Definitions under SAST Regulations 2011

Topic 45 — Acquirer, Target Company, Control & Persons Acting in Concert [Regulation 2] | SEBI Law Officer

Regulation 2 of the SAST Regulations, 2011 contains the definitional framework — the definitions of 'acquirer', 'target company', 'control', and 'persons acting in concert' (PAC) are particularly significant because they determine when the open offer obligation is triggered. The definition of 'control' has been the subject of extensive litigation — the Supreme Court and SAT have had to define its boundaries in cases like Subhkam Ventures and others. These definitions are tested in virtually every SEBI Law Officer examination.

1. Regulation 2(1)(a) — 'Acquirer'

Regulation 2(1)(a): 'Acquirer' means any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights in, or control over, a target company, whether by himself or with persons acting in concert with him.

Critical aspects of the 'acquirer' definition:

'Directly or indirectly': An acquirer includes both a person who directly buys shares AND a person who acquires through an intermediary company, trust, or arrangement. Indirect acquisitions through holding companies are captured.
'Agrees to acquire': The definition covers the agreement stage — even before shares are actually transferred. Signing an SPA (Share Purchase Agreement) makes the buyer an 'acquirer' for SAST purposes from the date of execution.
'Whether by himself or with PAC': The acquirer's shareholding is aggregated with the holdings of all persons acting in concert — preventing acquisition structuring through multiple entities.

2. Regulation 2(1)(z) — 'Target Company'

Regulation 2(1)(z): 'Target company' means a company established under applicable law, including a body corporate, whose shares or voting rights or control is being acquired or is the subject of acquisition.

The target company must be a listed company (or proposed to be listed) for SAST to apply. Key aspects:

Can be any company — private limited, public limited, or any body corporate (including co-operative societies, trusts where applicable).
The listing requirement is implied — SAST explicitly applies to listed entities and entities seeking listing.
A company undergoing insolvency resolution (IBC process) can still be a 'target company' — SEBI has addressed this in the context of SAST + IBC intersection.

3. Regulation 2(1)(e) — 'Control'

Regulation 2(1)(e): 'Control' includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner.

'Control' is the most litigated and examined definition in SAST. Key elements:

Right to appoint majority directors: The clearest form of control — the person can elect the majority of the board and thereby direct management.
'Control over management or policy decisions': Broader than board appointment — covers situations where a person can determine what the company does strategically, even without majority board representation.
'Directly or indirectly': Control through holding companies, trust structures, and complex corporate arrangements is captured.
'In any other manner': The residuary clause ensures that novel arrangements not specifically listed are also captured if they confer effective control.

⚠️ Control: Positive vs Negative Control

A significant regulatory question is whether NEGATIVE CONTROL (veto rights over key decisions, protective rights) constitutes 'control' under SAST. SEBI's position (through the Takeover Panel/SEBI Informal Guidance): Rights that protect the investor from specific unfavourable decisions (protective rights) do not typically constitute 'control'. Rights that enable affirmative direction of management policy DO constitute control. The line is drawn based on whether the rights enable the holder to DETERMINE — not merely INFLUENCE — management decisions.

📖 Subhkam Ventures (I) Pvt. Ltd. v. SEBI (2010) 1 COMP LJ 201 (SAT)

Facts: Subhkam Ventures acquired shares in MSS India with certain protective rights including veto over major transactions, right to appoint 2 of 7 directors, and approval rights over budget. SEBI held this constituted 'control' triggering mandatory open offer. Subhkam challenged this.

Held: SAT set aside SEBI's order — holding that the rights granted to Subhkam were 'protective rights' designed to protect an investor's financial interest, NOT affirmative rights to control management decisions. Minority protective rights (veto over extraordinary transactions) do not constitute 'control' unless the holder can DETERMINE management policy.

Ratio: Protective/negative rights (veto over specific extraordinary decisions) are NOT 'control' under SAST. Control requires the ability to affirmatively determine management policy. This case significantly shaped the understanding of 'control' in Indian takeover law.

4. Regulation 2(1)(q) — 'Persons Acting in Concert' (PAC)

Regulation 2(1)(q): 'Persons acting in concert' means persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of control over the target company.

