BRIGHTLINE TEST FOR CONTROL: EXPLORING ITS EFFICIENCY

Abstract

The issue as to what constitutes ‘control’ has over the decades become somewhat technical in nature and has befuddled regulators, acquirers, target companies and shareholders with respect to its application as a trigger for the Mandatory Disclosure or Mandatory Bid Rule (“MBR”). Under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”), a number of compliances and mandatory disclosures are required to be made by an entity which exercises ‘control’ in a public listed company. Investors dodge such compliances by structuring their investments accordingly. However, disputes are bound to arise due to the ambiguity surrounding the issue of control.   

The term ‘Control’ with respect to the Takeover Regulations has led to a host of issues due to the inconsistency and vagueness in its definition. The uncertainty of precedence and uniformity as ascertained by regulators such as SEBI, CCI and IRDAI is the reason why the proposed discussion paper has been put forth for feedback. Companies need to feel assured that if a particular case was handled by a regulator in a certain manner, then the other regulators would also handle similar cases in the same manner.

The issue of ‘What amounts to control?’ has been one of great contention and numerous litigations. The latest attempt to streamline litigation and judicial response to "control‟ was the Securities Exchange Board of India’s (hereinafter SEBI) proposal of a Brightline Test for determining acquisition of control.