Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: TDS :: due date for vat payment :: TAX RATES - GOODS TAXABLE @ 4% :: list of goods taxed at 4% :: VAT RATES :: VAT Audit :: articles on VAT and GST in India :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: empanelment :: ACCOUNTING STANDARDS :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARD :: form 3cd :: Central Excise rule to resale the machines to a new company :: cpt
 
 
Mergers and Acquisitions »
 Deals of the day-Mergers and acquisitions june 20, 2017
 How new funding avenues, M&As are powering India’s renewable energy sector
 Finance Ministry asks PSBs to explore acquisition of smaller banks
 Bank of Baroda, Canara Bank may lead next round of mergers
  Deals of the day-Mergers and acquisitions June 13, 2017
 India’s booming stock market has a downside: It’s making M&As expensive, says BNP Paribas
 Cross border mergers make India favoured FDI route: UNCTAD
 BNP expects challenging 2017 for India M&A deals as stocks rally
 Why Gulf mergers and acquisitions are back on the rise
 Sebi issues listing norms for NCDs in mergers and acquisitions
 Indian chemical industry: Will M&A be a game changer?

SEBI ruling on Cairn deal may hit mergers and acquisitions of listed companies
April, 20th 2011

Securities and Exchange Board of India's recent directive to Vedanta Resources and Cairn Energy to drop the put and call options, and pre-emption right clauses from their original deal agreement is likely to impact the future of mergers and acquisitions of listed companies in India.

The capital market regulator's directive in the $9.6-billion Cairn-Vedanta deal will make both foreign and domestic companies apprehensive about the enforceability of put and call options and pre-emption right clauses that are common in share purchase agreements of companies and private equity investors , industry experts said. Such clauses are inserted in most negotiated transactions to protect investor interest and allow the acquirer further consolidate holding.

In a put option, the option holder or investor has the right, not obligation, to sell his shares back to the company or promoter. Similarly, in a call option, the investor or holder has the right, not obligation, to buy shares held by the company or promoter.

There has been a long debate on the transferability of shares in Indian courts, without any final verdict. "It's an area of ambiguity. The law has developed piecemeal. Ideally, clarity should be brought through legislative intervention," said Suhail Nathani, partner, Economic Laws Practice.

The Cairn-Vedanta contract had built-in clauses to ensure Vedanta got more shares from Cairn Energy if the open offer to buy 20% from shareholders of Cairn India got a lukewarm response. The put and call options could have seen Cairn sell another 10% of its residual stake to Vedanta in two equal tranches.

However, Sebi notified Vedanta that the put and call options exercisable by Cairn and Vedanta, and a pre-emption right exercisable by Vedanta, must be removed from the agreement. With put and call options and pre-emption right, the clause assumes the nature of forward contracting and violates Indian securities regulations, Sebi said.

"The recent Sebi directive will become an issue because every practitioner and banker will take note of it. This is perhaps the first formal word from the regulator on such clauses in share sale pacts and it's a major step as a regulatory intervention," said Shardul Shroff, managing partner, Amarchand Mangaldas. "This absolutely goes to the root of validating of the option," he said.

Share purchase agreements that are commercial contracts and not speculative in nature must be allowed to have put and call options and the regulator must amend its ancient norm, legal experts said. In countries such as the UK, put and call options are legally allowed.

"The prohibition on forward contracts in securities is moored in a different century and is a residue of an era when the mark of a villain in a Hindi movie was a person wearing dark glasses and from a time when speculation was a horrible word," Sandeep Parekh, founder of Finsec Law Advisors, said. "This primitive law should be done away with, particularly since it stands in the way of a modern shareholders' agreement, which often provides for a call or a put option or a right-of-first-refusal clause," he said.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Contact Us

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions