SEBI has issued an informal guidance on inter-se transfer of shares between promoters and voting agreements under the Takeover Code. This was issued upon request by the promoters of Cipla Limited, one of India’s leading pharma companies.
The promoter and largest shareholders of Ciplaare Dr. Y.K. Hamied and his family members. Until now, all the family members had exercised their voting rights individually and no proxies were appointed to vote on behalf of any member. As part of a voluntary and consensual family understanding, the promoter family proposed to enter into a voting agreement wherein the family would operate jointly as a single consolidated unit and exercise their voting rights as per the direction of Dr. Y.K. Hamied, and after his death or in the event of his incapacity, by Mr. M.K. Hamied.
Thereafter, the family shall act as a joint unit subject to the direction of the member of the family having the largest shareholding among all family members. In addition to these clauses, the said agreement also provided for preemptive rights in case any family member chooses to transfer his shares.
The promoters approached SEBI to understand whether the voting agreement as contemplated above would amount to an acquisition of shares or voting rights under the Takeover Regulations and therefore trigger mandatory open offer requirements.
SEBI stated that the family members are already disclosed as part of the promoter group and they are “persons acting in concert”. The voting agreement “implies that Mr. Y.K. Hamied would be the single largest holder of voting rights in the target company”. This would have triggered the mandatory open offer obligation but since the voting agreement is between family members, it would be exempt under Regulation 10(1)(a)(ii) read with 10(1)(a)(iv) of the Takeover Regulations subject to fulfillment of certain conditions stated therein.
This informal guidance in case of Cipla, has clarified that succession planning in terms of control over the company amongst the promoters/promoter group will not trigger Takeover Regulations. Such arrangements between family members, promoter group or other parties can be entered into subject to exemption from SEBI.