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COMPARING
TAKEOVER LAWS IN
UK, INDIA &
SINGAPORE

Krishna Shorewala Vasundhara Vasumitra1

1
The authors are 5th Year students of the B.A.LL.B. (Hons.) Course at the National Law School of
India University, Bangalore, India. The authors would like to thank Prof. V. Umakanth and Prof.
M.P.P. Pillai for their invaluable guidance without which this paper would not have been possible.

Electronic copy available at: http://ssrn.com/abstract=1753341

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Table of Contents

Sr. No. Contents Page

No.

1. Introduction 3
2. Part I: The Economics of Takeovers 3
3 Part II: An Introductory Survey of the Laws 5
4. Part III: Mandatory Offers: Comparing Thresholds 6
5. Part IV: Penalties 9
6. Part V: Self Regulation and Legal Standing 12
7. Part VI: Role of the Courts 17
8. Conclusion 25
9. Endnotes 28
10. Bibliography 38

Electronic copy available at: http://ssrn.com/abstract=1753341

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Introduction

Extensive writings are available on takeovers. These writings provide theoretical and
empirical evidence; economic and social perspectives; extensive legal analysis about laws in
the UK, EU, India and Singapore separately. However, no real comparative analysis has yet
been made about the laws across these countries and the basis for their similarities and
differences. This article seeks to fill that gap by providing such an analysis in four key areas
of takeover regulations: mandatory bids, penalties, jurisdiction and nature of regulation. In
first case, the key difference lies in the threshold levels which trigger the obligation to make
public offers. Further, difference lies in the nature of the penalties in place for violations,
jurisdiction of appellate bodies and the courts and finally, the legal nature of the regulations.

The paper is structured in the following manner: In Part I the researchers look at the
economics of takeovers and the need to regulate them. Part II introduces the network laws
and regulations governing the area of takeovers in the UK, India and Singapore. Part III looks
at mandatory offers and the rationale, if any, for the different thresholds prescribed across
jurisdictions. Part IV looks at the penalties prescribed and the basis for the differences
between them. Part V looks at the non/statutory nature of takeover laws and the reasons
for the same. Finally, Part V looks at the jurisdiction of courts and the right to appeal across
different countries. The authors are attempting to demonstrate how the differences in the
social, political and economic contexts inform greatly the shape that regulation takes in
these countries.

Part I: The Economics of Takeovers

A takeover or a tender offer is when a firm or person offers the shareholders of another to
sell their shares at specified prices. It may be friendly where the board of the company being
acquired (“target company”) welcomes such a takeover or it may be hostile where the board
disapproves but an acquiring company or persons offers the shareholders directly anyway.2

2
Fred Weston, Mark L. Mitchell and J. Harold Mulherin, Takeovers, Restructuring and Corporate
th
Governance (4 ed., New Delhi: Pearson Education, 2004), at p. 35-36. (hereinafter “Weston et al.
(2004)”)

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There may also be bailout takeovers with respect to financially weak companies as seen in
the Indian context.3

Mergers and acquisitions (“M&A”) have grown by leaps and bounds in the last decade.4
There are several reasons for the rise in its popularity. This growth has been attributed to
the various forces of change that have altered the way in which business is conducted.5
Various justifications have been offered for M&A.6 An acquirer stands to gain through an
acquisition in various ways.7 However, whether M&A activity adds any value to the acquired
firm itself is debatable.8 The operating synergy theory postulates that economies of scale
and scope help the firms achieve efficiencies greater than the sum of the combining parts.
They are also regarded as a rapid means to deal with significant forces of change.9

Further, a “market for corporate control”10 can evolve where alternate owners compete for
the right to manage under-performing companies and the shareholders can sell their shares

3
See generally, Chapter IV of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations,
1996.
4
For empirical data on the increase in takeover activity around the world, see Weston et. Al (2004);
Rajesh Chakrabarthi, William L. Megginson & Pradeep K. Yadav, “Corporate Governance in India”,
September 4 2007, available at < http://ssrn.com/abstract=1012222>. (hereinafter “Chakrabarthi et al
(2007)”)
5
See Weston et al. (2004), at 33-34.
6
The Jamshed J. Irani Committee in India provided a variety of reasons from an economic and
business perspective for the promotion of M&A activity. See M.R. Thiagarajan, “Report on Company
Law–On Mergers and Acquisitions” [2005] 61 SCL (Mag.) 41; Mahavir Lunawat, “J.J. Irani Committee
Report on Company Law–The Recommended Legislative Scheme and Major Recommendations”,
[2005] 61 SCL (Mag.) 47.
7
For an overview and illustration, see J. Fred Weston & Samuel C. Weaver, Mergers and Acquisitions
(New Delhi: Tata McGraw-Hill Publishing Company Limited, 2002), at p. 85-86. (hereinafter “Weston
and Weaver (2002)”)
8
Doubts are raised, particularly in the context of insider entrenchment which has emerged as a
counter to the Berle Means model of ownership. See Dr. Manoranjan Pattanayak, “Disentangling
Performance and Entrenchment Effect of Family Ownership: A Study of Indian Corporate
Governance”, available at <http://ssrn.com/abstract=1326485> visited on January 26 2011; Dr.
Manoranjan Pattanayak, “Insider Ownership and Firm Value: Evidence from the Indian Corporate
Sector”, available at <http://ssrn.com/abstract=962307> visited on January 26 2011; Sumon K.
Bhaumik and Ekta Selarka, “Impact of M&A on Firm Performance in India: Implications for
Concentration of Ownership and Insider Entrenchment”, William Davidson Institute Working Paper
No. 907 available at <http:ssrn.com/abstract=9700001> visited on January 26 2011.
9
Weston and Weaver (2002), at p. 116.
10
The idea of a market for corporate control has its origins in the writings of Henry Manne. For an
overview of what such a market is and how it is expected to work, see Henry Manne, “Mergers and
Market for Corporate Control”, (1965) 73 Journal of Political Economics 110; Athanasios Kouloridas,
The Law and Economics of Takeovers: An Acquirer’s Perspective (Portland: Hart Publishing, 2008), at p.
35-38.

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to the highest bidders.11 It has been argued that such a market, if functioning well, can lead
to improved corporate governance.12 The threat of a takeover is regarded as a remedy to the
“agency problem13” by keeping the management in check.14 However, while large markets
for corporate control exist in the US, UK and other common law countries, that is not the
case in continental Europe and Japan.15 In India, it is a growing market.16 Further, this
method of ensuring better governance has been regarded by some as an inefficient and
expensive one.17

Why regulate takeovers? For starters, mandatory public rules are arguably more socially
efficient than private rules of the company.18 There could be issues relating to antitrust,
shareholder interests, managerial mishandling etc. Regulation in common law seeks to put
power in the hands of equity shareholders who bear the right as, as has been pointed out,19
they are the bearers of the highest risks and the holders of the rights to residual profits and
assets of the company. They are the best persons to decide the fate of the company as they
are responsible for the consequences. Recent literature also suggests that takeover
regulation serve a social welfare function and emphasise on a shift from a shareholder

11
K. Sankaran & Vishwanath S.R., “Diversification via Acquisition” published in Chandreshekhar
Krishnamurti & Vishwanath S.R. (Eds.), Mergers, Acquisitions and Corporate Restructuring (New Delhi:
Response Books, 2008), at p. 3-4.
12
See Donald C. Clarke, “Nothing But Wind? The Past and Future of Corporate Governance”, 59 Am. J.
Comp. L. 75.
13
For a better understanding of the agency problem, see Adolf A. Berle & Gardiner C. Means, The
Modern Corporation and Private Property (Revised ed., New York: Harcourt, Brace & World Inc.,
1967); Stephen M. Bainbridge, Corporation Law and Economics (Federation Press, 2002), at p. 34-38;
Renier Kraakman, Paul Davies, Henry Hansmann, Gerard Hertig, Klaus Hopt, Hideiki Kanda and
Edward Rock, The Anatomy of Corporate Law: A Comparative and Functional Approach (Oxford: OUP,
2004), at p. 22; Adolf A. Berle, “For Whom Corporate Managers Are Trustees: A Note,” (1932) 45
Harv. L.R. 1365.
14
Weston and Weaver (2002), at 116.
15
For a detailed analysis of the corporate market and M&A activity in Continental Europe and Japan,
see Roberta Romano, A Cautionary Note on Drawing Lessons from Comparative Corporate Law, 102
Yale L.J. 2021, 2033 (1993); Hiroshi Oda, “The Current State of Takeover Law in Japan”, [2009] J.B.L.
749, at p. 751-754; Curtis J. Milhaupt, “In the Shadow of Delaware? The Rise of Hostile Takeovers in
Japan”, 105(7) Columbia Law Review 2171.
16
See Chakrabarthi et al (2007); <http://www.ibef.org/economy/foreigninvestors.aspx> visited on
January 26 2011.
17 th
John H. Farrar & Brenda Hannigan, Farrar’s Company Law (4 ed., London: Butterworths, 1998), at
p. 589. (hereinafter “Farrar (1998)”)
18
For a discussion on the efficiency of public rules in the M&A contest, see Mike Burkhart and Fausto
Panunzi, “Mandatory Bids, Squeeze-Out, Sell-Out and the Dynamics of the Tender Offer Process” as
published in Guido Ferrarini, Klaus J. Hopt, Jaap Winter and Eddy Wymeersch (Eds.), Reforming
Company and Takeover Law in Europe (Oxford: Oxford University Press, 2004), at p. 741-742.
19
Report of the High Level Group of Company Law Experts on Issues Related to Takeover Bids (2002),
at p. 21. (hereinafter “EC Report (2002)”)

