'Takeover Code To Create Level Playing Field'

Justice P N Bhagwati says that the takeover code, finalised on Saturday, will help create a level playing field in the Indian corporate scene.

"The new code gives an opportunity to an existing management to consolidate its holdings. This is being done to protect Indian entreprenuers from the big multinational corporations as the former cannot match the latter in the financial strength," Justice Bhagwati told Business Standard in an interview a day after he presented the final report on the takeover code to Sebi chairman D R Mehta. Justice Bhagwati was the chairman of the committee that drafted the takeover code.

The takeover code would come into effect once the Sebi board ratifies the report at its next meeting due to be held by the end of this month and the government gazettes the necessary notification. Justice Bhagwati said the onus was now on promoters to see that they managed their affairs efficiently or face a takeover. At the same time, the takeover code would ensure that hostile predators were prevented from paralysing the functioning of the target company.

Justice Bhagwati touched upon a wide range of issues, including the experience he gained while drafting the report, the future role of Sebi and the conduct of the Indian companies in the changed scenario.

* On the future of the Indian corporate sector: We expect that a greater efficiency can be infused in the functioning of the Indian corporate management when the new code takes effect. Managements have to deliver the goods or else a predator will come and take over the company. At the same time, the new code also gives an opportunity for an existing management to consolidate its holdings. This is being done to protect Indian entreprenuers from the big multinational corporations as the former cannot match the latter in the financial strength. The new code will provide a level playing field. Frivolous offers can also be curtailed in the new code. Earlier, they were made to dislocate the working of the existing managements.

Promoters in future have to ensure transparency and accountability to protect the interests of shareholders. They must recognise the right to information of every shareholder and make adequate disclosure.

* On the role Sebi has to play: Sebi has to remain alert about the obligations of the acquirer. The committee drafting the new Companies Bill will take care of powers that Sebi needs to get for taking necessary actions against those acquirers who fail to meet their obligations. The capital market regulator has to also ensure that market players are transparent when any acquisitions are made.

On his experience of drafting the report: Chairman D R Mehta spoke to me in Geneva at a human rights conference about the fact that Sebi was mulling over regulations for substantial acquisition and takeovers. He requested me to head the committee that will be formed. When we took up the task, we realised that the Sebi Rules for Substantial Acquisition and Takeovers 1994 did not adequately cover all kinds of situations. We felt that there was a need for new rules in the varying market forces. We felt we need to seek a balance between investor protection and economic growth.