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• The United State of America was the first country to formally enact
a legislation to regulate insider trading.
• Over the years, most of the jurisdictions around the world have
recognized the requirement to restrict insider trading in one form
• Due to inadequate provisions of enforcement in the companies Act,
1956, the Sachar Committee in 1979, the Patel Committee in 1986 and
the Abid Hussain Committee in 1989 proposed recommendations for a
separate statute regulating Insider Trading.
• SEBI has issued and notified the SEBI (Prohibition of Insider Trading)
Regulations, 2015 (Regulations) on 15th January, 2015 based on
recommendations of Sodhi committee.
• A big step was taken when insider trading provision was introduced in
Companies Act, 2013.
As per the Companies Act, 2013 provisions, it prohibits directors and key
managerial personnel from purchasing call and put options of shares of the
company, its holding company and its subsidiary and associate companies as if
such person is reasonably expected to have access to price sensitive information
(being information which, if published, is likely to affect the price of the
company’s securities).
• Earlier these provisions were contained in regulations framed by SEBI, as the
capital market regulator.
The definition of price sensitive information has also been included. No
person including any director or KMP of a company shall enter into
insider trading except any communication required in the ordinary course
of business or profession or employment or under any law.
▪ While the Companies Act, 1956 was silent on the provisions relating to
insider trading, the Companies Act, 2013 on the other hand, lays down
provisions relating to prohibition of insider trading with respect to all
companies.
▪ This is a step towards harmonization between the 2013 Act and the SEBI
Act; more specifically for listed companies; Any person who violates the
clause will be punished with a cash fine or imprisonment or both.
The definition of price sensitive information has also been included. No
person including any director or KMP of a company shall enter into
insider trading except any communication required in the ordinary course
of business or profession or employment or under any law.
▪ While the Companies Act, 1956 was silent on the provisions relating to
insider trading, the Companies Act, 2013 on the other hand, lays down
provisions relating to prohibition of insider trading with respect to all
companies.
▪ This is a step towards harmonization between the 2013 Act and the SEBI
Act; more specifically for listed companies; Any person who violates the
clause will be punished with a cash fine or imprisonment or both.
Meaning of Insider trading u/s. 195, Act 2013
▪ “insider trading” means an act of subscribing, buying, selling, dealing
or agreeing to subscribe, buy, sell or deal in any securities by any
director or key managerial personnel or any other officer of a
company either as principal or agent if such director or key managerial
personnel or any other officer of the company is reasonably expected
to have access to any nonpublic price sensitive information in respect
of securities of company, or
• Whether HLL had any price sensitive information with regard to the
merger?
• Whether or not HLL had gained any unfair advantage out of the deal?
Whether HLL was an insider or not?
Whether or not the pre-merger information
HLL had access to was Unpublished?
Whether HLL had any price sensitive information
with regard to the merger?
Whether or not HLL had gained any unfair
advantage out of the deal?
SEBI Takeover Code 2011
▪ Takeover code prescribes a systematic framework for acquisition of stake in
listed companies.
▪ By these laws the regulatory system ensures that the interests of the
shareholders of listed companies are not compromised in case of an
acquisition or takeover.
▪ It also protect the interests of minority shareholders, which is also a
fundamental attribute of corporate governance principle.
▪ The takeover code ensures that public shareholders of a listed company are
treated fairly and equitably in relation to a substantial acquisition in, or
takeover of, a listed company thereby maintaining stability in the securities
market.
SEBI Takeover Code 2011
▪ The objective of the takeover regulations is to ensure that the public
shareholders of a company are mandatorily offered an exit opportunity
from the company at the best possible terms in case of a substantial
acquisition in, or change in control of, a listed company.
▪ Owing to several factors such as the growth of Mergers & Acquisitions
activity in India as the preferred mode of restructuring, the increasing
sophistication of take over market, the decade long regulatory
experience and various judicial pronouncements, it was felt necessary
to review the Takeover Regulations 1997.
▪ The SEBI (Substantial Acquisition of Shares and Takeovers) Regulation 2011,
comprises of Six chapters and one schedules encompassing the various
regulations related to Substantial Acquisition of Shares and Takeovers.
▪ Chapter I (Regulation 1 – 2) deals mainly with the definitions used in these
regulation.
▪ Chapter II (Regulation 3-11) provides for substantial acquisition of shares,
Voting Rights or Control,
threshold limit for open offer. It also contains the exemption available to the
Company.
▪ Chapter III (regulation 12-23) narrates the open offer process and deals
with concept related to open offer.
▪ Chapter IV (regulation 24-27) deals with the other obligations of target
company, Acquirer, Manager etc.,
▪ Chapter V (regulation 28-31) deals with disclosure requirements of
Shareholding and control and limit for making disclosures.
