Control in Indian M&A: When Does SEBI SAST Get Triggered?: Key Case Laws and Strategic Implications
In India’s dealmaking ecosystem, the line between investor protection and actual control is not always clearly marked. Whether you’re a law student studying M&A or a practitioner structuring your next acquisition, understanding how the SEBI Takeover Code (SAST Regulations, 2011) defines and interprets “control” is no longer optional—it’s essential.
Through this article, I’ve aimed to distill the evolving regulatory and judicial thinking on what counts as ‘control’ under SEBI’s radar, especially under Regulations 3, 4, and 10 of the SAST framework. Drawing from real-world transactions like L&T–Mindtree and Jet–Etihad, as well as landmark precedents like Subhkam Ventures and Kamat Hotels, this piece brings together both doctrinal clarity and strategic insights for dealmakers navigating Indian M&A.
Understanding the Trigger Points
Under “Regulation 3(1) of the SAST Regulations”, an “open offer” is mandatory when an “acquirer”, along with “persons acting in concert (PACs)”, acquires 25% or more of the voting rights in a listed company. Regulation 3(2) extends this obligation to situations where the acquirer already holds between 25% and 75% of shares and acquires more than 5% in a financial year.
In addition to numerical thresholds, Regulation 4 mandates an open offer if an acquirer directly or indirectly acquires control over a target company, irrespective of shareholding. “Regulation 2(1)(e)” defines “control” broadly to include the right to appoint a majority of directors or to control management or policy decisions, whether through shareholding, agreements, or voting arrangements.
This triggers a very important doctrinal and practical issue: when do shareholder agreements, board rights, veto powers, and informal influence cross the threshold from “investor protection” into “control”?
What Constitutes Control?
The legal interpretation of “control” has evolved significantly through key decisions by SEBI, the Securities Appellate Tribunal (SAT), and Indian courts. The line between mere investor protection rights and actual control has often been the crux of these decisions.
Subhkam Ventures v. SEBI (Securities Appellate Tribunal, 2010)
This landmark case involved Subhkam Ventures acquiring a minority stake in MSK Projects India Ltd., along with certain affirmative voting rights through a shareholder agreement. SEBI viewed these rights—such as approving business plans and appointment/removal of key executives—as conferring control.
However, the SAT took a sharply different view. It held that rights which are protective in nature—such as vetoes against major structural changes—do not amount to operational or management control. The SAT emphasized the need to distinguish between rights that protect an investor’s financial interests and those that allow control over the company’s core policy decisions. This case set a critical precedent, narrowing the definition of control to positive and proactive influence, and not just defensive mechanisms.
Shubhkam Ventures v. SEBI (Bombay High Court, 2011)
SEBI appealed the SAT’s decision in Subhkam Ventures. However, the Bombay High Court upheld the SAT’s reasoning, reaffirming that protective rights do not constitute control. This reinforced the idea that the ability to say “no” does not amount to the power to say “yes”—a key principle in determining the presence of control. The decision underscored the principle that the intent and function of the rights, not just their form, would determine whether control was acquired.
Jet Airways–Etihad Deal (2014)
Etihad Airways’ acquisition of a 24% stake in Jet Airways raised regulatory eyebrows because of the strategic rights it received, including:
- The right to appoint two board members
- Access to key business information
- Participation in policy-level decisions
While SEBI ultimately held that no control was transferred, the case highlighted the fine line between partnership and control. The Competition Commission of India, however, found that Etihad and Jet would be under “joint control.”
This divergence between regulators highlighted the fragmentation of control tests across legal domains: SEBI’s focus is primarily on shareholder protection and disclosures, while the CCI’s control test is based on economic influence and market power.
L&T–Mindtree Takeover (2019)
In a rare hostile takeover in India’s tech sector, L&T acquired over 20% stake in Mindtree from a single shareholder and launched an open offer to reach a controlling stake.
This deal is significant for several reasons:
- L&T triggered both Regulation 3 (substantial acquisition) and Regulation 4 (change in control).
- L&T’s acquisition strategy was designed in tranches to comply with open offer requirements.
- L&T also aimed to place its own directors on the board and integrate Mindtree into its operations.
Though SEBI did not raise objections, the deal raised concerns about board neutrality, shareholder activism, and the need for clearer definitions of “control” in takeover contexts.
Kamat Hotels Case (2017)
This case involved Clearwater Capital Partners and its investment in Kamat Hotels. The investor received significant rights, including veto powers and nomination rights for directors.SEBI initially viewed these rights as tantamount to control. However, later observations distinguished between negative control (i.e., veto powers to protect investment) and positive control (ability to direct policy). While Clearwater escaped open offer obligations under Regulation 4, the case cemented SEBI’s leaning toward substance-over-form evaluations. The test of control is functional, not just contractual.
