On 8 May, 2014, a Whole Time Member of SEBI passed an order holding that Etihad Airways' investment of 24% of the total equity share capital of Jet Airways and the various commercial contracts, such as the Investment Agreement, Shareholders' Agreement and the Corporate Governance Code executed between Jet, Etihad and existing promoters of Jet, did not amount to acquisition of “control” by Etihad Airways in Jet Airways. The WTM, in his order, acknowledged the fact that the meaning of “control” under the Competition Act, 2002 varied from that in the SEBI takeover regulations of 2011 and a finding by the Competition Commission of India under the Competition Act did not automatically mean that the acquirer has acquired “control” for the purposes of SEBI regulations. The Competition Commission had passed an order on 12 November, 2013, wherein it had made observations to the effect that agreements entered into between Jet and Etihad indicated joint control of Etihad over Jet. Accordingly, SEBI had alleged possible acquisition of joint control over Jet by Etihad and the promoters of Jet acting in concert as per regulation 2(1)(e) of the SEBI takeover regulations. The promoters contended that the reliance placed by SEBI on the order of the Competition Commission was not germane to the provisions of SEBI takeover regulations. Based on the transaction documents, the WTM concluded that Etihad was not a 'person acting in concert' with the promoters of Jet for acquiring joint control over Jet.

Further, the WTM held that the mere right to appoint two of twelve directors did not result in control of Jet by Etihad. The WTM's decision was also motivated by the fact that FIPB had cleared Etihad's investment under the FDI policy where the definition of control is similar to that under the SEBI takeover regulations. The FIPB had concluded that 'effective control' in Jet remained with Indian nationals, that is, existing promoters of Jet following the deal between them, as envisaged in the transaction documents. The WTM observed that given that the promoters of Jet continued holding 51% of the total equity share capital of Jet and retained the right to appoint the chairman of the board who would have a casting vote at all meetings, the lack of any quorum rights of Etihad at board meetings of Jet, and the lack of affirmative, veto or blocking rights at board or shareholder meetings and the lack of pre-emptive, tag along rights regarding transfer of shares, were sufficient proof that Etihad had not acquired “control” of Jet, under the SEBI takeover regulations. This order provides much needed clarity on the issue of what amounts to “acquisition of control,” given that the definition of “control” is subjective and does not set any precise and independent criteria.

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Date:September 28, 2015