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preference approach to a stakeholder preference approach.20 A mechanism to facilitate

takeovers is basically beneficial as it provides discipline of management and reallocation of
resources which is in the best interests in the long term of all the stakeholders and the
society at large.21 The manner and form of regulation is based on increasingly universal
principles. However, they can differ considerably on the basis of finance, economic
rationality, institutional capacity and most importantly, cultural background.22

Part II: Surveying the Laws and Legal Institutions

The takeover law in the United Kingdom has provided the broad framework for takeover
regulations for most common law countries including Australia, New Zealand, Hong Kong. 23
It has arguably, the longest experience in the regulation of takeovers.24 The City Code on
Takeovers and Mergers was (“City Code”) developed in 1968 out of the Notes for
Amalgamations of British Businesses issued in 1959 by the Issuing Houses Association.
Administered by the Takeover Panel, it was initially non-statutory and laid down General
Principles expressed broadly which were to be applied by the Panel in their spirit to achieve
the underlying purpose.25 After the European Community introduced the 2004 Takeover
Directive,26 after several aborted attempts,27 the City Code has changed considerably.

20
See Liza Rybak, “Takeover Regulation and Inclusive Corporate Governance: A Social-Choice
Theoretical Analysis”, 10(2) JCLS 407.
21
See EC Report (2002), at p. 19.
22
See Mark J. Roe, “Influence of Cultural Barriers in Evolution of Corporate Law on Takeovers”, (2003)
II(2) ICFAI Jl. of Intl. Business Law 26.
23
Emma Armson, “Models for Takeover Dispute Resolution: Australia and the UK”, 5(2) JCLS 401, at
402.
24
For a historical overview of the regulatory experience in the UK, see Robert R. Pennington,
“Takeover Bids in the UK”, The American Journal of Comparative Law, Vol. 17, No. 2 (Spring, 1969),
pp. 159-193. (hereinafter “Pennington (1969)”)
25
. Farrar (1998), at p. 590; also see Pennington (1969).
26
See generally, Direcitve 2004/25/EC of the European Parliament and of the Council of 21 April 2004
on Takeover Bids. (hereinafter “EC Directive”)
27
For a discussion of the attempts, prior to 2004, to introduce an EC Directive, see John C. Coffee Jr. &
Adolf A. Berle, “The Future as History: The Prospects for Global Convergence in Corporate
Governance and Its Implications”, Working Paper No. 144, Centre for Law and Economics Studies,
Columbia University School of Law available at
<http://papers.ssrn.com/paper.taf?abstract_id=142833> visited on January 30 2011.

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In India, after several attempts at regulating takeovers,28 the Securities and Exchange Board
of India (“SEBI”), a statutory body created with the aim of protecting the interests of
the investors and development of the securities market,29 introduced the SEBI
(Substantial Acquisition of Shares and Takeover) Regulations, 1997 (“Indian Code”) with the
objective of protecting the interest of the small shareholder and making the entire
acquisition process fair, equitable and transparent by making the incumbent management of
the target company aware of the acquisition and ensure that the process does not distort
the security market.30 The Rules are in the form of delegated legislation made in exercise of
the rule making powers of the SEBI under Section 30 of the SEBI Act.31 They have a clear
statutory basis, unlike the Codes in the UK and Singapore. It has been amended and revised
a number of times after that.32

In the context of Singapore, the Singapore Code on Take-Overs and Mergers (“STC”) was
introduced in accordance with the directions given under Section 13933 and in exercise of
the powers granted under Section 321 of the Securities & Futures Act.34 Pursuant to the
recommendations made in the 1999 Consultation Paper,35 the STC went through substantial

28
First, there was Clause 40 in the listing agreement which provided for the regulation of takeovers in
a limited way in the form of mandatory bids by any person who sought to acquire 25% or more of the
shares. In 1990, the Government, in consultation with the Securities and Exchange Board of India
(“SEBI”) (before it became a statutory body), substituted Clause 40 with Clauses 40A and 40B.
Thereafter, the Securities and Exchange Board of India Act of 1992 empowered the SEBI to regulate
takeovers and the SEBI passed the Substantial Acquisition of Shares and Takeovers Regulations of
1994 and retained Clauses 40A and 40B in the Listing Agreement. However, after two years of the
administration of these Regulations, they were found to be inadequate. The P.N. Bhagwati
Committee, in its Report, suggested amendments to the regulations and laid down 10 general
principles which should guide the interpretation and operation of the regulations, especially in
situations which wouldn’t specifically be covered by the regulations. This led to the introduction of
the 1997 Regulations. – J.C. Verma &Sanjeev Kumar, Corporate Mergers, Amalgamations and
th
Takeovers (Concept, Practice & Procedure) (5 ed., New Delhi: Bharat Law House, 2008), at p. 602-604
(hereinafter “Verma & Kumar (2008)”); Vinayak Mishra & Priyanka Rathi, “SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997: An Overview”, [2008] 85 SCL (Mag.) 91.
29
Preamble of the Securities & Exchange Board of India Act, 1992 (“SEBI Act”)
30
Poornima Sampath and Nikhil E. Chandra, “The Takeover Code – Protection for the Shareholder”
[2000] 38 CLA (Mag.) 164; Also see, Kishore R. Chhabaria v. Chairman, SEBI [2003] 46 SCL 385.
31
Section 30 of the SEBI Act, 1992: (1) The Board may, by notification, make regulations consistent
with this Act and the rules made thereunder to carry out the purposes of this Act...
32
See Mahavir Lunawat, “SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment)
Regulations, 2004 – An Overview” [2005] 58 SCL (Mag.) 19.
33
Section 139 of the Securities and Futures Act: Take-over Code.
34
Section 321 of the Securities and Futures Act.
35
See Consultation Paper on Revision of the Singapore Code on Takeovers and Mergers (1999)
available <www.mas.gov.sg> visited on January 4 2011. (hereinafter “Singapore Consultation Paper
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changes.36 It is based on the original UK Model and retains the non-statutory character
originally seen in the UK. The Securities Industry Council (“SIC”) is empowered to administer
the STC.37 While the rules and their underlying principles are, prima facie, similar, it is the
context in which they operate that makes the difference.

Part III: Mandatory Offers: Comparing Thresholds

An offer or a bid is when one company makes a general offer to acquire the whole of the
shares, or the whole of a class of shares, of another company either for cash, kind or a
combination of both.38 A mandatory offer is when a person is obligated by law to make such
a general offer after a statutory minimum number of shares is acquired (known as the
“mandatory threshold”). A mandatory offer does not consider the difference between de
jure and de facto control. If a mandatory threshold is crossed, it is presumed that the holder
of the shares has control although, in fact, he may not.39 The rule is concerned only with the
acquisition of the shares and it is irrelevant whether, in fact, the acquirer acquires control or
not.40

There are several justifications for the mandatory bid rule, some genuine and others
suspect.41 One of the foremost priorities is to maintain equality among shareholders and
ensure that even the minority shareholders should be given an equal opportunity to sell on
the same terms as the controlling shareholders.42 The person concerned cannot acquire
shares in excess of the threshold limit by either market purchases or any form of preferential
allotment.43 The principle behind the rule is that regulation must seek to prevent abuse of

36 th
For details, see Press Statement dated 6 December 2001 of the Monetary Authority of Singapore
available at <www.mas.gov.sg> visited on January 14 2011.
37
See Sections 138, 139 of the Securities and Futures Act; Section 14 of the Securities Industry Act.
38
Pennington (1969), at 160.
39
For a discussion of the concept of control, see K.R. Chandratre, “Concept of Control Under SEBI
Takeovers Regulations”(2006) 38 TCR 261 (Mag.).
40
Luxury Foams v. SEBI (SAT Order dated 20 March 2002, Appeal No. 48/2001) sourced from Shishir
st
Jose Vayttaden Shishir Vayttaden on SEBI’s Takeover Regulations 1 Edition (New Delhi; Lexis Nexis,
2010). (hereinafter “Vayttaden (2010)”).
41
For a discussion of the justifications for the mandatory bid, see Luca Enriques, “The Mandatory Bid
Rule in the Proposed EC Takeover Directive: Harmonization or Rent-Seeking?” as published in Guido
Ferrarini, Klaus J. Hopt, Jaap Winter and Eddy Wymeersch (Eds.), Reforming Company and Takeover
Law in Europe (Oxford: Oxford University Press, 2004), at p.767-795.
42
For a detailed discussion for the economic, legal and theoretical justifications for equal treatment,
see William D. Andrews, “The Stockholder’s Right to Equal Opportunity in the Sale of Shares”, (1965)
78(3) Harv. L.R. 505.
43
See, for example, Shailashri Bhaskar, “Takeover Regulations in India” [2006] 10 CLC (Mag.) 543.

