Ambiguities in the Securities and Exchange Board of India's Takeover Regulations have been a major cause of noncompliance by the companies. A string of amendments since 1977 together with SEBI's informal interpretations and various court judgments have made the code a complicated one. The market regulator recently formed the Takeover Regulations Advisory Committee with the aim of simplifying the code. To begin with, this panel should be an independent body made up of people with in-depth knowledge of takeovers and include a full-time SEBI member. Furthermore, the decision of the panel should be final.
A new disclosure norm should be inserted in the regulations requiring a company to give consolidated information about all the disclosures and compliances made or received under the code during the year. At present, companies are required to make event-based disclosure and disclosure on availing themselves of the automatic exemption. The new norm will make it easy for SEBI and the stock exchanges to check compliances by a company. The public, too, will benefit by learning about changes in the shareholding and other actions of a company at one place.
The language of the regulations should be simplified to facilitate easy understanding and compliance. This is because most of the amendments have taken place in Regulations 10 and 11 that deal with trigger points for public offers, making their provisions complicated and creating problems of interpretation.
Under the Takeover Code, whenever any company acquires more than a certain number of shares—the limit prescribed under the regulations—of another company either from the market or by entering into an agreement with that company, it is required to inform the shareholders of that company through a public announcement within four days of such an action.
But making a public disclosure is a time-taking process: The disclosure document requires information about the company that is acquiring and the one being acquired, details of acquisition and public offer as well as future plans of the acquirer. In addition, it entails preparation of several documents to be filed with the merchant banker, SEBI and other regulatory authority as may be applicable. It is difficult to complete all these formalities in four days and, therefore, the time period needs to be extended.
The regulations provide separate guidelines for calculation of offer price for frequently and infrequently traded shares. However, the criteria prescribed for infrequently traded shares are vaguely spelt and leave scope for acceptance of different criteria. The regulations, therefore, must provide precise methods for the determination of offer price for infrequently traded shares.
Though, there is a reference to competitive bid in the regulations, no successful competitive bid has taken place in India since the enactment of the Takeover Code due to a lack of clarity over the issue. A greater clarity will not only encourage healthy competition, but also benefit the securities market.
Furthermore, a simplified way out by way of structured penalty should be provided for non-filing or delay in reporting of certain disclosures without requiring a consent order, which is very time-consuming.
The Takeover Code should be amended or replaced with a new one to make it more M and Afriendly so as to address the changing circumstances and needs of India Inc.
