Several regulatory bodies stand in the way when a takeover agreement needs to get through in the securities market including cross-border acquisitions. The presence of such regulatory bodies creates a requirement for the shareholders and investors to be well informed after the acquisition of a particular company. However, it is also important to be highlighted that the unrestricted definition of ‘control’ set by the Securities Exchange Board of India has drawn some attention in recent times. This makes a lot of investors uncomfortable because of the possibilities of ‘Mandatory Takeover Bids’ or MTB. A mandatory takeover imposes an obligation on the acquiring entity to provide minority shareholders with an option to sell their shares to the acquirer. This obligation exists under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. It becomes important to take a deeper look because of the uncertainties of the vague definition of control set by SEBI, making foreign investors apprehensive.

There might be a group of shareholders who intend to invest in a company without attempting to acquire any sort of control, but still, can be forced to release an open offer. The numerical threshold might not cross when it comes to the average holding of these shareholders but due to the acquisition of affirmative, negative or management rights, they do exercise a degree of control. The Securities Appellate Tribunal or SAT and SEBI have usually opted for contradicting approaches when it comes to defining whether these rights constitute conferment of control. Steps were taken to resolve the uncertainty of the situation including the release of a discussion paper in the year 2016, welcoming public opinion on the tests proposed by SEBI. The choices provided in the list were to either create an exhaustive list of protective rights for the investors, mitigating their shock or to determine an exact numerical threshold. The discussion paper, however, turned out to be inconsequential as SEBI ultimately decided to not change its previous definition of ‘control’ and allow itself to decide on a case to case basis based on a subjective test. Therefore, there exists no such definitive explanation when it comes to what constitutes ‘control’.

It becomes, therefore, important to note that such quantitative measurement tools along with qualitative ones previously resulted in similar unpredictability among investors regarding the regulatory bodies’ interpretation. There are always people who look for opportunities to exploit loopholes in the framework, intending to circumvent the numerical threshold. It is possible to do so by entering into contractual agreements for affirmative rights, convertible bonds and veto rights among other options. This makes it difficult for regulators to come to a hard and fast rule when it comes to determining whether control exists in a particular case. This happens largely due to lack of jurisprudential work on the rights of minority shareholders.