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control.44 The philosophy is that no proprietary right exists for a major shareholder to
receive an extra premium for the control he enjoys to the exclusion of the remaining
shareholders.45

In India, the threshold for triggering the mandatory offer is the lowest at 15%. Regulation 10
prohibits an acquisition that entitles the acquirer to exercise voting rights in excess of 15%
without a public announcement to acquire such shares in accordance with the Regulations.46
The threshold was increased from 10% in 1998.47 The threshold limit is a precise one and not
an indicative one.48 Regulation 11, after several amendments,49 relates to consolidation of
holdings in case of holdings beyond 15% and also obligates a person to make a public offer
in most cases, while allowing for an acquisition of 5% in a financial year without triggering
the mandatory offer obligation (also known as “creeping acquisition”).50

In the UK, the threshold limit is set at a higher 30%. Therefore, a person cannot acquire
shares that entitle him to more than 30% of the voting rights or, when he holds more than
30% but less than 50%, shares which increase his percentage of voting rights without making
a public offer under the City Code.51 There is no provision for a creeping acquisition. There
was an allowance earlier for an acquisition of 1% over a period of 12 months but that was
abolished after severe criticism for its lack of any justification in principle.52 However,

In Singapore also, the threshold limit is 30%.53 Initially, it was 25% which was subsequently
raised to 30% on the recommendation in the Consultation Paper.54 Creeping acquisition is

44
See Weinberg & Blank, Takeovers and Mergers (London: Sweet & Maxwell, 2004), at p. 4207
(hereinafter “Weinberg & Blank (2004)”).
45
Ibid., at p. 4209.
46
Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
47
SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 1998.
48
See Ashwin Doshi v. SEBI (SAT Order dated 25 October 2002, Appeal No. 44/2001) sourced from
Vayttaden (2010).
49
For an overview of the amendments made to Regulation 11, see B.J. Shah, “Recent Amendments to
Regulations 10 and 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997: A
Critique”, [2005] 61 SCL (Mag.) 97; Mahavir Lunawat, “SEBI (Substantial Acquisition of Shares and
Takeovers) (Second Amendment) Regulations, 2004 – An Overview”, [2005] 58 SCL (Mag.) 19.
50
Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
51
Rule 9.1 of the City Code on Takeovers and Mergers.
52
Weinberg & Blank (2004), at p. 4210.
53
Rule 14.1(a) of the Singapore Code on Take-Overs and Mergers.
54
See Singapore Consultation Paper (1999).

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allowed up to 1% over a period of six months without triggering the obligation to make a
public offer.55

One may ask, why do these thresholds differ? At a certain level, these thresholds in practice
are arbitrary.56 However, they have clear welfare implications of changing these thresholds
(for example, in the value attached to toehold acquisitions57) which are required to be
considered before changing them.58 The difference, perhaps, can be explained by looking at
the shareholdings and the ownership structures prevailing in these countries. Looking at
Singapore, there is a very limited number of companies that are widely held.59 Most
companies are either government linked (where the government owns 20% or more of the
share capital),60 government owned or family controlled.61 There are also significant cross

55
Rule 14.1(b) of the Singapore Code on Take-Overs and Mergers.
56
Weinberg & Blank (2004), at 4209.
57
For a detailed analysis of toehold acquisitions and its welfare effects in various situations, see Eitan
Goldman & Jun Qian, “Optimal Toeholds in Takeover Contests” available at
<http://ssrn.com/abstract=422020> visited on January 20 2011; Sandra Betton, B. Espen Eckbo &
Karin S. Thorburn, “Corporate Takeovers” Tuck School of Business Working Paper No. 2008-47
available at < http://ssrn.com/abstract=1131033> visited on January 20 2011; S. Abraham Ravid &
Matthew I. Spiegel, “Toehold Strategies, Takeover Laws and Rival Bidders”, Yale ICF Working Paper
No. 99-05; Arturo Bris, “When do Bidders Purchase a Toehold? Theory and Tests” (October 1998)
available at < http://ssrn.com/abstract=139824> visited on January 20 2011.
58
Lan Luh Luh, Ho Yew Kee, Ng See Leng, “Mandatory Bid Rule: Impact of Control Thresholds on
Takeover Premiums”, [2001] SJLS 433-452.
59
See Rafael La Porta, Florencio Lopez-de-Silanes & Andrei Shleifer, “Corporate Ownership Around
the World”, (August 1998), Harvard Institute of Economic Research Paper No. 1840 available at
<http://ssrn.com/abstract=103130> visited on January 24 2011. (hereinafter “La Porta et al. (1998)”)
60
For a detailed analysis of government linked companies and their functioning in Singapore, see
Charlie Charoenwong & Pornsit Jiraporn, “Earnings Mangement to Exceed Thresholds: Evidence from
Singapore and Thailand” (March 2008) available at <http://ssrn.com/abstract=1104523> visited on
January 20 2011; Tan Lay Hong, “A Balanced Scorecard Approach to Survey Corporate Governance
Practices in Singapore’s Listed Companies: STI Companies And Government-Linked Companies” (May
1, 2006), available at http://ssrn.com/abstract=905048> visited on January 20 2011; Bernardo
Bortolotti, Veljko Fotak, William L. Megginson & William Miracky, “Sovereign Wealth Funds
Investment Patterns and Performance”, FEEM Working Paper No. 22.2009 available at
<http://ssrn.com/abstract=1364926> visited on January 20 2011; Carlos D. Ramírez and Ling Hui Tan,
“Singapore Inc. versus the Private Sector: Are Government-Linked Companies Different?” IMF Staff
Papers, Vol. 51, No. 3 (2004), pp. 510-528.
61
Stijn Claessens, Simeon Djankov, Joseph Fan, and Larry Lang1, “Expropriation of Minority
Shareholders in East Asia” (December 1999) <http://ssrn.com/abstract=202390> visited on January 20
2011; Lim Mah Hui and Teoh Kit Fong, “Singapore Corporations Go Transnational”, Journal of
Southeast Asian Studies, Vol. 17, No. 2 (Sep., 1986), pp. 336-365. (hereinafter “Hui & Fong (1986)”);
Melissa Ong, “Contextualising Corporate Social Responsibility in Singapore”, Lee Kuan Yew School of
Public Policy Research Paper Series: LKYSPP09-011-CAG004 available at
<http://ssrn.com/abstract=1464684> visited on January 20 2011 (hereinafter “Ong (2008)”); Stijn
Claessens, Simeon Djankov, and Larry H.P. Lang, “The Separation of Ownership and Control in East
Asian Corporations”, (November 1999) available at <http://ssrn.com/abstract=206448> visited on
January 20 2011.

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holdings across these firms which are again, ultimately, controlled by these same families.62
Therefore, in these companies, a person or group of persons not only exercise control over
the company but also have a controlling interest in terms of voting power. Consequently, a
high number of shares would be required in order to challenge this kind of control thereby
justifying the 30% threshold.

Unlike Singapore, however, in the UK, ownership of most companies is widely dispersed,63
and has been so since the beginning of the 20th century for several reasons.64 With the rise
of institutional investors,65 a large amount of the equity shareholdings in the majority of the
UK firms are controlled by them.66 Family ownership and/or control over companies is very
low as compared to other European countries.67 However, since controlling stakes are held
by institutional investors, it is very difficult to acquire control over the voting rights in the
company, thereby justifying the high threshold.68

Turning to the odd man out, India has taken to the Anglo-American system despite the
unique features of Indian corporate culture.69 It has an ownership system which is a hybrid
of the English and Singaporean systems. On one hand, India has an insider model of
corporate governance where the dominant corporations were controlled by a small bunch of
“insider” shareholders.70 Such a group is usually a family or the State and the inter-locking
and pyramiding of corporate control within these groups helps secure their position and

62
See Hui & Fong (1986).
63
See La Porta et al. (1998).
64
Julian Franks, Colin Mayer & Stefano Rossi, “Ownership: Evolution and Regulation”ECGI – Finance
Working Paper No. 09/2003 available at <http://ssrn.com/abstract=354381> visited on January 26
2011.
65
For a detailed analysis of the rise of the institutional investor in the UK, see Krishna Shorewala and
Apoorvaa Paranjpe, “Institutional Investors, Corporate Governance and Global Standards: An Indian
Perspective”, International Company and Commercial Law Review (forthcoming); Paul L. Davies,
“Institutional Investors in the United Kingdom,” as published in Contremporary Issues in Corporate
Governance (D.D. Prentice and P.R.J. Holland eds., Oxford: OUP, 1993), at 69-73; Brian R. Cheffins,
Corporate Ownership and Control: British Business Transformed (Oxford: OUP, 2008), at p. 164.
66
For an overview of the share of institutional investors in equity markets, see Bernard S. Black &
John C. Coffee Jr., “Hail Britannia? Institutional Investor Behaviour Under Limited Regulation”, (1994)
92 Mich. L.R. 1993.
67
See Mara Faccio and Larry H.P. Lang, “The Separation of Ownership and Control: An Analysis of
Ultimate Ownership in Western European Corporations”, (February 2000), EFA 0136 avilable at
<http://srrn.com/abstract=222429> visited on January 20 2011.
68
Brian Cheffins Company Law: Theory, Structure and Operation (Clarendron Press; Oxford, 1997).
69
For example, see Lalita S. Som, “Corporate Governance Codes in India,” Economic and Political
Weekly, Vol. 41, No. 39, (September 30 - October 06, 2006), pp. 4152-4160. (hereinafter “Som
(2006)”)
70
Umakanth Varottil, “A Cautionary Tale of the Transplant Effect on Indian Corporate Governance,”
21(1) Nat. L. Sch. Ind. Rev. (2009).

