , SAT held that affirmative voting rights (AVRs) do not amount to control and therefore will not trigger the open offer requirements under Regulation 12 of the Takeover Code. However, Supreme Court has set aside this SAT order stating that it should not treated as a precedent;
  • In the Kamat Hotel Case , SEBI vide its order dropped the charges on the ground that the inter-se agreement was a term agreement which had already lapsed.

Accordingly, there was no conclusion to decide trigger of control over a company under the Takeover Code.

SEBI in this matter had to ascertain whether these packaged rights between RRPL and VCPL amount to control.

SEBI noted that the various rights given to VCPL were exercisable at any time during the tenure of the Loan or thereafter. In other words, even if the promoters were to repay the loan, the conversion option would not have been rendered void, which is an abnormal stipulation.

Accordingly, SEBI concluded that the transaction was indirectly one of acquisition in the disguise of a loan. Accordingly, VCPL has been directed to make an open offer under the Takeover Code.


The definition of `Control` is similar in the old Takeover Code and the new Takeover Code of 2011. AVR and other similar preferential packaged rights have always been a controversial area where SEBI has taken a stand that it amounts to exercising control. Therefore, until Supreme Court rules on control, in acquisition financing transactions, the financing documents would need to be carefully drafted to ensure that the financier through the bundle of rights granted by such documents does not indirectly acquire control of the company whose shares are being purchased. If such care is not exercised, SEBI could order an open offer by the financier.

Author: Bhushan Shah - Partner

This update was released on 20 Jul 2018.

The views expressed in this update are personal and should not be construed as any legal advice. Please contact us directly on +91 22 40565252 or for any assistance.

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