Fortis Healthcare–IHH Case (2018–2023)
The ongoing legal battle involving Fortis and Malaysian firm IHH Berhad is another illustration of the control issue. IHH acquired a significant stake in Fortis through a preferential allotment, triggering an open offer. However, the deal was stalled due to Supreme Court orders arising from an unrelated di4spute involving Fortis’ former promoters (Singh brothers). This case illustrates how regulatory approvals, litigation risk, and open offer timing can interact when control shifts hands—even indirectly.
NDTV Takeover by Adani Group (2022–2023)
The acquisition of NDTV by AMG Media (an Adani entity) revealed another layer of complexity. Adani indirectly acquired a 29.18% stake in NDTV by invoking warrants held by VCPL—a company that had lent money to NDTV’s promoters against convertible debentures in 2009. Though Adani argued that it merely enforced a contractual right, SEBI deemed it an acquisition of voting rights and control, triggering an open offer. This case highlights how financial instruments, when structured cleverly, can lead to de facto control—showing SEBI’s increasing scrutiny of indirect acquisitions.
SEBI’s Interpretation and Informal Guidance
Over the years, SEBI has also provided informal guidance on what constitutes control. Some of the broad takeaways include:
1.Nominee Directors: Merely having a board seat or the right to appoint one does not imply control unless the person dominates policy decisions.
2. Affirmative Rights: Rights relating to approval of annual budgets, business plans, or appointment of key managerial personnel may raise red flags.
3. Operational Involvement: Active participation in business decisions, beyond passive investor rights, is more likely to trigger Regulation 4.
SEBI continues to rely heavily on facts and circumstances in each case, rejecting one-size-fits-all interpretations. Informal guidance letters have become a useful risk-mitigation tool for investors and acquirers alike.
Strategic Implications for Dealmakers
1.Transaction Planning: Dealmakers must plan their acquisitions carefully, ensuring that staggered or structured transactions do not violate the letter or spirit of the SAST Regulations.
2. SHA/SSA Drafting: Legal teams must draft shareholder agreements with clarity, ensuring that protective rights don’t unintentionally imply control.
3. Regulatory Coordination: Since control is also a key consideration under Competition Law, FEMA, and FDI norms, consistency in disclosures across regulators is vital.
4. Litigation Risk: Control disputes often result in regulatory delays or litigation—dealmakers must factor this risk into timelines and financial structuring.
5. Due Diligence: A thorough check of prior transactions, existing shareholders’ rights, and any pending regulatory matters is essential to avoid post-acquisition surprises.
6. Use of Exemptions: Regulation 10 provides several exemptions—like inter se transfers among promoters, acquisition via scheme of arrangement, and CIRP-led acquisition—which should be explored tactically.
7. Corporate Governance: The board’s role in evaluating offers, maintaining neutrality, and protecting shareholder interests becomes paramount in control-related transactions.
SEBI’s Discussion on Bright-Line Tests
In 2023, SEBI released a discussion paper proposing a shift to bright-line thresholds to determine control. The regulator considered:
- A “25% voting right threshold” as presumptive control
- The ability to appoint over 50% of non-independent directors as a control marker
While still under deliberation, this move signals SEBI’s intention to reduce subjective interpretation and bring more certainty to deal structuring.
Conclusion
The meaning of ‘control’ in Indian M&A is still being tested, shaped, and refined—one deal and one dispute at a time. But a few core takeaways are now settled: protective rights don’t amount to control, affirmative influence must be demonstrable, and SEBI will look beyond labels to evaluate substance over form.
As someone wanting to pursuing a career in corporate law, I’ve come to realize that understanding the nuance between regulatory compliance and commercial strategy isn’t just an academic exercise—it’s what defines good lawyering. With takeover deals becoming increasingly complex and cross-jurisdictional, aligning intent with structure, rights with disclosures, and legal advice with market realities is now the baseline.
I hope this article offers both students and practitioners a grounded understanding of how control functions in practice—and what you need to keep an eye on the next time you’re drafting, advising, or even just analyzing a transaction under Indian takeover law.
*****
Author’s Note: Jyotika Dhar is a fourth-year B.A., LL.B. (Hons.) student at National Law University Odisha with a strong focus on Corporate Law, M&A, and Financial Regulation. Her previous article on Independent Directors received over 5,000 views within 48 hours of publication.
Author Bio