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control over the company. It also increases the potential for violation of the rights of the
minority shareholders.71 However, when one looks at the absolute ownership, these persons
or groups own relatively small percentages of the voting rights in the company, much lesser
than a majority percentage, although they exercise considerable control over the
corporations.72 A large amount of equity capital is owned by institutional investors, both,
domestic73 and foreign.74 Further, there are a wide number of dispersed shareholders across
the country.75 Thus, even a threshold as low as 15% can sometimes affect the amount of
control exercised in a company, thereby justifying the low threshold.

Part IV: Penalties

In the UK, the Panel has the power to make rules regarding actions for the breach of the
rules provided in the Code after following the proper procedure.76 It is also empowered to
provide for rules ordering payment of compensation and interest77 where it thinks is just and
reasonable.78 Violation of offer document rules attracts liabilities in the form of fines.79
Under the rules, the Takeover Panel has disciplinary powers under the Code which include
the power to issue a private or public statement of censure, suspend or withdraw any
special status granted by the Panel to such a person or make it conditional, report it to a
British or overseas regulatory authority (most notably the Financial Services Authority) and

71
Rajesh Chakrabarti, “Corporate Governance in India – Evolution and Challenges,” (January 17, 2005)
available at <http://ssrn.com/abstract=649857> visited on January 26 2011.
72
See Ram Kumar Kakani & Tejas Joshi, “The Tata Group after the JRD Period: Management and
Ownership Structure”, (February 2008) available at <http://ssrn.com/abstract=889394> visited on
January 26 2011 (shareholding structure of the Tata Group); Tarun Khanna & Krishna Palepu, “The
Evolution of Concentrated Ownership in India: Broad Patterns and a History of the Indian Software
Industry”, National Bureau of Economic Research Working Paper No. 10613 avilable at
<http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN019738.pdf> visited on
January 30 2011 (for a discussion on the ownership structure in Indian companies).
73
<http://www.sebi.gov.in/mf/rmmf.html> visited on January 26 2011; <http://www.sebi.gov.in/
st
mf/staaprmar2002.html> visited on January 26 2011; 51 Annual Report: 2007-2008 of the Life
Insurance Corporation of India; <http://www.sebi.gov.in/odi/2009.html> visited on January 26 2011;
<http://www.sebi.gov.in/odi/2003.html> visited on January 26 2011; Som (2006).
74
<http://www.ibef.org/economy/foreigninvestors.aspx> visited on January 26 2011.
75
Tarun Khanna & Krishna Palepu, “The Evolution of Concentrated Ownership in India: Broad Patterns
and a History of the Indian Software Industry”, National Bureau of Economic Research Working Paper
No. 10613 avilable at <http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN0197
38.pdf> visited on January 30 2011.
76
See Section 952 of the Companies Act, 2006.
77
Section 954 of the Companies Act, 2006 read with Para 10(c) of the Introduction to the City Code on
Takeovers and Mergers.
78
Rt. Hon Dame Mary Arden and Prof. Dan Prentice Buckley on Companies Act Volume 1 (Lexis Nexis
Butterworths, 2009).
79
Section 953 of the Companies Act, 2006.

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ask them to take disciplinary or enforcement action or issue a “cold-shoulder80” ruling.81 The
Panel can turn to the High Court for enforcement in certain cases.82

In Singapore, Section 140 of the Securities & Futures Act (“SFA”) makes it an offence for any
person to make an offer without an intention to make or honour or without any reasonable
grounds for believing that he will be able to perform his obligations if the offer is accepted
or approved punishable with fine and/or imprisonment of up to 7 years.83 Further, the SFA
and the STC prohibit persons in possession of price sensitive information from dealing84 and
the SFA also provide for criminal sanctions for insider trading.85 However, breach of the STC
itself does not attract any criminal liability per se,86 although the SIC has the power to invoke
such sanctions (including public censure) as it may decide for breach of the rules.87 Also, if
SIC has reason to believe that a criminal offence has been committed, then it can
recommend the Attorney General to prosecute the offender.88

In India, on the other hand, the Regulations clearly impose severe liabilities for the breach of
the regulations. Penalties include forfeiture of money deposited in escrow account,89
cancellation of certificate of registration, directing sale of shares acquired in violation of the
Regulations, directing the person not to deal in securities any further and prosecution which
may extend to barring the person from entering the market.90 These include not only civil
liabilities but also criminal prosecution.91 It has been held that penalty is penal in nature and

80
A cold-shoulder ruling is where the Panel publishes a Panel Statement indicating that the person is
someone who is not likely to comply with the Code. The rules of the Financial Services Authority and
some other regulatory bodies oblige their members not to deal with a person who is the subject of
such a ruling. – Buckley (2008), at Para 2857 of 16-98.
81
Para 11(b) of the Introduction to the City Code on Takeovers and Mergers.
82
See Section 955 of the Companies Act, 2006.
83
Section 140 of the Securities & Futures Act.
84
Rule 11.1 of the Singapore Code on Takeovers and Mergers; Sections 218 and 219 of the Securities
& Futures Act.
85
Sections 221 and 232 of the Securities & Futures Act.
86
Section 139(8) of the Securities & Futures Act.
87
Section 139(9) of the Securities & Futures Act.
88
Singapore: Takeover Guide, Alan and Gledhill available at <www.alanandgledhill.com> visited on
January 20 2011.
89
An acquirer is required to deposit a part of the money to be paid for the acquisition into an escrow
account. The quantum of the money deposited varies with the total size of the acquisition. – See
Regulation 28 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
90
Verma and Kumar (2008), at p. 612.
91
See Regulation 45 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
read with Sections 24, 15H, 11B, 11(4), 11D and 15HB of the Securities and Exchange Board Act, 1994;
Also see N. Sridharan, “Eleventh Amendment in the SEBI (Substantial Acquisition of Shares and
Takeover) Regulations, 1997”, [2005] 57 SCL (Mag.) 142.

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was intended to act as a deterrent and must be imposed with discretion.92 In civil
proceedings, mens rea need not be alleged and proved;93 although its presence may support
the levying of the penalty vis-à-vis a case where the omission is genuine without intention to
violate laws and bona fide is demonstrated.94

Thus, when we compare India, the UK and Singapore, we see that while India has strong
penalties for the violation of the rules under takeover regulations, the UK and Singapore do
not. Further, in the case of the UK, this is true despite the fact that the Takeover Panel is
statutorily empowered to impose compensatory liabilities where breach results in requiring
pecuniary payments, a power it has rarely exercised. Thus, UK and Singapore appear to have
taken a softer stand on the issue as compared to India. This can be understood by, once
again, examining the context in which these rules operate.

In the context of the UK, Pennington opined: “The legal and other sanctions bear no logical
relationship to the seriousness of contraventions…in the case of the suspension or revocation
of a stock exchange quotation, the sanction may harm the very investors whose interests are
intended to be protected. Nevertheless, this does not matter if…the City Code [is] in fact
complied with, and the very effective sanction inducing the City institutions and the
supervisory panel set up under the code to ensure that this is done, is the knowledge that if
there are only a few serious contraventions, the self- regulation of the City will be supplanted
by statutory control by the Government, with all the additional work, loss of time, (which is
always material in takeover bids) and inflexibility which Government regulation entails.95”
.
In the UK, as discussed in the Datafin case,96 although the Panel does not have any de jure
authority, its de facto powers are immense. Simply because its sanctions are limited, indirect
and lack a legally enforceable base (as they did prior to the 2004 EC Directive), they are no
less effective. Therefore, there is demonstrable need as such felt in the UK to give greater
sanctions for breach of the City Code. Fundamentally, the Code was envisaged as voluntary,
and not obligatory, in character.97 This explains why, even after the statutory powers were

92
Diamond Projects (P.) Ltd. v. SEBI, [2005] 59 SCL 549; Hindustan Steel Ltd. v. State of Orissa, [1972]
83 ITR 26.
93
SEBI v. Cabot International Capital Corp. [2004] 51 SCL 307.
94
N. Sridharan, “Acquisition of Shares and Disclosure of Shareholding Under SEBI’s Takeover Code”,
[2006] 68 SCL (Mag.) 131.
95
Pennington (1969), at p. 170.
96
R v. Panel on Take-overs and Mergers, ex p Datapin plc., [1987] QB 815, at 826.
97
Pennington (1969), at 177.

