Sebi scraps ´ brightline´ control test proposal

Sebi scraps ´ brightline´ control test proposal

The Securities and Exchange Board of India (Sebi) on Friday said it has dropped the proposal of adopting the “brightline test” to determine acquisition of “control”.

In March 2016, the market regulator had floatedadiscussion paper on “brightline tests for acquisition of ´control´ under Sebi Takeover Regulations”.

The brightline test isadifferent approach to defining control, which prescribesalist of protective rights which do not amount to acquisition of control.The current framework, is largely formulaebased, with one of the criterion being acquisition of 25 per cent stake or voting rights.

Determining change of control is critical as it triggers an open offer to the public shareholders.

“The relevant issues have been examined intensively and in view of the aforesaid comments received and considering the current regulatory environment, it has been decided to continue with the practice of ascertaining acquisition of ´control´ as per the extant definition in the Takeover Regulations,” Sebi said inarelease. “It is felt that any change or dilution in the definition of control would have farreaching consequences sinceasimilar definition of ´control´ is used in the Companies Act, 2013, and other laws,” the regulator further said.

Sebi had received “mixed response” on the discussion paper with some supporting the idea for the “brightline” test, terming it asasubstantial step towards ease of doing business.

However, key stakeholders including the Ministry of Corporate Affairs (MCA) recommended against it.The MCA told the Sebi that changing the current definition of ´control´ may reduce regulatory scope and may be prone to abuse.

It told Sebi that it would be more appropriate to take decisions onacasetocase basis.

Moving to the “brightline” method would have entailed preparing an exhaustive list of situations, which could have posedabig challenge to the Sebi. “Even though debates have done the rounds among various stakeholders in the last couple of years, defining control is like defining honesty.

One cannot say thataperson is 99 per cent honest and one per cent dishonest.

Either one is honest or not at all. Similarly inagiven set of facts, Sebi has to say if it feels there is control or not, and then you havearight to appeal.

Defining negative or positive control based on various protective rights may beabad policy.

It has to be principlebased to be applied onacasetocase basis.

Let the jurisprudence develop from courts and judgments rather than being influenced,” said Sumit Agrawal, partner, Suvan Law Advisors.

The Business Standard, New Delhi, 09th september 2017