JUSTICE P.N.BHAGWATI COMMITTEE REPORT ON TAKEOVERS

The Approach of the Committee

PART 1

1 The Approach of the Committee

1. 1. The Committee was of the view that the Regulations for substantial acquisition of shares and takeovers should operate principally to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers. While on the one hand the Regulations should not impose conditions which are too onerous to fulfill and hence make substantial acquisitions and takeovers difficult, at the same time, they should ensure that such processes do not take place in a clandestine manner without protecting the interests of the shareholders. A balance must necessarily be struck between the two considerations. The objective of the Regulations should therefore be to provide an orderly framework within which such processes could be conducted. The Regulations should also help in evolving good business standards as to how fairness to shareholders can be achieved, as maintenance of such standards is of importance to the integrity of the financial markets, and they should not concern themselves with issues of competition, or financial or commercial advantages or disadvantages of a takeover. The committee also noted that the process of substantial acquisition of shares and takeovers is so intertwined with the warp and weft of the industry, especially in the wake of economic reforms, that it would be unrealistic to make Regulations in this area without taking into account the ground realities of the Indian industry.

1. 2. The Committee also recognised that the process of takeovers is complex and is interrelated to the dynamics of the market place. It would therefore be impracticable to devise regulations in such detail as to cover the entire range of situations which could arise in the process of substantial acquisition of shares and takeovers. Instead there should be a set of General Principles which should guide the interpretation and operation of the Regulations, especially in circumstances which are not explicitly covered by the Regulations. These principles are –

1. Equality of treatment and opportunity to all shareholders.
2. Protection of interests of shareholders.
3. Fair and truthful disclosure of all material information by the acquirer in all public announcements and offer documents.
4. No information to be furnished by the acquirer and other parties to an offer exclusively to any one group of shareholders.
5. Availability of sufficient time to shareholders for making informed decisions.
6. An offer to be announced only after most careful and responsible consideration.
7. The acquirer and all other intermediaries professionally involved in the offer, to exercise highest standards of care and accuracy in preparing offer documents.
8. Recognition by all persons connected with the process of substantial acquisition of shares that there are bound to be limitations on their freedom of action and on the manner in which the pursuit of their interests can be carried out during the offer period.
9. All parties to an offer to refrain from creating a false market in securities of the target company.
10. No action to be taken by the target company to frustrate an offer without the approval of the shareholders.

In the event of any ambiguity or doubt as to the interpretation of the regulations, the concerned authority shall pay adequate attention to and be guided by any one or more of the aforesaid general principles having a bearing on the matter.