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introduced in compliance with the EC Directive, the penalties under the Code remain, by and
large, the same.

The researchers believe that many of the aforementioned reasons for such a system in the
UK also explain the situation in Singapore. Further, it can also be explained by the principles
and features that were emphasised in its drafting. Emphasis was laid on speeding up the
takeover process, providing flexibility and preventing contentious litigation.98 Further, as has
already been discussed,99 the Singapore market is a relatively small market with key families
and the government controlling a large portion of the equity share capital, and these are the
most likely persons to act as bidders in a takeover process. Therefore, not only is it easy to
enforce compliance with the STC by the SIC but it is also in the best interests of these various
players in the market for corporate control who cannot afford censure from the market in
which they hope to operate in the future.

Finally, the business environment and policies behind regulation in Singapore is very
different from the West. The government has a conscious policy of not regulating areas
unless absolutely necessary. In an attempt to make Singapore as business friendly as
possible, the government is hesitant to increasing business costs and legislate on issues that
could otherwise be voluntarily addressed by companies. Instead, it employs a mixture of
consensus building and the incentivising compliance, rewarding good corporate behaviour
and providing voluntary guidelines to help companies achieve that. 100

In India, on the other hand, there are many more players in the stock market. In 1996, a year
before the Indian Code came in place; many unfair practices, greater inefficiencies and lesser
transparency were reported in the Indian markets as compared to the UK and Singapore.
The investors did not feel protected as such.101 The researchers believe that, considering the
growing size of the market, the prevailing sentiment among the investors and the resources
of the SEBI, it was not practical for SEBI to simply apply the non-statutory system with
limited sanctions that prevailed then in the UK and would later be introduced in Singapore.
Therefore, it was considered more expedient and in the best interest of promoting better
practices in the takeover process in the Indian market to provide for greater sanctions in

98
See Singapore Consultation Paper (1999).
99
See Part III supra.
100
Ong (2008).
101
See L.C. Gupta, “Challenges before Securities and Exchange Board of India”, Economic and Political
Weekly, Vol. 31, No. 12 (Mar. 23, 1996), pp. 751-753+755+757.

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certain cases, including both, civil and criminal liabilities. And the securities market has
improved under SEBI Regulations.102

The liabilities can also be explained from the clear statutory basis of the SEBI and the Indian
Code as compares to the UK and Singapore. The Indian Code is a piece of delegated
legislation103 based in the SEBI Act which not only gives the SEBI powers of directions,104 but
also prescribes monetary105 and criminal sanctions for its rules.106 Further, India’s
constitutional setup would not allow for the kind of flexibility that is afforded to the Panel or
the SIC in the UK and Singapore, especially, in the light of the fact that the laws in India allow
for criminal sanctions which must be provided by statute prospectively.107 However,
flexibility is allowed for to the extent that criminal sanctions can only be imposed by the
courts on receipt of a complaint from SEBI.108

Thus, we see in the area of penalties, that the variation in the penalties is a result of the
principles that are valued and emphasised on across jurisdictions coupled with their
institutional and constitutional realities. In that sense, the principles across UK, Singapore
and India are, in several ways, similar. However, their market conditions, institutional
realities and policy considerations vary considerably thereby explaining the divergences.
Further, in the case of the UK and Singapore, although the substance of the regulations is, by
and large, the same, the systems in which they operate are quite different.

Part V: Self Regulation

UK and the impact of the EU Directive

102
Montek S. Ahluwalia, “Economic Reforms in India since 1991: Has Gradualism Worked?”, The
Journal of Economic Perspectives, Vol. 16, No. 3 (Summer, 2002), pp. 67-88
103
For an overview of delegated legislation in India, its scope and limits, see Salmond, Jurisprudence
th
(P.J. Fitzgerald Ed., 12 ed., London: Sweet & Maxwell, 1967), at p. 112; C.K. Takwani, Lectures on
rd
Administrative Law (3 ed., Lucknow: Eastern Book Company, 2001), at p. 60-63; S.P. Sathe,
th
Administrative Law (6 ed., New Delhi: Butterworths, 1999), at p. 27-30, 64.
104
Sections 11 and 11B of the SEBI Act, 1992.
105
Section 15H of the SEBI Act, 1992.
106
Sections 24 and 27 of the SEBI Act, 1992..
107
See, in the context of the criminal sanctions under the SEBI Act, Videocon International v. SEBI
[2008] 82 SCL 460 (Bom.) and Swedish Match AB v. SEBI and Anr., (2004) 11 SCC 641 sourced from
Vayttaden (2010).
108
Section 26(1) of the SEBI Act, 1992.

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Prior to the Companies Act, 2006 the City Code as well as the Panel did not have a statutory
basis or authority and so the entire system is one of self regulation. However the courts had
tacitly decided not to step in this area making the City Code as well as the Panel a reference
point for good commercial practice.109 The City Code is not a statute and hence not drafted
in legalese with the intent being that it is meant for ordinary commercial men to use as a set
of guidelines for their dealings in the corporate world. This intent has been manifested in the
Introduction to the General Principles as follows:

“It is impracticable to devise rules in sufficient detail to cover all circumstances which can
arise in offers. Accordingly, persons engaged in offers should be aware that the spirit as well
as the precise wording of the General Principles and the ensuing Rules must be observed.
Moreover, the General Principles and the spirit of the Code will apply in areas or
circumstances not explicitly covered by any Rule.”110

The “spirit and intent” philosophy underlying the Code indicates that there is no need to
cover all eventualities.

The Importance of Flexibility

Why do merger transactions require regulation by a flexible regime when a potentially more
rigid structure of regulation is adopted for other corporate transactions? The most obvious
response to this is the observation that the methods of achieving a successful outcome to a
bid or of defending a bid constantly evolve and challenge the parties involved as well as the
regulators at the helm of the transaction. Bids may be structured in different ways with
consideration being in cash, securities or a combination of the two. Methods of financing
change depending on the market and its liquidity and the amount of information required by
shareholders also differ based on industry and shareholding structures. The City Code seeks
to respond to these changes and thus fluidity is maintained to respond to these changes and
to prevent the participants from following the letter by manipulating their bids and at the
same time thwarting the spirit and intent of the City Code.

Apart from flexibility in interpretation, the existence of a non statutory regime allowed for
more rapid amendment to the City Code than if it was comprised either in a statute or even

109
Lord Alexander of Weedon “Takeovers: The Regulatory Scene” (1990) J.B.L 203, 213-214.
110
Introduction to the City Code on Takeovers and Mergers

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a statutory instrument. This problem of uncertainty in interpretation of the Code by the

Panel though present is not a matter of over concern for the regulators. This is because
uncertainty in interpretation of the Principles is something that concerns lawyers and Courts
whose role is minimal if not absent in this sphere. The City Code has been designed by the
market for those operating the market and informal consultation with the Executive of the
Panel is preferred to seeking legal or judicial intervention. Other benefits include informality,
speed, flexibility and effective control while criticism abounds as to its arbitrary and
inconsistent nature aimed at permitting dealings to protect an active market and those who
benefit from it.111

This need to preserve the flexible nature of the City Code as it was in its non statutory form
stemmed from the paramount importance given to maintain a free and fair market at all
costs.

The clear example of where the conflicting arguments for certainty and flexibility meet
headlong is in the scheme of operation of the Panel’s powers of dispensation as most rules
allow the panel to waive their application suited to differing sets of circumstances. This
exercise of dispensation powers might result in the Panel having to compromise on the legal
rights and equitable principles relating to the parties involved.

This clear prominence to fair and free market as the mandate of the Panel was underlined by
its Chairperson in a speech where he noted that the Panel does not control all aspects of
takeovers but focuses primarily on ensuring fairness to shareholders.

The Impact of the EU Directive on the UK Companies Act, 2006 (CA, 2006)

The regulation of takeovers is a further area where Community Law has come to be a
significant source of relevant rules. After a very long gestation period, the Community
eventually adopted Directive of the European Parliament and the Council on the takeover
bids. One of the requirements of the Directive is that Member states should “designate the
authority or authorities competent to supervise bids” This made it mandatory for the United
Kingdom to place the takeover rules on some sort of statutory footing. In fact the proposed
changes in the legal status of the Panel was the basis for the UK Government’s initial

111
Geoffrey Morse “Controlling Takeovers: The Self Regulation option in the United Kingdom” (1998)
J.B.L 58, 60-61.

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opposition to the Directive, despite the fact that the Directive’s substantive content was
heavily influenced b the City Code.112 The UK Government aimed to produce a situation of
compliance with the directive where the Panel could carry on in practice as much as before
Thus Section 942 of the Companies Act, 2006 simply confers certain statutory powers upon
the Panel but does not seek to regulate the constitution of the Panel.

