Introduction

The case of Available Finance Limited (AFL) revolves around an application submitted by the Vinod Agarwal Legacy Trust seeking exemption from specific provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as "Takeover Regulations, 2011"). The Trust proposed an indirect acquisition of shares in AFL, a non-banking financial company listed on the Bombay Stock Exchange (BSE) since 1995. This commentary delves into the background, key issues, judicial findings, and the broader implications of SEBI's decision.

Summary of the Judgment

On February 18, 2022, the Securities and Exchange Board of India (SEBI) reviewed the application submitted by the Vinod Agarwal Legacy Trust seeking exemption from the mandatory open offer requirements under regulations 4 and 5 of the Takeover Regulations, 2011. The Trust intended to acquire an indirect stake in AFL through existing promoters and affiliated entities without altering the overall control or shareholding pattern of AFL.

SEBI granted the exemption, subject to specified conditions. The decision was predicated on the grounds that the acquisition was an internal reorganization within the promoter family, aimed at efficient succession planning, and did not adversely affect public shareholders or alter the control dynamics of AFL.

Analysis

Precedents Cited

The judgment primarily relied on the SEBI Takeover Regulations, 2011 and the SEBI Circular dated December 22, 2017. While no specific judicial precedents were cited, the decision aligns with SEBI's established regulatory framework governing substantial acquisitions and open offer obligations.

Legal Reasoning

SEBI's legal reasoning centered on the nature of the proposed acquisition:

• Nature of Acquisition: The acquisition was deemed an internal reorganization within the promoter family, aimed at consolidating control without altering the aggregate shareholding or control dynamics.
• Compliance with Regulations: The application demonstrated adherence to SEBI's guidelines, ensuring that public shareholders' interests remained unaltered and that AFL continued to meet minimum public shareholding requirements.
• Control and Management: The Trust's acquisition structure ensured that control remained within the promoter family, with no effective change in management or control mechanisms.
• Transparency and Accountability: The Trust's structure maintained transparency, with provisions for reporting changes to SEBI and BSE, and the trustees remaining accountable under SEBI regulations.

Impact

This judgment has significant implications for corporate governance and family-owned businesses:

• Facilitating Succession Planning: By granting exemptions for internal reorganizations, SEBI provides flexibility for family-run companies to manage succession efficiently without the burden of compliance with open offer requirements.
• Maintaining Control Structures: The decision underscores SEBI's willingness to recognize legitimate internal restructuring that does not compromise public shareholders or alter control dynamics.
• Regulatory Clarity: The judgment offers clarity on scenarios where exemptions can be granted, aiding similar trusts and promoters in structuring their acquisitions compliantly.

Complex Concepts Simplified

Regulation 4 and 5 of the Takeover Regulations, 2011

Regulation 4: Mandates that any acquisition leading to control over a target company necessitates a public announcement of an open offer to acquire shares from public shareholders.

Regulation 5: Defines indirect acquisition, where an entity gains control over a target company through a chain of acquisitions. Such indirect acquisitions are treated as if they were direct, hence attracting the obligation for an open offer.

Indirect Acquisition

Indirect acquisition refers to gaining control or significant stake in a company not by acquiring its shares directly but through affiliated entities or holding structures. In this case, the Vinod Agarwal Legacy Trust sought to acquire shares indirectly via existing promoters and related entities.

Acquirer Trust

An Acquirer Trust is a legal entity established to hold and manage assets on behalf of its beneficiaries. Here, the Vinod Agarwal Legacy Trust acts as an intermediary to hold shares in AFL, facilitating internal family restructuring while maintaining regulatory compliance.

Conclusion

The SEBI judgment in the case of Available Finance Limited highlights a balanced approach between regulatory oversight and facilitating legitimate internal reorganizations within promoter families. By granting the exemption for indirect share acquisition under strict conditions, SEBI reaffirmed its commitment to protecting public shareholders' interests while recognizing the structural needs of family-owned entities. This precedent serves as a guiding framework for similar future applications, emphasizing compliance, transparency, and the preservation of control dynamics.