Laws are supposed to be in black and white in a way that ensures a certain level of rigidity. However, excessive rigidity sometimes defeats the purpose of the law and therefore, calls for flexibility. Flexibility allows enough space for a piece of law to be tweaked and stretched according to the need of the situation. Even though there is a need for flexibility, too much of it creates confusion and ambiguity and that is why it should be sparingly utilized. The balance between flexibility and rigidity in law takes centre stage when the discussion is about the ‘Takeover Code’ introduced by the Securities and Exchange Board of India. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 or the ‘Older Regulations went through a complete refurbishment when the present SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 or the ‘Newer Regulations). The Older Regulations contained a provision for exemption of such acquisitions under specific arrangements including amalgamation and mergers or demergers under applicable laws. This exemption was mentioned under Regulation 3(1)(j). The said Regulation did not include the need of the particular exemption being available related to the scheme approved by a court of law or any other authority.

In relation to Regulation 3 and 4 of the Newer Regulations, an obligation is imposed on the entity who is acquiring shares or voting or control of any listed company to make a public declaration. The announcement would be an open offer for acquiring shares of twenty-five per cent or more of the voting rights of the said company. The Newer Regulations also contained a provision which stated that indirect acquisition of voting rights or shares or control of any listed company would make the person statutorily responsible for making a public announcement of an open offer. Regulation 10 of the Newer Regulations also contains exemptions from the needs of making an open offer which is mentioned under regulations 3 and 4 of the same. One of the provisions contained under Regulation 10 exempts an entity pursuant of acquisition to a scheme of arrangement not directly involving the intended company as a transferee or transferor, or reconstruction excluding intended corporation’s merger, amalgamation or demerger, according to an order of a court of law or any other quasi-judicial body.

With regards to the above provisions contained under the Newer Regulations, ‘Linde India Limited’ sought SEBI's informal guidance on the exemption under Regulation 10. ‘Linde AG’ which is a German Company held hundred per cent of ‘Linde UK Holding Ltd.’ which in turn held along with other Linde Group entities hundred per cent of ‘BOC Group Ltd.’. ‘BOC Group Ltd’ in turn held 3/4th of shares in ‘Linde India Ltd.’, which is listed on CSE and BSE. The intended merger was to be between ‘Linde AG’ and ‘Praxair Inc.’ and it was to be consummated employing a combination through an all-stock transaction. This would mean Linde Germany would have a different parent company and the same would hold its shares. The issue here was that in Delaware, USA and Germany, a court of law does not need to approve an intended merger. For the merger to take place, a certificate of the merger has to be filed and it has to comply with existing rules. A similar procedure is followed in Germany. This was why SEBI’s informal guidance was sought as in all the other places, there was no requirement for a competent authority’s decision. SEBI stated that the exemption will not be available for the concerned parties and an open offer had to be mandatorily made as per the Newer Regulations.