Capital market regulator Securities and Exchange Board of India (SEBI) has clarified and dropped the proposal to adopt a "bright line test" to determine acquisition of "control".
With the clarification, it means the regulator will leave the definition of 'control' in the SEBI's (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, unchanged.
"The relevant issues have been examined intensively and in view of the aforesaid comments received and the current regulatory environment, it has been decided to continue with the practice of ascertaining acquisition of 'control' as per the extant definition in the takeover regulations," SEBI said in a release.
The proposed approach tried to redefine "control" and recommended a list of protective rights that do not amount to acquisition of control.
"It is felt that any change or dilution in the definition of control would have far-reaching consequences since a similar definition of 'control' is used in the Companies Act 2013 and other laws," the regulator further said.
In March 2016, the regulator had floated a discussion paper on "bright line tests for the acquisition of control under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations," financial daily Business Standard (BS) reported.
The ongoing framework is principally formulae-based with one of the criteria being the acquisition of 25 percent stake or voting rights. Determining change of control is essential as it prompt an open offer to the public shareholders, BS reported.
"I'm firmly in the camp that says they should leave it as it is. The broad principle can then be interpreted by courts as opposed to a rigid rule which will have false positives and false negatives," BloomberQuint quoted Sandeep Parkh, Founder, Finsec Law as saying.
On the discussion paper, the regulator received a mixed response. However, key stakeholders including the Ministry of Corporate Affairs (MCA) have recommended against it, SEBI said in a statement, the business daily reported.
Changing the current definition of "control" may reduce regulatory scope and increase risks of abuse, opined MCA. The ministry further told the regulator that it would be more appropriate to take decisions on a case-to-case basis.