Gujarat Ambuja's position

Change in control has to be objectively established and not be based on perceptions.

SEBI regulations envisage change in control at once and not in the future.

Polices pursed by ACC and Gujarat Ambuja may be similar but that does not mean one is controlled by the other. If the Ambuja nominees on the board persuade ACC to adopt a better strategy, it cannot be said they exercise control over ACC.

The inclusive definition of control is actually exhaustive and clearly states the nature and mode of acquiring control.

To have control, the right to appoint directors alone is not sufficient. It should be the right to appoint the majority of directors, and such a right should be legally enforceable.

ACC is not a party to the MoU, and its provisions are not binding on it.

No particular group has a majority on the ACC board.

At no point in time did the Tatas' stake ever involve any form of control over ACC. ACC is a professionally managed company guided in its policies by an impartial board of directors.

The managing director is not a nominee of the Tatas.

Depiction of the Tata group as promoters in various documents does not mean they exercised control over ACC.

ACC/Tata stand

SEBI's argument

Even if a person is not in control of a company, he can still be a promoter.

At the time of acquisition, ACC had 15 directors and the Tata group directors were in a minority. So the Tata group did not exercise control and it follows that Gujarat Ambuja group also does not have control.

It is not unusual for a person with a large shareholding to be invited to join the board as the Gujarat-Ambuja nominees were. They did not exercise executive powers.

There is no evidence to show that the Ambuja group exercised control. SEBI sought legal opinion on whether there was a change in control of ACC and then concluded that there was none and so no open offer was needed.

SAT's stinging directive

IN ITS order directing SEBI to review its decision that an open offer was not required, the Securities and Appellate Tribunal has made the following observations:

SEBI should have examined how the ACC board approved the resolution on preferential allotments. In board meetings, sometimes more is said than recorded.

A pure assessment of the numerical composition of the board by itself will not lead one too far to the identity of the seat of control.

A company may be professionally managed, but effective control may still be exercised by a different entity.

`SEBI's order states that there was no evidence or material to show change in control'. The material or evidence has to be collected. What effort did SEBI make to find out the actual position? The order of the SEBI Chairman was based just on submissions by the parties.

A strategic alliance between two rival cement majors is a major development. The key question is who is competent to decide on such alliances. Normally, it is the board of directors. If the Ambujas and the Tatas had reached a strategic alliance involving Gujarat Ambuja and ACC, it would show that the two had decisive control in the respective companies.

As the Tatas sold their stake entirely, where is the question of the Ambujas entering into a `strategic alliance' with the Tatas, who ceased to be shareholders of ACC?

Two points in the MoU whose significance has been missed by SEBI are: One, the Articles do not allow the Tata group to appoint even one director. How, then, could they get four nominees and also support the Ambujas to get their four nominees on the board? Two, it is strange that the Tata group, which exited ACC, agreed to support any merger proposal of the Ambujas.

The object of the SEBI Act and regulations would be frustrated if one resorts to a narrow interpretation of control.

De facto control can exist without any legal power at all, and effective control can be exercised in many ways. In a company with a large and dispersed membership, a comparatively small proportion of shares can enable actual control. So SEBI's finding that the 14.4 per cent stake was not enough for the Ambuja to exercise control is not conclusive.

The complainant had no access to the materials regarding internal management. ACC/Tatas/Ambujas cannot be expected to provide such material that may go against their position. SEBI should have investigated and then considered the factual position.

SEBI is not short on power to investigate. The `proper proceedings' in which an investor complaint can be disposed of by SEBI is the `investigation procedure', as prescribed in the regulations.

A proper investigation would have enabled SEBI to deal with this complaint more appropriately.

It is SEBI's duty to act fairly, reasonably and transparently, and inspire investor confidence. SEBI has been directed to carry out an independent investigation into the complaint, and all the issues raised so far are expressly kept open.

(Excerpts sourced from the SAT order in the ACC-Gujarat Ambuja case on a petition filed by Ashwin K. Doshi and others www.sebi.gov.in)

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