The most obvious limitation of a self regulation regime is the lack of legal force behind the
City Code. The only legal basis given to the Code is under Section 143 of FSMA which
provides for endorsing and sanctioning powers of the FSA. It seems as if the so called
advantages of self regulation were reiterated yet again and again to ensure compliance by
participants in the marker who otherwise had little reason to listen to the regulator which
had no legal force behind it. These desperate measures have now been rendered obsolete
under statutory regulation where the regulator and the rules are fully backed up by the force
of law. Nevertheless the CA 2006 has been designed in a way that retains the current system
with the Panel having responsibility for takeover regulation.

Self Regulation in Singapore and its continued existence

Although the STC is promulgated as a subsidiary legislation and is given legal backing by the
Singapore Companies Act, it is non-statutory in that a breach of the Code is not a
transgression of the law. The SIC Consultation paper on the subject discussed the prospect
of switching to a statutory form and discounted the possibility in the near future due to the
advantages that a non statutory regime offers:

“Take-over rules in non-statutory form have important advantages: (i) prompt rulings as
opposed to Court judgments which would take time; (ii) flexibility in
administering/interpreting provisions according to specific circumstances as the non-
statutory rules are not rendered in legal language; and (iii) certainty as the Court is normally
reluctant to review Council's rulings, particularly in the midst of a take-over offer. Parties

112
Company law implementation of the European Directive on Takeover Bids- A Consultative
Document issued by the DTI (January 2006) available at <http://www.bis.gov.uk/files/file10384.pdf>
visited on 30th January 2011.

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thus cannot use the Court process to stall or frustrate a take-over offer. From our discussions
with market practitioners, the consensus is that rules and practices governing M&A
transactions should remain in non-statutory form in view of the inherent benefits of speed,
flexibility and certainty.”113

A fundamental issue that arose when the SIC was contemplating amendments to the STC
and had invited suggestions from the market towards the same was with regard to the issue
of whether Singapore should adopt the US model or retain the existing UK model (also
known as the City model) for regulating M&A activities. The fundamental difference
between the two being that In the US, directors of a target company have more
independence to determine their response to a bid situation and are given the discretion to
put a proposed offer to shareholders for consideration or alternatively reject it outright. In
comparison, the UK model requires the board to obtain competent independent advice on
any bona fide offer received, whether welcome or not. In addition, directors are prohibited
from engaging in actions that have the effect of frustrating the bona fide offer.

In their Consultation document on the subject, the SIC noted that while there may be
advantages in empowering directors to hold out for a better offer and/or negotiate for
better terms under the US model, the flip-side is that shareholders could be deprived of an
opportunity to consider and accept a take-over proposal which the directors have
rejected.114 The SIC went on to note that the STC does not prohibit competing offers for the
same offeree company. Interested parties are always free to make a rival bid if they so
decide. In fact, the Singapore Code requires the offeree company to treat all offerors
equally. This creates a situation where the Board’s primary duty in the face of a bid is to
ensure that their actions are in favour of the company and not the vested interests of the
entrenched management.115

Since the mandate of the STC is similar to the UK code giving primacy to the shareholder’s
interests and maintaining of a fair and free market, the SIC observed that the general
consensus among market practitioners was to retain the current UK system, i.e. the board
should obtain advice on all bona fide offers received and not to reject any out of hand. This
view is based on the fundamental principle that shareholders, as owners of the target

113
See Singapore Consultation Paper (1999).
114
See Singapore Consultation Paper (1999).
115
See Singapore Consultation Paper (1999).

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company, should have the right to decide for themselves whether to accept or reject an
offer for their shares.

Thus Singapore decided to retain its parent model of the UK self regulation system as it felt
that the benefits of the same outweighed the advantage of having legal force backing the
Singapore Takeover Code as well as the rulings of the SIC, an aspect that will be discussed
further in the section on appeals in the UK, Singapore and Indian context.

Having discussed the advantages of a self regulatory regime in the UK and Singapore, the
researchers attempted to understand why India decided to give a clear statutory basis to its
Takeover Regulations as well as clearly underlined the powers and function of SEBI, the body
regulating takeovers in the country thereby depriving it of the flexibility in approach that the
UK Takeover Panel and the SIC seem to enjoy. This can possibly be explained by examining
the context in which takeover regulations were introduced in India. In the post 1990 era of
globalization, there was a wave of corporate restructuring which marked a shift from
friendly to hostile takeovers. In such a scenario protection of the interest of the small
investors and the shareholders of the target company became the focus of attention and
this intent would not have been served well under a self regulation regime. The major
market players who wielded great influence in the corporate market of that day would have
made huge profits at the expense of these small investors. The Government thus decided to
bring in a structured takeover regulation regime with legal force behind it such that these
investors were not defrauded and the SEBI was given wide powers to further this intent.
Thus the self regulatory nature of Takeover regulations in the UK and Singapore was virtually
impossible to achieve in India where the market was such that a statutory means of control
became necessary to prevent exploitation and unfairness.

Part VI: The Role of the Courts

The Low likelihood of Tactical Litigation: Impact of the Self regulation feature on the limited
scope for judicial review of the Takeover Panel in the UK.

With the coming of the Directive, the Panel and the Government’s central concern was not
with the formal status of the Panel but with preserving in its statutory framework, the
propensity for speedy rulings which are at the same time, flexible and binding in the course
of the bid and cannot easily be challenged in litigation before the ordinary courts. A

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fundamental concern in this regard was to prevent the emergence of tactical litigation,
designed to disrupt the bid timetable or delay the implementation of a Panel ruling.116 Prior
to the coming into force of the Directive and its implementation, this was made possible
through a speedy appeal system within the Panel itself. This was coupled with the Court’s
limited and” after the event” judicial review approach that was in line with the prominence
given to the Panel rulings.117

This helped preserve the system of intra Panel appeals process that was already in existence
such that rulings of the Panel Executive were referred to the Panel Hearings Committee and
from the Panel Hearing Committee, a formal appeal could be made to the Takeover Appeal
Board. The second limb of the pre directive system of dealing with tactical litigation was
focussed on exercise of judicial restraint in exercising their powers of review. Article 4(6)
permits the UK courts to maintain their restraint but does not require it. The Datafin118 case
established the basis for making the Panel rulings subject to judicial review in the Pre
Directive era on the grounds that the Panel, although a private body was performing a public
function. The impact of the Datafin ruling was tempered to a great degree by the limitations
placed on this power. The expectations with respect to the Panel rulings were that the
parties abide by them even if one of them had signalled that it intended to seek judicial
review. Secondly the grounds for review were limited. These limitations are highlighted in
the belief that the rules of the Panel had very low likelihood of being declared ultra vires and
the Panel is given considerable latitude in its rulings. Moreover the expectation drew from
the fact that the Courts would intervene only after the bid was concluded. This makes the
option of judicial review limited to its actual function of overseeing the Panel’s ruling as
opposed to being used as a device for tactical litigation.119

116
Jonathan Mukwiri “The Myth of Tactical Litigation in UK Takeovers” Journal of Corporate Law
Studies Vol. 8 Part 2 p.373 (October 2008). (hereinafter “Mukwiri (2008)”)
117
Article 4(6) of the Directive preserves this approach of judicial restraint by providing that:
“this directive shall not affect the powers of the Member states to designate judicial or other
authorities responsible for dealing with disputes and for deciding on irregularities committed in the
course of bids or the power of Member states to regulate whether and under which circumstances
parties to a bid are entitled to bring administrative or judicial proceedings. In particular, this Directive
shall not affect the power which courts may have in a member state to decline to hear legal
proceedings and to decide whether or not such proceedings affect the outcome of a bid.”
118
R. v. Panel on Takeovers and Mergers, ex p. Datafin Limited. (1987) Q.B. 815 CA.
119
Mukwiri (2008), at p.382.

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In fact most scholarship120 on the subject seems to conclude that the change from self
regulation to statutory is hardly noticeable since the CA2006 has replicated to the maximum
extent possible the practices and procedures of the Panel and placed them in a statutory
context. Moreover the Government in the Consultative document released by the DTI on the
implementation of the European Directive indicates that the Government’s intent was
neither to undermine nor be inconsistent with the restrictive approach in Datafin.

One of the principles derived from the ruling in the Datafin case is the non interventionist
principle- the relationship between the Panel and the Courts is to be historic rather than
contemporaneous. The principle has two limbs namely that the Court will not intervene in
an ongoing takeover bid and that the Court’s role will be limited to guiding the Panel on how
to act in a future case of a similar nature.

