The Promoter as a Person Acting in Concert: A Factual Inquiry, Not a Foregone Conclusion

Deconstructing the Nexus: The Promoter as a 'Person Acting in Concert' under Indian Takeover Regulations

I. Introduction

The architecture of India's securities law, particularly the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations (hereinafter "Takeover Regulations"), is designed to ensure fairness, transparency, and the protection of minority shareholders during changes in corporate control. Central to this framework is the concept of 'Persons Acting in Concert' (PAC), which seeks to aggregate the shareholdings of collaborating individuals or entities to determine when takeover obligations are triggered. A recurring and complex question within this domain is the status of a 'promoter' of a target company. Are promoters, by their very definition and position, invariably considered to be acting in concert with an acquirer, especially when the acquirer is also a promoter? The Takeover Regulations create a deeming fiction that certain categories of persons, including promoters, are PACs. However, Indian jurisprudence has consistently refined this position, moving away from a rigid, status-based determination towards a nuanced, fact-intensive inquiry. This article analyzes the legal position of a promoter as a PAC, arguing that Indian courts and tribunals have firmly established that promoter status creates only a rebuttable presumption of a PAC relationship, the lynchpin of which is the factual existence of a "shared common objective" for substantial acquisition or control.

II. The Regulatory Framework: Defining the Key Concepts

The SEBI Takeover Regulations provide specific, albeit complex, definitions that form the bedrock of this analysis. The concept of a PAC is foundational to preventing the circumvention of takeover thresholds through fragmented acquisitions.

A. 'Person Acting in Concert' (PAC)

The definition of a PAC, as articulated across various versions of the Takeover Regulations, has two critical components: a general definition based on intent and a deeming provision based on relationship. The Supreme Court in Securities And Exchange Board Of India v. Sunil Krishna Khaitan And Others (2022) and the Calcutta High Court in Aska Investments Pvt. Ltd. & Anr. v. Grob Tea Company Ltd. & Ors. (2004) have reiterated this definition. It comprises persons who, for a common objective of acquiring shares or control over a target company, cooperate pursuant to an agreement or understanding. The Supreme Court in Daiichi Sankyo Company Limited v. Jayaram Chigurupati And Others (2010 SCC 7 449) emphasized that this "shared common objective or purpose" is the *sine qua non* of a PAC relationship. The court clarified that the deeming provision in sub-regulation (2) cannot override the fundamental requirement of a shared objective laid out in sub-regulation (1).

B. The Deeming Fiction for Promoters

The Takeover Regulations explicitly create a rebuttable presumption for certain categories of persons. The regulations applicable in the Trishla Jain (Securities Appellate Tribunal, 2022) case stated that "promoters and members of the promoter group" shall be deemed to be PACs with other persons in the same category, "unless the contrary is established." This phrase, "unless the contrary is established," is the fulcrum upon which the entire jurisprudence on this subject pivots. It provides an escape hatch from the deeming fiction, contingent upon the ability of the person to prove the absence of a concerted objective. The Bombay High Court in K.K Modi v. Securities Appellate Tribunal And Others (2001 SCC ONLINE BOM 969) explicitly noted that this presumption is rebuttable and requires a factual examination in each case.

III. Judicial Interpretation: From Presumption to Factual Determination

The judiciary's role has been paramount in preventing the deeming fiction from becoming an irrebuttable rule of law. Courts have consistently held that the question of whether a promoter is a PAC is a matter of fact, not a matter of status.

A. The Primacy of the 'Common Objective' Test

The most definitive pronouncement on the PAC concept came from the Supreme Court in Daiichi Sankyo. The Court held that a shared objective of acquiring substantial shares or control is essential. A mere holding-subsidiary relationship, which is a deemed PAC category, was insufficient without evidence of such a common purpose at the relevant time. This principle was echoed in the SEBI order concerning In the matter of Nikhil Mansukhani (2012), which directly cited Daiichi Sankyo to argue that "there can be no persons acting in concert unless they share common objective or purpose of substantial acquisition of shares of the target company." This 'common objective' test serves as the primary filter through which all alleged PAC relationships, including those involving promoters, must pass.

B. Promoter Status: A Rebuttable Presumption

The seminal cases on this issue are the decisions of the Securities Appellate Tribunal (SAT) in Modipon Limited v. Securities And Exchange Board Of India (2001 SCC ONLINE SAT 23) and its affirmation by the Bombay High Court in K.K Modi v. Securities Appellate Tribunal And Others (2001 SCC ONLINE BOM 969). In this matter, Modipon Ltd., a promoter of the target company MRL, wished to sell its shares in a public offer made by other promoters. SEBI initially barred Modipon from participating, deeming it a PAC with the acquirers. The SAT and the High Court overturned this decision, establishing a critical precedent.

