Government redefines term 'control' to provide clarity to investors

NEW DELHI: Seeking to provide more clarity to foreign investors, the government today approved a comprehensive definition of term "control" for the purpose of mergers and acquisitions involving overseas companies.

As per the decision, 'control' will include "the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreement or voting agreements".

The decision regarding this was taken by the Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh, sources said.

There have been uncertainties about the exact definition of 'control' with respect to various deals in recent times including the proposed Rs 2,058 crore Jet-Etihad transaction, which was cleared by the Foreign Investment Promotion Board (FIPB) recently.

Under FDI policy, 'control' rests with the one who has the power to appoint majority of its directors in a company.

The justification given by the government for widening the definition is that "a foreign company could avoid this test if it did not appoint the majority of directors but otherwise exercised control over the Indian company in indirect ways such as lien over voting rights or shareholders agreements".

The revised definition of 'control' will expand the scope of the term to cover "management and policy decisions, shareholding, management rights, shareholders agreements". It will also be in line with definition provided in the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011 and the Companies Bill, 2012.