In its order dated February 15, 2019, concerning the acquisition of control in IDBI Bank Ltd. (“IDBI”) by Life Insurance Corporation of India (“LIC”), the High Court of Judicature at Allahabad held that the Government of India and LIC cannot be considered to be ‘persons acting in concert’.
LIC intends to acquire up to 51% of the shareholding of IDBI through preferential allotment. As such an acquisition triggers the open offer requirements, a public announcement was made by LIC on October 04, 2018, wherein the open offer price was set at Rs. 61.73 per share. Regulation 8(2)(c) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) states that the offer price in an open offer cannot be less than the highest price paid by the acquirer or any person acting in concert for acquiring any shares in the target company during the twenty-six weeks immediately preceding the date of public announcement. On May 25, 2018, equity shares of IDBI were issued to the Government of India at Rs. 71.82 per share. Therefore, as LIC is wholly owned by the Government of India, on the premise that LIC and Government of India are ‘persons acting in concert’, the petitioner filed a writ asking the High Court to order the open offer price to be increased to Rs. 71.82 per share.
The High Court observed that to be considered to be ‘persons acting in concert’, there should be common objective for purpose of acquisition of shares or for exercising control over a target company pursuant to an agreement or understanding. However, in this matter, the Government of India relinquished its shareholding in IDBI, which was above 50%, to below 50% and agreed to the acquisition of a controlling stake by LIC as promoter in IDBI. It held that while Regulation 2(1)(q)(2) of the SAST Regulations provides that a holding company and its subsidiary are “deemed” to be “persons acting in concert” with each other, mere existence of a holding-subsidiary relationship isn’t enough and the deeming provision does not dispense with the requirement that the parties must have cooperated for the common objective of acquisition of shares. On this basis, the High Court held that the Government of India and LIC cannot be considered to be ‘persons acting in concert’ in this matter, and the price being offered by LIC is correct.
The order of the High Court has reinforced the view that determination of ‘persons acting in concert’ in relation to acquisition of control in companies must be assessed on a case to case basis taking into account the specific facts and circumstances of each case. It was also interesting to observe that contrary to the market expectations, LIC had not sought any exemption from open offer requirements from SEBI.