The Bombay High Court's reasoning, as captured in the reference materials, is dispositive:

"As the Appellate Tribunal has rightly pointed out, there is no hard and fast rule that a promoter must always be deemed to be an acquirer or a person acting in concert with the acquirer. On the facts, it may be held that a promoter shares the common objective or purpose of substantial acquisition of shares with the acquirer. It may well be that he may not share the said common objective or purpose. If he does, he shall be deemed to be a person acting in concert with the acquirer, but if he does not, he cannot be deemed to be an acquirer merely because he happens to be a promoter." (K.K Modi v. Securities Appellate Tribunal And Others, 2001 SCC ONLINE BOM 969)

This line of reasoning has been consistently followed. The SAT in Nikhil Mansukhani v. Securities And Exchange Board Of India (2012) explicitly relied on the K.K. Modi judgment, reinforcing that a co-promoter cannot be deemed a PAC "unless the evidence on record clearly establishes that the promoters share the common objective or purpose." Similarly, a SEBI Adjudication Order (Adjudication Order in respect of 4 entities in the matter of Indian Infotech and Software Ltd., 2022) quoted extensively from both the SAT and High Court decisions in the Modi saga to underscore that a "dormant promoter or a promoter simpliciter" is not an acquirer or PAC.

C. The Burden of Proof and the Factual Matrix

Since the determination is factual, the evidence presented is crucial. The case of Nikhil Mansukhani (SAT, 2012) is particularly instructive. The appellants argued that a family dispute and split in the promoter group made it impossible for them to act in concert. The SAT observed that SEBI had not adequately considered this evidence and remanded the matter, stating "it was for the Board to bring sufficient material on record to show that inspite of conflict among the promoters, the members of the two groups were acting in concert." This indicates that once a plausible case for the absence of a common objective is made (e.g., by demonstrating a dispute), the onus may shift to the regulator to prove that a concerted action nevertheless took place.

The analysis is not limited to overt acts. The Bombay High Court in Mcx Stock Exchange Limited v. Securities & Exchange Board Of India & Ors. (2012) noted that "Acting in concert pre-supposes a requirement of an overt act," and that an inference of promoters acting in concert could be negated by evidence showing efforts to reduce their shareholding. Conversely, in Triumph International Finance India Ltd (SEBI, 2010), SEBI found that various entities associated with Ketan Parekh were acting in concert based on their trading patterns and associations, demonstrating that circumstantial evidence can be sufficient to establish a PAC relationship.

IV. Implications for Corporate Governance and Takeover Jurisprudence

The judicial clarification of the promoter-PAC nexus has profound implications:

  • Protection of Promoter Rights: It ensures that promoters are not unfairly penalized or restricted simply due to their status. A promoter who wishes to exit an investment by participating in a public offer, as in K.K. Modi, is not automatically clubbed with the acquirer, thereby preserving their right to freely transfer shares.
  • Emphasis on Substantive Inquiry: It compels the regulator (SEBI) and adjudicatory bodies to look beyond mere labels and conduct a substantive, evidence-based inquiry into the relationships and intentions of the parties involved. This aligns with the broader objective of the Takeover Regulations, which, as seen in cases like Swedish Match Ab v. SEBI (2004) and Clariant International Ltd. v. SEBI (2004), is to protect investor interests through meaningful compliance, not mechanical application of rules.
  • Clarity for M&A Transactions: It provides greater certainty to acquirers and promoters in structuring transactions. Promoters can be confident that they will not be held liable for the actions of other promoters unless a common objective for acquisition is proven. This is crucial for large, diversified promoter groups where different factions may have divergent interests.

V. Conclusion

The journey of legal interpretation concerning the status of a promoter as a 'person acting in concert' reveals a mature and nuanced approach by the Indian judiciary and securities tribunals. While the SEBI Takeover Regulations establish a necessary and practical presumption that promoters act in concert, the courts have ensured that this does not become an instrument of injustice. The consistent emphasis on the 'common objective' test, first articulated clearly in K.K. Modi and cemented by the Supreme Court in Daiichi Sankyo, has transformed the analysis from a simple check-box exercise based on status to a rigorous, fact-based investigation of intent and cooperation.

Ultimately, a promoter's liability as a PAC is not determined by their title but by their conduct. The law recognizes that a promoter may be an acquirer, a seller, or a passive bystander. To hold otherwise would be to ignore the complex realities of corporate ownership and control. The established legal principle is clear: a promoter is deemed to be acting in concert, but this is a presumption that can, and must, be rebutted by establishing the absence of a shared objective to acquire substantial shares or control over the target company. This balanced approach upholds the spirit of the Takeover Regulations while safeguarding the legitimate rights of all stakeholders in the Indian capital market.