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Krishnan Thiagarajan

The SEBI Chairman, Mr G. N. Bajpai... ambiguity over change in control persists.

IN October 2002, the Securities Appellate Tribunal (SAT) overturned SEBI's original ruling in the Gujarat Ambuja-ACC case and asked SEBI to initiate an independent fact-finding investigation into the matter.

This investigation was mainly to reconsider SEBI's earlier position that Regulation 12 (involving acquisition of control of a company) of the Takeover Code was not attracted.

In mid-March, SEBI gave a clean chit to Gujarat Ambuja. But since the SEBI investigation report is not available, there is no material on record to show how SEBI proceeded in this case and reached its conclusion that there was no violation of the Takeover Code.

However, based on the SAT order, we can only deduce that the relevant aspects of the case must have come within the purview of investigation by SEBI. It is important to remember that SAT in its order specifically said that the original order by SEBI in July 2001 was based just on submissions by the parties and without following proper procedures for investigation laid down in the Takeover Code.

The relevant aspects that might have been investigated by SEBI based on the SAT order are:

To carry out a detailed investigation whether the Tata group, mentioned as a promoter in the offer document, was actually in control of ACC or was in a position to control the management and policy decisions of ACC;

In addition, to also determine whether ACC's intent in declaring to the stock exchanges under Regulation 8 that the Tata group was promoter was merely indicative of shareholding pattern or evidence of any control over the company;

To probe the circumstances under which the ACC board allowed the inclusion of a resolution to issue naked warrants/equity on a preferential basis to the Tata group of companies "to secure the stability and position of the management".

And also to investigate what really transpired at that board meeting to determine the control of the Tatas over the ACC board;

To collect material evidence to establish whether the Tatas had actual control over ACC or not. Even if a company is professionally managed, the strategic direction and policy-making still rests with a group of individuals;

To enquire whether Gujarat Ambuja and the Tata group had reached a strategic alliance involving Gujarat Ambuja and ACC (as two separate companies), which would establish the Tatas' decisive control over ACC;

According to the Articles of Association of ACC, there was no provision entitling the Tata group companies to appoint even one director.

So, how could the Tata group companies get four of their nominee directors on the board, and how did they promise that they would be able to support Gujarat Ambuja in getting their four nominees in the Memorandum of Understanding (MoU) between the two parties?

The MoU also states that if the Ambuja group decided to merge a company belonging to it with ACC, the Tatas shall agree to support such as proposal. When the Tatas were to exit from ACC, where was the question of agreeing to support a merger proposal between Ambuja and ACC.

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