SEBI | Exemption from public announcement of open offer for acquiring shares, where no change in control of Target Company post-takeover

Securities and Exchange Board of India: The Board comprising G. Mahalingam as Whole Time Member, allowed a consortium of port trusts exemption from making a public announcement of open offer for acquiring shares of a mini-ratna public sector undertaking (PSU), opining that the takeover would cause no change in ultimate control of the said PSU.

Cabinet Committee on Economic Affairs gave in-principle approval for strategic disinvestment of shares held by President of India in Dredging Corporation of India Limited (‘Target Company’) – a Mini-Ratna PSU – by four acquirers being – Visakhapatnam Port Trust, Paradip Port Trust, Jawaharlal Nehru Port Trust, and Deendayal Port Trust (‘Acquirers’). The Acquirers collectively filed an application seeking exemption from applicability of Regulations 3 and 4 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, which mandates public announcement of open offer for acquiring shares.

Acquirers submitted that they are port trusts constituted by the Government of India (‘GOI’) under Major Port Trusts Act, 1963 (‘MPT Act’) as autonomous entities to administer and manage major ports. Disinvestment of 73.47 per cent of shares of Target Company in their favour would give them direct control of the Target Company, but its ultimate supervisory control would rest with the GOI (since the Acquirers are under direct control of GOI in accordance with MPT Act).

It was submitted that Regulation 10(1)(a)(iii) of Takeover Regulations exempts inter-se transfer of shares amongst certain qualifying persons being a company subject to control over such qualifying persons being exclusively held by the same persons. Though Regulation 10(1)(a)(iii) may not strictly apply for the proposed acquisition, the same shall apply in spirit since GOI will continue to have ultimate supervisory control over the Target Company post proposed acquisition.

The Board opined that proposed acquisition would not be covered under automatic exemption available under Regulation 10(1)(a)(iii) of the Takeover Regulations since it would change the nature of control exercised by GOI over Target Company from direct to indirect control. However, there would be no change in control of Target Company, from a takeover perspective, since GOI shall continue to exercise supervisory control over Target Company through the Acquirers. In view thereof, exemption sought in the application was granted.

[Dredging Corporation of India Ltd. v. Visakhapatnam Port Trust, 2019 SCC OnLine SEBI 23, Order dated 28-02-2019]

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