The Supreme Court has disposed of the appeal filed by the Securities and Exchange Board of India (SEBI) challenging the decision of the Securities Appellate Tribunal (SAT) in the case of Subhkam ventures..The Supreme Court has disposed of the appeal filed by the Securities and Exchange Board of India (SEBI) challenging the decision of the Securities Appellate Tribunal (SAT) in the case of Subhkam ventures..The Chief Justice of India S.H. Kapadia along with Justices A.K. Patnaik and Swatanter Kumar in the order dated November 16, 2011 have clarified that the impugned order passed by the SAT will not be treated as a precedent..Speaking to Bar & Bench JSA Partner Somasekhar Sundaresan said, “This was an order proposed to the court by mutual consent and the court has only disposed of the appeal in terms of the position agreed between parties. The court was keen to hear this matter and lay down the law so that society has clarity on the subject. However, a court cannot force parties to litigate, when they want to settle.”.In the case of Subhkam Ventures India Private Limited vs. SEBI, the SAT in January 2010 had set aside a SEBI direction and held that veto rights acquired by a financial investor in a target company cannot be construed as a controlling stake..The SAT held that an acquirer does not acquire control over the target company merely because the acquirer has (i) the right to appoint a nominee director on the board of a target company and require the nominee director’s presence for purposes of constituting a valid quorum and (ii) certain affirmative voting rights, that are given to acquirer, pursuant to a shareholders agreement. SAT ruled that in such cases, an open offer would not need to be made by the acquirer pursuant to Regulation 12 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (which has now been replaced with SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011). SAT had observed that control under the takeover code is a proactive and not a reactive power..By way of background, SEBI had directed Subhkam Ventures, a PE investor to undertake an open offer on the grounds that it violated the provision of the Takeover norms by getting the veto right in the target firm MSK Project..SEBI was of the view that the PE investor’s shareholding had crossed more than the shareholding of the existing promoters and the veto rights amounted to ‘control’, and consequently the PE investor ought to be considered as a promoter in the infrastructure company and hence should make an open offer under Regulation 12 as well..The SAT had set aside the SEBI’s direction and held that the veto right did not amount to control of the company..PE fund was represented by J. Sagar Associates with SAT specialist Somasekhar Sundareshan. SEBI’s long time standing counsel in the SAT, Kumar Desai assisted by Daya Gupta appeared for them..The investors were relieved with the decision of SAT and thought that a precedent on the issue of veto rights had finally been decided. However, the Supreme Court in its order has clearly stated that SAT order will not be treated as a precedent again creating an ambiguity as to whether such veto rights constitute ‘control’ under the Takeover Code or not..Senior Advocate R.P. Bhatt appeared for SEBI while Senior Advocate Shyam Divan appeared on behalf of Subhkam Ventures.
