The report is path breaking in its view that commercial substance should take precedence over legal form in the conduct of takeovers, a key failing of the original code. This is illustrated through the guiding principles in the preface and the recognition that it is a change in control rather than any arbitrary level of shareholding that should trigger the obligation on a purchaser to make a bid.

There are other positive steps in what we hope will be a continuously evolving code that fits within the Indian market conduct.

Bearing this in mind, we believe there are two particular points that need to be addressed:

n20 per cent bid is unfair to minorities: International best practices generally requires the bidder to buy-out all shareholders who accept the bid and does not allow by scaling back of acceptances.

This is a cardinal principle of minority protection which provides a full exit route for any shareholder who does not have full confidence in the bidder's management.

The draft code differs from this principle by requiring an offer for only a further 20 per cent; and allowing a scaling back of acceptances above this level,. as currently framed, it allows an acquirer to gain effective management control through the acquisition of only 30 per cent of the company, leaving a majority 70 per cent of the shareholders without an option of selling out.

Where effective control changes, there should be an obligation to make a bid to all shareholders.

nMandatory response from target's board: As in other jurisdictions, it should be made mandatory fro the target's board to set out formally in a defence document its response to the bid.

This should be done under advice from an independent merchant bank and should discuss the merits and demerits of the offer, the reasonableness of the offer terms and the board's recommendation to the shareholders.

As in a prospectus or letter of offer, there should be onerous sanctions for any misstatement, misrepresentation or omission.

The natural tendency is for the incumbent management to serve its own interest before acting for shareholders as a whole. Ironically, this is mostly the case when the company would actually benefit from a change in management.

A formal defence document that can be sued upon is the best way that the board can be made to act in the interest of shareholders.

Summary: The objective of a takeover code is to protect the incumbent management from non-bona fide offers, to allow all shareholders to decide on bids based on all relevant information, and to provide an exit route for dissenting shareholders.

The new code makes considerable strides in the right direction but has further to go in order to provide full protection to all shareholders.