Need to align proposed Takeover Code with Tax Laws, Exchange Control Regulations and Bank Financing Norms

7^th September 2010, New Delhi, India: Mr. C Achuthan, Chairman, TRAC addressed the CII Conference on ‘Challenges of the Dynamic Business Environment’ organized at New Delhi today. Presenting the highlights of the TRAC Report during the session on Proposed Takeover Code: Reform & Issues, Mr. Achuthan assuaged industry’s concerns on financing of 100% open offer, threshold limit, definition of control, etc and reiterated that the intent of the proposed takeover provisions is to safeguard the interest of the small investors.

Speaking at the Conference, Ms Neelam Bhardwaj, General Manager, SEBI and Member-Secretary, TRAC informed that SEBI has received an overwhelming feedback on the Achuthan Committee Report. Over 600 comments have been received and these would be considered by SEBI and also made public.

Speaking on financing of the open offer and its tax implications, the panel comprising of Mr. Rajendra Prasad, President & CFO, SRF Limited and Mr. Girish Vanvari, Executive Director, KPMG highlighted the need for aligning the provisions of the proposed Takeover Code with the existing Tax Laws as well as the proposed Direct Taxes Code. Shareholders offering their shares under open offer would be disadvantaged vis-à-vis a sale on the stock exchange as sale under open offer would be liable to Capital Gains Tax. The ability to push down the debt available to acquirers in other countries is not available under RBI’s Exchange Control Regulations. Also the norms for bank financing in India do not allow financing of takeovers putting Indian acquirers in a disadvantageous position versus foreign acquirers. These anomalies between different regulatory regimes need to be removed.