Necessity of Takeover Code

The twentieth century began with the process of transformation of entire business scenario. The economy of India which was hitherto controlled and regulated by the Government was set free to seize new opportunities available in the world. With the announcement of the policy of globalization, the doors of Indian economy were opened for the overseas investors. But to compete at the world platform, the scale of business was needed to be increased. In this changed scenario, mergers and acquisitions were the best option available for the corporates considering the time factor involved in capturing the opportunities made available by the globalization.

This new weapon in the armory of corporates though proved to be beneficial but soon the predators with huge disposable wealth started exploiting this opportunity to the prejudice of retail investor. This created a need for some regulation to protect the interest of investors so that the process of takeover and mergers is used to develop the securities market and not to sabotage it. In the year 1992, with the enactment of SEBI Act, SEBI was established as regulatory body to promote the development of securities market and protect the interest of investors in securities market. Further it got the power to make regulations for the above objectives. Thus SEBI appointed a committee headed by P.N. Bhagwati to study the effect of takeovers and mergers on securities market and suggest the provisions to regulate takeovers and mergers.

In its report, the committee stated the necessity of a Takeover Code on the following grounds:

Thereafter, these regulations have been amended a number of times to address the changing circumstances and needs of corporate sector. In 1994 SEBI came out with SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994. Later SEBI Takeover Code has been rechristened by enacting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 substituting SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1994.

Thereafter, in September 2009, the Takeover Regulations Advisory Committee (TRAC) under the chairmanship of Mr. C Achuthan was constituted by SEBI with the mandate to examine and review the SEBI Takeover Regulations of 1997 and to suggest suitable amendments, as deemed fit. Later in June 2010, the Committee came out with the TRAC Report proposing some sweeping changes on critical issues, including the open offer trigger, offer size, indirect acquisitions, exemptions from open offer obligations, offer price calculations and competing offers which was then open for public comments.

The fundamental objectives of the Proposed Takeover Regulations were:-

After considering the public comments and further to discussion, the report has been modified to the present form i.e. SEBI (SAST) Regulations, 2011 substituting the SEBI (SAST) Regulations, 1997.