▪ Chapter VI (regulation 32-35) deals with miscellaneous provisions relating
to powers of SEBI and its right to issue directions.
SEBI Takeover Code 2011- Definitions
▪ What is Takeover? When an "Acquirer" takes over the control of the
"Target Company", it is termed as Takeover.
▪ When an acquirer acquires "substantial quantity of shares or voting
rights" of the Target Company, it results into substantial acquisition of
shares.
▪ Acquirer “Acquirer” means any person who, directly or indirectly,
acquires or agrees to acquire whether by himself, or through, or with
persons acting in concert with him, shares or voting rights in, or control
over a target company.
▪ Acquisition “Acquisition” means, directly or indirectly, acquiring or
agreeing to acquire shares or voting rights in, or control over, a target
company.
SEBI Takeover Code 2011- Definitions
▪ Control- “Control” includes the right to appoint majority of the directors or to
control the
management or policy decisions exercisable by a person or persons acting
individually or in concert, directly or indirectly, including by virtue of their
shareholding or management rights or shareholders agreements or voting
agreements or in any other manner.
▪ However a director or officer of a target company shall not be considered to be in
control over such target company, merely by virtue of holding such position.
▪ Enterprise value- Enterprise value means the value calculated as market
capitalization of a company
plus debt, minority interest and preferred shares, minus total cash and cash
equivalents.
▪ Enterprise Value= Market capitalization+ Debt+ Minority Interest and Preferred
Shares- Total Cash and Cash Equivalents
SEBI Takeover Code 2011- Definitions
▪ Frequently traded shares - Frequently traded shares means shares of
a target company, in which the traded turnover on any stock exchange
during the twelve calendar months preceding the calendar month in
which the public announcement is made, is at least ten per cent of the
total number of shares of such class of the target company.
▪ However, where the share capital of a particular class of shares of the
target company is not identical throughout such period, the weighted
average number of total shares of such class of the target company
shall represent the total number of shares.
SEBI Takeover Code 2011- Definitions
▪ “Persons acting in concert "means, –
▪ (1) persons who, with a common objective or purpose of acquisition
of shares or voting rights in, or exercising control over a target
company, pursuant to an agreement or understanding, formal or
informal, directly or indirectly co-operate for acquisition of shares or
voting rights in, or exercise of control over the target company.
▪ There are a list of Deemed to be a person acting in concert which is
also considered while applying takeover code.
SEBI Takeover Code 2011
▪ Trigger point for making an open offer by an acquirer
▪ 25% shares or voting rights
▪ An acquirer, along with Persons acting in concert( PAC) , if any, who
intends to acquire shares which along with his existing shareholding
would entitle him to exercise 25% or more voting rights, can acquire
such additional shares only after making a Public Announcement (PA)
to acquire minimum twenty six percent shares of the Target Company
From the shareholders through an Open Offer.
SEBI Takeover Code 2011
▪ Trigger point for making an open offer by an acquirer
▪ Creeping acquisition limit
▪ An acquirer who holds 25% or more but less than maximum
permissible nonpublic shareholding of the Target Company, can acquire
such additional shares as would entitle him to exercise more than 5%
of the voting rights in any financial year ending March 31, only after
making a Public Announcement to acquire minimum twenty six percent
shares of Target Company from the shareholders through an Open
Offer.
• SEBI Takeover Code 2011
SEBI Takeover Code 2011
▪ Mandatory Open Offer :
▪ Regulation 3 of the SEBI Takeover Regulations, 2011 provides that the Acquirer
to give an open offer to the shareholders of Target Company on the acquisition
of shares or voting rights entitling the Acquirer along with the persons acting in
concert with him to exercise 25% or more voting rights in the Target
Company.
▪ Further any Acquirer who holds shares between 25%-75%, together with PACs
can acquire further 5% shares as creeping acquisition without giving an Open
Offer to the shareholders of the Target Company upto a maximumof 75%.
▪ Regulation 4 of the SEBI Takeover Regulations, 2011 specifies that if any
acquirer including person acting in concert acquires control over the Target
Company irrespective of the fact whether there has been any acquisition of
shares or not, then he has to give public announcement to acquire shares from
shareholders of the Target Company.
SEBI Takeover Code 2011
▪ Voluntary Open Offer
▪ Voluntary Open Offer means the Open Offer given by the Acquirer
voluntarily without triggering the mandatory Open Offer obligations as
envisaged under the regulations.
▪ Voluntary Offers are an important means for substantial shareholders
to consolidate their stake and therefore recognized the need to
introduce a specific framework for such Open Offers.
▪ Regulation 6 of the Takeover Regulations provides the threshold and
conditions for making the Voluntary Open Offer.