As was subsequently stressed in R v. Panel on Takeovers and Mergers, ex p. Guinness121, this

is a supervisory or long stop jurisdiction. It does not involve the courts substituting their
judgment for the commercial experience of the Panel.
It seems that this attitude of deference on part of the Courts to the Panel continues despite
the statutory framework within which the Panel is placed.122 The statute encourages this
trend by giving the Panel “power to do anything that it considers necessary or expedient for
the purpose of, or in connection with its functions. This provides a legitimate legal basis to
the Panel’s wide range of powers and thus ensures that the statutory framework does not
take away but in fact adds to the Panel’s vires.123 Thus the scheme of the Companies Act,
2006 seems to suggest the Government’s intention to fit the requirements of the Directive
to the existing mandate of the Panel instead of vice versa. The Companies Act, 2006 actively
blocks off any avenues made available by the statutory recognition of the Code through
Section 956(1) and (2) which state that no action for breach of statutory duty lie in respect
of a contravention of a requirement imposed by or under the Panel’s rules and that
120 th
Mukwiri (2008), also see Gower and Davies Principles of Modern Company Law 8 Edition 28-6
(London; 2008).
121
(1990) 1 Q.B. 146 CA.
122
In implementing the Directive, Part 28 of the CA 2006 primarily aims to prevent the occurrence of
tactical litigation. Introducing the Bill (that lead to the CA 2006) IN Parliament, Lord Sainsbury of
Turville said “The Bill’s provisions aim to ensure that tactical litigation seeking to delay or frustrate a
takeover bid will not become a feature of our takeover markets”- The Parliament Undersecretary of
State, Department of Trade and Industry, “Company Law Reform Bill”, HL Col 186 11 January 2006
available at <http://www.publications.parliament.uk/pa/ld199900/ldhansrd/pdvn/lds06/text/60111-
08.htm> visited on 27th January 2011).
123
See ss. 942(2),943,944(1) and 945. In effect the CA 2006 through these sections reinforces the
Panel’s rule making and quasi judicial nature in regulating takeovers.

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contravention of such a rule based requirement does not render the transaction in which it
occurs void or unenforceable.

Thus the statutory provisions now in force are designed to ensure the continuance of the
perceived advantages of a self regulatory approach while allowing the Panel for the first
time, to impose sanctions directly on wrongdoers. It is duly noted that despite these recent
statutory changes, the City Code is for all practical purposes a self regulatory instrument.
Before the implementation of the Takeover Directive, the City’s self regulatory capacity was
built upon a combination of legislative inactivity and its ability to deny access to its market
to those who flaunt the rules. The dominant theoretical view of the City Code remains that it
is both a regulatory solution to a market failure and that it ensures market accountability to
shareholders since the implementation of the Directive has changed nothing much in terms
of the content.

The principles laid out in Datafin have been preserved in the new statutory regime as well
and interestingly the Singapore takeover regime also seems inclined to follow the UK
principle of minimal interference with the self regulation of takeovers.

The Singapore context- Limited Nature of Appeal as an Inevitable Feature of Self Regulation.

As has already been discussed, the STC is non-statutory in that it does not have the force of
law. Its primary objective is fair and equal treatment of all shareholders in a takeover or
merger situation.

The STC is not concerned with the financial or commercial advantages or disadvantages of a
take-over or merger; and the MAS as well as the SIC seem to believe that such matters
should be decided by the company and its shareholders. The STC represents the collective
public opinion on the standard of conduct to be observed in general, and how fairness can
be achieved in particular, in a take-over or merger transaction. A fundamental requirement
is that shareholders in the company subject to a take -over offer must be given sufficient
information, advice and time to consider and decide on the offer.124 This is in line with the
UK approach of regulating takeovers and this attitude stems from the similarity in views

124
Extract from [Monetary Authority of Singapore - The Singapore Code of Take-overs and Mergers]
available at
<http://www.mas.gov.sg/resource/sic/The_Singapore_Code_on_Take_Overs_and_Mergers_1_April_
2007.pdf> visited on 30th January 2011.

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between the two countries with regard to the principle of shareholder primacy as well as the
regulating of takeovers by an autonomous institution which gives due regard to the pulse of
the market and not the black letter of law. It is also consistent with the Singaporean policy of
keeping the costs of business low and creating an attractive business environment.125

The SIC is administered and enforced by the SIC. The SIC is provided with discretion to waive
the application of the Take-over Code and such discretion allows the SIC to waive the Take-
over Code where the costs of compliance outweigh the benefits.

The SIC is approached in case of confusion about the operation of certain regulations and
regular consultation with the SIC is deemed necessary all through the course of the Takeover
bid to prevent flouting any of the requirements. Pursuant to Section 139 of the SFA, the SIC
may also issue rulings on the interpretation of the General Principles and the Rules in the
Takeover Code and lay down the practices to be followed by parties in a Takeover offer and
matters connected therewith. Section 139(7) holds that these rulings are final and binding
in nature. This indicates that the Datafin principle have been reflected in the administration
of the Takeover Code in Singapore as well and the “final and binding” portion of Section
139(7) indicates legislative intent to give credence to this notion of minimal judicial
intervention in the working and regulation of takeovers.

While this theory is yet to be tested in courts of Singapore and there is no judicial
affirmation of the view that final and binding nature of SIC rulings means that no appeal to
courts can take place, this appears to be the most plausible interpretation possible of
Section 139(7). This is because the rationale that was reflected in Datafin and later adopted
in the Companies Act, 2006 of UK has been echoed time and again under the Singapore
regime. Singapore’s reluctance to shift to a statutory regulation regime and their decision to
continue with the self regulation system that even UK has shifted away from reflects the
importance that the Singapore takeover scene gives to autonomy of the market and the
desire to keep commercial decisions away from the stronghold of the courtrooms. The
mantra seems to be speed and flexibility of rulings which SIC strives to achieve and which
would suffer a serious setback if court control was made permissible and an appeal
mechanism was recognized and established.

125
See Ong (2008).

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Right to appeal in the Indian context: Legislative and Judicial affirmation

The right to appeal is a statutory right in India. The right to appeal against SEBI’ rulings arises
from Section 15T of the SEBI Act.126 As Somashekhar Sundaresam notes in his column in
Business standard127, this provision can be read widely and examines the impact of an order
by the SAT which allows for appeal scrutiny over decisions and actions of SEBI. In the given
ruling by SAT, it disposed of an appeal by National Securities Depository Ltd. and ruled that
its appellate jurisdiction covers all orders made by SEBI. The term “order” has been
exhaustively defined in this SAT order and is predicated on a literal reading of Section 15T
which allows for an appeal from any “order” made by SEBI. SAT noted that “The right of
appeal is a statutory right and it has necessarily to be governed by the provisions of the
statute which creates it” It extended this to argue that the SEBI Act which gives the power to
appeal does not restrict it so as to exclude orders. SAT observed that “The language used in
Section 15T is of widest amplitude and makes every order passed by the board appealable,
whether it be in exercise of its administrative, legislative or judicial/ quasi judicial powers.” It
also noted that the Parliament had the legislative capacity to limit the right of appeal as it
had done under Section 15Z of the Act. Section 15Z provides for an appeal from SAT to the
Supreme Court and the Section clearly restricts such appeals to only questions of law and
excludes questions of fact.

While the power of SAT to sit in appeal over SEBI rulings is made clear by a literal reading of
Section 15T much like the Takeover Board of Appeals in UK, the question of jurisdiction of
civil courts over SEBI was made clear by a Single judge bench of the Bombay High Court in a
ruling that was dealt with by Mr. Somasekhar Sundaresan in his column in the Business
Standard.128 The issue that arose for consideration was whether civil courts could exercise or
even possessed jurisdiction to try matters that came within the regulatory purview of the
SEBI and it was ruled that the court had no jurisdiction. This was based on the Court’s
interpretation with respect to Section 15Y and 20A of the SEBI Act which as per the court are
to be read as ousting the jurisdiction of every civil court over matters which the SEBI has
jurisdiction over. Thus all functions to be performed by the SEBI including adjudicatory

126
Section 15T of the SEBI Act, 1992.
127
Somasekhar Sundaresan “Every decision of the SEBI is appealable” available at <http://business-
th
standard.com/india/storypage.php?autono=261102> visited on 30 January 2011.
128
Somasekhar Sunderesan “Civil Courts have no jurisdiction over SEBI Act” available at
th
<http://bsl.co.in/india/news/civil-courts-have-no-jurisdiction-over-sebi-act/228732/> visited on 30
January 2011.

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functions of the SEBI and the SAT are not within the jurisdiction of the civil courts. The Court
also held that there is no injunctive power available with regard to any action performed by
SEBI in pursuance of its powers.

The rationale behind such a judgment is that SEBI has been constituted as an expert body
performing specialised functions and hence the concept of speedy and effective rulings as
given by the SEBI would be lost if the judicial process was allowed to intervene in its mode
and manner of functioning. The appellate power of the Courts has also been severely
restricted under Section 15Z as has been noted above and the reason for that is along the
same lines. SAT is the specialised appellate body created for an appeals process from actions
of the SEBI and hence a further appeal from SAT can lie only to Supreme Court on questions
of law.

