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July 13 To July 19, 2019 u Taxmann’s Corporate Professionals Today u Vol. 45 u 45and would not amount to exercise of control
over the target company.
In the case of private equity investor Clear-
water Partners and its investment in Kamat
Hotel India Ltd. SEBI held that “negative
control”, or protective rights cannot be con-
strued as “control” under the SAST. In this
case SEBI relayed the SAT order in the case
of Subhkam Ventures (I) (P.) Ltd. (supra), SAT
clarified that an assessment of control needs
to be considered if: (1) the affirmative voting
rights confer a proactive or reactive power
on the acquirer; and (2) the affirmative vot-
ing rights are necessary for protecting the
acquirer’s investment in the listed company
as a financial investor.
If the rights conferred are merely reactive
(i.e., in the nature of a veto right) and not
proactive (i.e., decision making powers or the
ability to carry a proposal) and are tailored
to protect a minority or financial investment,
they would not amount to “control”.
Hence, In the NDTV case, the veto rights
which were given to VCPL in both RRPR
and NDTV (through RRPR), for matters
relating to the share capital of RRPR and
NDTV was protective in nature which was
given to protect the interest of lenders in the
assets of borrower, hence, it won’t amount
to exercising control.Conclusion
- Unfortunately this SEBI order has dis-
turbed a settled position of law without any
cogent reason for the same. Though overall
transaction between VCPL and RRPR is not
standard in nature but this SEBI’s order
devoid of any legal backing which skewed
in circumstantial facts only.
Generally, in financing transactions, lenders
are insisting to have certain protective rights
against borrowers and its assets but SEBI
seems to have alluded that these practices
followed by most of the lenders in the market
can result in acquisition of control.
This SEBI order seems to be a clear case
of overreach or over regulation. It will be
interesting to see how SAT views this mat-
ter and to what extent SEBI’s position will
stand vindicated.
lll
SEBI V. NDTV - DOES FINANCING ARRANGEMENTS AMOUNTS TO EXERCISING ‘CONTROL’