Narrow Perspective

THE long delay in finalising a code on corporate takeovers based on the Bhagwati Committee's report underscores the complexity of the issue. As was pointed out by the Statement of Industrial Policy (1991), the amendment of the Monopolies and Restrictive Trade Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA) diluted or did away with pre-investment scrutiny of investment decisions of MRTP and FERA companies, including in many cases the requirement of "prior approval of the central government for expansion, establishment of new undertakings, mergers, amalgamations and take-overs". This has encouraged a virtual boom in mergers and acquisitions, with take-overs often involving large transnational companies that were already operating in the domestic market (Unilever, for example) or are more recent entrants (Coca Cola). What the Bhagwati panel seeks to do is to amend the hitherto ad hoc regulation of such take-overs with four objectives in mind: (a) to legitimise take-overs so long as a procedure laid down by the Securities and Exchange Board of India (SEBI) is followed; (b) to clearly define that procedure; (c) to facilitate the participation of minority and small shareholders of the target company in the take-over process; and (d) to strengthen the regulatory capacity of the SEBI in this regard.