Regulation 46129 entitles any person aggrieved by a SEBI order to prefer an appeal to the
SAT. This regulation is substantially similar to Section 15T(1)(a) of the SEBI Act. Earlier an
appeal used to lie only to the Central Government. In 2000 the SEBI (Appeal to the Securities
Appellate Tribunal) (Amendment) Regulations 2000 made changes in line with the changes
made by the Securities Law (Amendment Act, 1999 to the appeal provisions of the SEBI
Act.130

In Rhodia SA v. SEBI131, it has been held that the SAT exercises plenary powers when it sits in
appeal from SEBI’s orders which means that it acts like a trial court empowered to go into
questions of both fact and law. A very important ruling from the standpoint of the SAT’s
powers to rule on exercise of discretion by SEBI was laid down in Clariant International v.
SEBI132 where the Supreme Court rejected the argument that SAT should not interfere with
SEBI’s discretion .

“The Board is indisputably an expert body. But when it exercises its quasi judicial functions;
its decisions are subject to appeal. The Appellate tribunal is also an expert tribunal....The
jurisdiction of the appellate authority under the Act is not in any way fettered by the statute

129
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 1997.
130
Vayttaden (2010), at p. 439.
131
(Appeal No 36/2001) sourced from Vayttaden (2010).
132
(2004) 8 SCC 524.

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and thus, it exercises the same jurisdiction as the Board. It can exercise its discretionary
jurisdiction in the same manner as the Board.”

Regulation 46 and Section 15T of the SEBI act provide for locus standi to a “person
aggrieved” from an order of SEBI to make an appeal to SAT. In Ramprasad Somani v. SEBI133,
SAT examined numerous decisions of SEBI to determine the standard for “aggrieved person”
and based their ruling on the holding in Adi Pherozshah Gandhi v. Advocate General in
Maharashtra134:
“any person who feels aggrieved with the result of a case is not a person aggrieved. He must
be disappointed of the benefit which he would have received if the order had not gone the
other way. The order must cause him a legal grievance by wrongfully depriving him of
something”

It was on the basis of this formulation that the SAT had concluded that a shareholder of a
target company could appeal a finding of SEBI that the Takeover Regulations had not been
violated.

Only an “order” of the SEBI is appealable under Regulation 46. In MA Sumathi v. SEBI and
others135 the SAT laid out the test for determining what constitutes an order:

“...An order is primarily a decision which has the effect of a command whether called by such
name or not ands is distinguished from an advice or request, by the nature of consequences
that may flow form the non implementation of the same.”

Power of Review

The Central Government when it used to act as an appellate authority had held that there
was no provision in the SEBI Act or in the SEBI (Appeal to Central Government Rules 1993)
which enabled it to review its decisions. However SAT has the same powers as a civil court
under the Code of Civil Procedure, 1908 to review its own decisions. 136

133 th
SAT order dated 27 September 2002, MANU/SB/0107/2002 sourced from Vayttaden (2010).
134
(1970) 2 SCC 484.
135
SAT, (Appeal No.99/2002).
136
Vayttaden (2010), at 443.

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The scope of a review is more limited than an appeal under Regulation 46 in that while in an
appeal an order may be reversed on any ground of illegality, in a review SAT is limited to the
grounds mentioned in Order 47 Rule 1 which are:

• The discovery of new and important evidence which could not with due diligence
have been produced by him at the time of the order or
• Some mistake or error apparent on the face of the record or
• for any other sufficient reason

Thus as has been observed, unlike the situation in UK and Singapore which provide for
limited recourse to courts in case of a situation where a party is aggrieved with a decision of
the Takeover Panel or the SIC respectively, India has a structured appeals as well as review
mechanism in place. This stems from the conscious decision to adopt a statutory regime
with legal basis for SEBI and its powers. The rationale behind the Datafin principle which
seems to be the norm in both UK and Singapore is rooted in a historical context which
deems the Takeover regulatory authorities to be autonomous bodies whose function is to
facilitate the takeover process by giving speedy and flexible rulings on the interpretation of
the Code. On the other hand, India has rooted its regulation of Takeovers in statute and the
intention seemed to be protection of the innocent shareholder from being defrauded in a
self regulatory environment. Thus the SEBI’s powers though wide under the Act are subject
to the supervision of the appeals process by the SAT.

CONCLUSION

There is a considerable amount of literature available providing legal analysis of takeover

regulation in the US, the UK and Europe more generally. However, comparative literature,
particularly comparing countries in the West and the East, is severely lacking. This paper is
the first step in filling that gap. The researchers believe that such comparison could provide
a fertile ground for understanding the optimal regulation for different countries.

The researchers find that the form and substance of the Takeover Regulations as well as the
powers of the regulatory bodies are shaped by the social and economic context of the given
countries. Further, although the substance of the regulations between two countries may be
similar, the similarities may exist for widely different reasons. Therefore, in the case of
mandatory thresholds, while UK and Singapore have the same thresholds for triggering a

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mandatory offer, in the UK, this is despite dispersed shareholdings due to the large holdings
of institutional investors; whereas in Singapore, it is because of the concentrated holdings in
major companies by either the state or a few families. In India, we see a hybrid of the two
systems with family controlled firms, but lower voting rights/share capital held thereby
justifying a low threshold.

The penalties and sanctions also differ due to the corporate milieu that they are supposed to
regulate. The Takeover Panel in the UK and the SIC in Singapore have powers of censure
which allow them to bring the erring party to task albeit in a less severe way than the SEBI in
India which has been provided with the power to impose clear civil and criminal penalties.
The basic intent in the UK behind these laws is to protect the shareholders’ interests without
disrupting the autonomy of the market for corporate control. The City Code was envisaged
as voluntary in nature. In the Singaporean context, this type of approach is workable as the
shareholding structures are narrow and consolidated in the hands of a few players who
cannot afford to risk their reputation and find it to their advantage to follow the directions
issued by the regulatory bodies. Further, it is consistent with their policy of lowering
business costs and incentivising compliance to create an attractive business environment.
As opposed to this, the statutory regime in India was warranted by the existence of multiple
players who had little to lose but a lot to gain from flouting the Takeover Regulations in a
self regulatory regime. Thus the legal force behind the SEBI and wide powers to impose
penalties keep these corporate players in check and provide respite to the investors whose
interests are safeguarded.

The right to appeal against the rulings of these regulatory bodies provides for an interesting
comparison. The principle of non interference with Panel rulings as laid down in the Datafin
case found place in the Companies Act, 2006 as well and minimal scope for judicial review
that has been provided for can only take place after the Takeover has occurred. This was
done to preserve the seeming advantages of speedy and flexible rulings that became an
integral feature of the self regulation regime. This principle has been adopted in Singapore
as well since the SIC gives precedence to disposing of disputes about interpretation of the
Code in a speedy manner so that the bid timetable is not disrupted. Contrary to this focus on
ensuring that the Takeover progresses as smoothly and speedily as possible, India has a
structured appeals mechanism for any person aggrieved with an order of the SEBI that
relates to the Takeover Regulations. The SAT which sits in appeal over the SEBI is a 3

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member body and is overburdened with appeals from SEBI rulings. The situation worsened
to such an extent that a PIL was filed by a securities lawyer in Bombay asking for the
reconstitution of the 3 member SAT so that it could resume its work in an efficient manner
and clear the backlog that had set in.137 This raises the pertinent question about the efficacy
of an appeals process since the SAT and SEBI seem to be at constant loggerheads with the
SEBI preferring an appeal to the Supreme Court from SAT decisions that overturn or modify
its rulings.

While the right to appeal provides an avenue for redress in case of error or gross injustice by
the SEBI in exercise of its multitude of powers, there is a need to streamline the appeals
process such that it does not become a tool for tactical litigation disrupting the ongoing
Takeover bid such that it falls through as this would be to the disadvantage of both the
shareholders of the target company as well as the Indian corporate and securities market in
general.

All these comparison duly noted and commented upon above stem from the primary
differences in the nature of regulations that these 3 countries have adopted. While the UK
used to function under a self regulatory Code having moved to a statutory regime in 2006,
Singapore continues its functioning under the tutelage of the SIC and a self regulatory
Takeover Code. India on the other hand has had a statutory backing to its Takeover
Regulations since the very beginning. While it is difficult to conclusively point out one regime
as better than the other, the advantages of a self regulatory regime such as flexibility and
speed in rulings seem to outweigh the disadvantages of the lack of legal force for the same
in Singapore. However these advantages though indisputable would be over shadowed by
the problems that accompany a self regulatory Code in a country like India. The need for
legal backing to any regulation is extremely important in the Indian context where the
players are many and the desire to flout the regulations abounds. In such a scenario, the
SEBI’s role as an active watchdog is desirable. While the appeals process has tempered the
speedy nature of the SEBI’s functioning, the SEBI’s tightly held reins over the takeover
process even though it might slow down the process is still the lesser of the two evils.

137
http://www.livemint.com/articles/2009/04/03235106/Red-tape-appeals-piling-up-ag.html#
th
visited on 30 January 2011.

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