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This article is written by Catakam Viswesh Kumar and Deepika Mathur, 4th Year B.B.A. LL.B. (Hons.) students at School of Law, CHRIST (Deemed to be University), Bengaluru.


Continuous disclosure is a mechanism to ensure that the market is informed of all material developments pertaining to listed entities at all times. While it enhances accountability of such companies and ensures transparency, it also helps in maintaining parity of information disclosed so that all investors are able to make informed investment decisions and no investor is at a disadvantage against another. Clause 36 of the Listing Agreement requires a listed entity to disclose to Stock Exchange(s), details of all events which will have bearing on the performance/operations of the listed entity as well “price sensitive information”. This post seeks to analyse the relevant disclosures that are to be made under relevant law when indirect acquisition through the mode of a trust takes place, as was analysed in the case of Victor Fernandes & Anr. v. Securities and Exchange Board of India & Ors.

Indirect Acquisition of Control

In order to ascertain the specific disclosure requirements in cases of indirect acquisition through trust, it is imperative to understand the meaning and scope of ‘indirect acquisition’. As per Regulation 5 of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, acquisition of shares or voting rights in, or control over, any company or other entity, that would enable any person and persons acting in concert with him to exercise or direct the exercise of such percentage of voting rights in, or control over, a target company, the acquisition of which would otherwise attract the obligation to make a public announcement of an open offer for acquiring shares under these regulations, shall be considered as an indirect acquisition of shares or voting rights in, or control over the target company.

HUF as mode of acquisition

There have been several instances wherein business vehicles and other entities have been used as a means to acquire indirect control. Nevertheless, all these modes are considered in order to trigger disclosure requirements under the Listing Agreement as well as open offer obligations under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011. In the case of Kiron Margadarsi Financiers v. SEBI, an HUF was held to have become an acquirer of shares registered in its name on the target company’s register of members even though it claimed to have acquired those shares as security for a loan given by it. Therefore, the mode of acquisition is irrelevant to the determination of a person’s identity as an acquirer.

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Victor Fernandes’ case arose out of an Impugned Order of SEBI dated 9/1/2017. Wherein SEBI on the basis of a wholly unsustainable ground held that the Independent Media Trust (‘IMT’), a Trust which had been established for the benefit of Reliance Industries Limited (‘RIL’) was not a Subsidiary of RIL. Thereby SEBI held that the non-Disclosure of the acquisition of Indirect Control over Network 18 Media (‘NW 18’) and TV 18 Ltd by RIL through IMT was in accordance with the Law due to the material fact that a Trust is not a Subsidiary of a company. In relation to this the appellants who were shareholders of NW 18 Appealed against the decision of SEBI to the SAT claiming that their rights as shareholders were Prejudicially affected by these violations. Hence the main issue framed in this case before the SAT was whether the Violation of Clause 36 of the Listing Agreement, arising out of the Non-disclosure of Acquisition of Indirect control of RIL by way of IMT would violate the rights of Shareholders and subsequently be in violation of disclosure requirement regulations framed.

Analysis on the Matter heard before SEBI in the case of Victor Fernandes and Ors v. SEBI on 13.04.16

One of the Key aspects which were taken into consideration by the SAT while passing an order upon these issues was brought forth in the decision of the same tribunal on 13/04/16. Wherein the Tribunal had held that SEBI on no merits and in contrary to the Competition Commission of India passed its order on 09/02/2015 by not considering the execution of ZOCD (‘Zero Coupon, Optionally & Fully Convertible Debentures’) agreement which in turn resulted in IMT acquiring indirect control over NW18 & TV18. SEBI on without any merits devalued the relevance placed on the ZOCD agreement and stated as to how there was no divesture in control of NW18 in favour of IMT. Hence the Tribunal on the basis of CCI’s holding that “subscription of ZOCD agreements by IMT would amount to acquiring indirect control over NW18 & TV18” and in Public interest had ordered the SEBI to re-examine the issue and submit a report. However SEBI submitted an affidavit on the same stating that “effective control over NW18 was not divested in the execution of ZOCD agreement” again reiterating its previous stance on the basis of no conclusive evidence as to how it arrived on the said conclusion.

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Clause 36 of the Listing Agreement:

In the instant case, the SEBI, by virtue of an order dated 9/2/2015 had held that since IMT was not a subsidiary of RIL, no disclosures were required to be made by RIL under Clause 36 of the Listing Agreement. However, the SAT arrived at the conclusion that sustaining this view would be detrimental to the interests of investors in the securities market and would encourage listed companies to acquire indirect control over other companies through a Trust or some other entity without making disclosures under Clause 36 of the Listing Agreement. The SAT opined that the SEBI’s decision was patently erroneous and contrary to the spirit of Clause 36, and was thus liable to be set aside.

While in general, the company is required to keep the Stock Exchange informed of events such as strikes, lock-outs, closure on account of power cuts etc., the following material events are also prescribed for disclosure:

  1. Change in the general character or nature of business
  2. Disruption of operations due to natural calamity
  3. Commencement of Commercial Production / Commercial Operations
  4. Developments with respect to pricing/realization arising out of change in the
  5. regulatory framework
  6. Litigation / dispute with a material impact
  7. Revision in Ratings
  8. Any other information having bearing on the operation/performance of the listed entity as well as price sensitive information, including but not restricted to, inter alia, Acquisition, merger, demerger, amalgamation restructuring, scheme of arrangement, spin off of setting divisions of the company, etc.

This implies that disclosures are to be made regarding all forms of corporate restructuring. Further, acquisition of indirect control through trust could also fall within the ambit of ‘other restructuring’, wherein details and reasons for restructuring, details of benefit, if any, to the promoter/promoter group/group companies from such proposed restructuring, and brief details of change in shareholding pattern of all entities are required to be disclosed. These disclosures were mandated on listed entities to enable the shareholders and the public to be appraised of the position of the Company and to avoid the establishment of a false market in its securities. While initial disclosures provide entry level transparency requirements for companies seeking listing, the continuous disclosure requirements strive to achieve the same transparency levels during the lifetime of the listed entity.


The SAT while deliberating open this case took into consideration various factors namely, the reasoning behind the creation of IMT, the ZOCD agreement by which NW18 came under the control of IMT, Clause 36 of the listing agreements and most importantly the rights of the shareholders. Through the course of its deliberation the SAT heavily relied on the view of the CCI in holding that there was a divesture of control of NW18 in favour of IMT. The SAT went on to quash and set aside the Impugned order of SEBI dated 09/01/17 on the basis that there was clear violation of clause 36 of the listing agreements as RIL had failed to disclose its acquisition of indirect control over NW18 by way of IMT. The SAT’s reasoning behind doing so is solely on the basis of its duty to apply Clause 36 and protect the interests of the shareholders which were being prejudicially affected. Hence it passed the order accordingly, and while doing so it also directed SEBI to deicide afresh the question as to whether on execution of ZOCD Agreement RIL had acquired indirect control over NW18 through IMT and failed to disclose the same in violation of Clause 36 of the Listing Agreement and if SEBI’s decision was in contrary to that of the CCI, then to substantiate the same with recorded reasons. The Appeal was disposed and SEBI’s response to the same is pending.

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