The Use of Financial Derivatives to Acquire ‘Control’ of the Target Company: Locating the Indian Regulatory Approach vis-à-vis the European Discourse

Abstract

The question of what amounts to ‘acquisition of control’ under the Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations) remains a vexatious issue, academically as well as judicially. The controversy is further compounded in case of usage of financial derivatives to acquire creeping control of the target company. This article, while providing a theoretical account for the disclosure and inclusion of financial derivatives in the determination of an open offer trigger on a qualitative basis, traces the responses of the regulators in the jurisdictions of the United Kingdom, Italy, and Germany to the usage of financial derivatives for the purposes of acquisition of de facto control of the target company. In this light, this article critiques the approach adopted by the SEBI in its determination of the trigger of the mandatory offer in the matter of New Delhi Television Limited (NDTV) in June 2018, which involved the use of financial derivatives. This article further proposes that the SEBI takeover regime ought to be overhauled to incorporate exclusive provisions regarding the disclosure and inclusion of financial derivatives in the determination of a mandatory offer trigger, if the use of derivative instruments enables the acquirer to gain effective control of the target company, in order to ensure that the Indian takeover regulations are in accordance with the regulatory practices developed by mature jurisdictions. Acquisition of control, financial derivatives, takeover regime, minority shareholders, decoupling