The PAC concept is critical because acquirer + PAC holdings are aggregated to determine whether thresholds are crossed. Key features of the PAC definition:

Common objective: The persons must share the objective of acquiring shares or exercising control. Different investment objectives mean no PAC relationship.
'Pursuant to an agreement or understanding, formal or informal': No formal agreement needed — even an informal understanding can create PAC status. This makes PAC one of the broadest concepts in SAST.
'Co-operate for acquisition': The co-operation must be for the purpose of acquisition or control exercise — not just general co-operation.

5. Deemed PAC — Regulation 2(1)(q) Explanation

Regulation 2(1)(q) also contains a list of persons 'deemed to be acting in concert' — they are presumed to be PAC without the need to prove a specific agreement. Key deemed PAC relationships:

Entity	Deemed PAC With
A company	Its holding company, subsidiary company, and fellow subsidiaries
A company	Any person who is a promoter or member of the promoter group of the company
A company	Any director of the company or its holding/subsidiary company
An individual	The individual's immediate relatives (as defined)
A mutual fund	Its sponsor, AMC, trustees (whether individually or collectively)
A listed company acquiring shares	Target company shares deemed held by the acquirer include PAC holdings

6. 'Shares' & 'Voting Rights' — Regulation 2(1)(x) & 2(1)(zb)

Regulation 2(1)(x) 'Shares': 'Shares' means shares in the share capital of a target company, and includes any security which entitles the holder thereof to exercise voting rights.

Regulation 2(1)(zb) 'Voting Rights': 'Voting rights' means the right to vote on a poll or on a show of hands or otherwise at any general meeting of the holders of shares in the target company.

The inclusion of 'any security which entitles voting rights' in the definition of 'shares' means that SAST thresholds are calculated on the basis of TOTAL VOTING CAPITAL — including convertible securities that carry voting rights before conversion, preference shares with voting rights, etc.

7. Model Examination Questions

Q1. Define 'acquirer', 'control', and 'persons acting in concert' under SAST Regulations, 2011. What are the implications of these definitions for open offer obligations?

Key SAST Definitions — Acquirer, Control & PAC

Model Answer — 'Acquirer' (Regulation 2(1)(a)): Any person who directly or indirectly acquires or AGREES to acquire shares/voting rights/control in a target company — alone or with PAC. The 'agrees to acquire' element means obligations attach from the SPA execution date. 'Control' (Regulation 2(1)(e)): Right to appoint majority directors or control management/policy decisions — directly or indirectly, through shareholding, management rights, shareholder agreements, voting agreements, or 'in any other manner'. This definition is broad and purposive. In Subhkam Ventures v. SEBI (SAT 2010), SAT held that PROTECTIVE/NEGATIVE rights (veto over extraordinary transactions) do NOT constitute control — control requires ability to DETERMINE management policy, not merely INFLUENCE it. 'Persons Acting in Concert' (Regulation 2(1)(q)): Persons with a common objective of acquisition/control who co-operate pursuant to a formal or informal agreement. The broad PAC definition means that holding company-subsidiary, promoter-company, and director relationships are deemed PAC. Implications: acquirer + all PAC holdings are aggregated to determine threshold breaches; a 25% acquisition triggers mandatory open offer only when (acquirer + PAC) = 25% or more.

🎯 EXAM POINTERS — Topic 45: SAST Definitions

Regulation 2(1)(a) 'Acquirer': includes INDIRECT acquisitions + 'agrees to acquire' (SPA execution = acquirer).
Regulation 2(1)(e) 'Control': right to appoint majority directors OR control management/policy — directly or indirectly.
'In any other manner' in control definition = residuary clause; very broad scope.
Subhkam Ventures (SAT 2010): Protective/negative veto rights ≠ 'control'. Control = ability to DETERMINE management policy.
Regulation 2(1)(q) 'PAC': common objective + agreement (formal OR informal) + co-operation for acquisition/control.
Deemed PAC: holding company + subsidiary; promoter group; directors; immediate relatives of individual.
Acquirer + ALL PAC holdings = aggregated for threshold calculations. This prevents structuring through multiple entities.
Regulation 2(1)(x) 'Shares': includes any security with voting rights — calculated on TOTAL VOTING CAPITAL.
PAC concept is the most exam-tested SAST definition — the 'informal understanding' element makes it very broad.
SEBI Informal Guidance on control: distinguish protective rights (NOT control) from affirmative management rights (IS control).

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