SEBI allows preferential clauses in share purchase agreements

These changes are likely to help boost the interest of foreign investors, who tend to prefer clauses like 'right of first refusal, tag-along and drag-along' in their M&A deals

Market regulator Securities and Exchange Board of India (SEBI) on Thursday allowed entities entering into merger and acquisition (M&A) deals to include preferential clauses like 'right of first refusal, tag-along and drag-along' in their share purchase agreements. This would give more flexibility to entities entering into M&A deals.


These changes are likely to help boost the interest of foreign investors, who tend to prefer such clauses in their deals. However, the amendments would be effective with prospectively and not to the deals already having taken place.


The demand for allowing such clauses has been gaining ground for quite some time, as certain high-profile merger and acquisition deals, including the Diageo-United Spirits deal and Cairn-Vedanta deal, had to face regulatory hurdles amid lack of clarity on regulations on such clauses.


The government recently cleared a proposal to amend the Securities Contracts (Regulation) Act (SCRA) regulations for allowing put and call options as well as some other provisions to give special rights to investors.


Such options in shareholder agreements give the investor an option to either sell the shares (put option), or to buy additional shares (call option) at a future date.


"... Contracts for pre-emption including right of first refusal, or tag-along or drag-along rights contained in shareholders agreements or articles of association of companies or other body corporate," have been allowed in share purchase agreements, according to SEBI notification.


Right of refusal gives one of the parties in an M&A deal the first option to buy out its partner in the event of the latter wishing to exit from the agreement at a later stage.


Tag-along and drag-along clauses allow one of the partners to join the other party in cases like further acquisition or sell out deals.


Such rights to the parties entering into M&A deals are also covered under 'put and call' options, which allow one party to sell or buy the securities or assets involved in a transaction.


A secret cabinet note reveals desperation of Netas to hide from RTI Act

For the first time ever, a cabinet note, otherwise deemed `secret document’ is uploaded in the public domain to facilitate public consultations; thanks to public outcry

A handbook issued by the Cabinet Secretariat, on guiding Parliamentarians on how to write cabinet notes states importance of such notes, as, “the decisions taken by the Cabinet and Cabinet Committees are fundamental to the governance of the country and form the basis of policy formulation as also for evaluating the impact of programs, policies, plans, projects and schemes of the Government.”

Cabinet notes are deemed as secret documents and seeking copies of the same under the Right to Information (RTI) Act can be rejected under Section 8. However, thanks to the hue and cry by RTI activists and citizens all over the country, the RTI Amendment Bill, 2013, has been sent to the Parliamentary Standing Committee, making it open for public consultations too. When RTI activists questioned as to how can credible public suggestions/ objections be made without being informed about the arguments made in favour of keeping political parties out of the RTI Act, the Ministry of Personnel uploaded the secret cabinet note on its website.

This public disclosure is indeed historic and it gives a peek into the enthusiasm of the cabinet committee to keep political parties outside the purview of the RTI Act, out of which was born the RTI Amendment Bill, 2013.

Some points which highlight the unusual speed and desperate arguments with which the Cabinet operated to slip out of the RTI Act:

  1. Prime Minister Manmohan Singh approved the placing of the RTI Amendment Ordinance, 2013 and the Cabinet Note before the Cabinet on 9 July 2013. However, the secret cabinet note of 23rd July turns the Ordinance into an amendment bill, reflecting the hurry with which members of parliament (MPs) wanted to get out of the ambit of RTI Act. The note states, that after the PM’s nod, ``It is now proposed that instead of bringing an Ordinance, an Amendment Bill may be introduced in Parliament… Accordingly, a draft Bill namely, the Right to Information (Amendment) Bill, 2013 has been prepared and a copy of the same is placed below for the approval, before it is sent to the Administrative Department.’’
  2. Observing that the Central Information Commission (CIC) has made “liberal interpretation of Section 2 (h) of the RTI Act in its 3 June 2013 order, the Cabinet Note curiously states, in fact confesses, that political parties were not considered to be public authorities even when the National RTI Act was enacted. Excerpts from the Cabinet Note: “…Moreover, during the process of enactment of the RTI Act, it was never visualised or considered to bring the political parties within the ambit of the said Act. If the political parties are held to be public authorities under the RTI Act, it would hamper their smooth internal working. Further, it is apprehended that political rivals might file RTI applications with malicious intentions to the Central Public Information Officers (CPIOs) of the political parties, thereby adversely affecting their political functioning.’’
  1. The Cabinet Note demands the complete exclusion of political party as public authority. Excerpt: “It is proposed to bring a Bill to amend the RTI Act so as to explicitly provide in the definition of public authority that public authority shall not include any political party registered under Section 29A of the Representation of the People Act, 1951…The Right to Information Act, 2005 shall be amended as below:..the following Explanation shall be inserted, namely:- Explanation — The expression ‘authority or body or institution of self-government established or constituted’ by any law made by Parliament shall not include any association or body of individuals registered or recognised as political party under the Representation of the People Act, 1951.”
  2. The Cabinet Note demands that the Amendment should overrule any court order or any CIC decision. This goes to show how secretive political parties intend to be and at which lengths they want to go to not provide information. Excerpts: “…Notwithstanding anything contained in any judgment, decree or order of any court or commission, the provisions of this Act, as amended by the Right to Information (Amendment) Act, 2013, shall have effect and shall be deemed always to have effect, in the case of any association or body of individuals registered or recognised as political party under the Representation of the People Act, 1951 or any other law for the time being in force and the rules made or notifications issued there under."
  3. The Cabinet Note suggests that the RTI Amendment Bill comes into force on 3 June itself , that is, on the same day as the CIC decision so that no political parties are held responsible for not appointing PIOs and AAs (as ordered by the CIC) during that interim period. Excerpt: “The proposed Act shall be deemed to have come into force on the 3rd day of June, 2013, since the CIC decision holding political parties to be public authority under the RTI Act is dated 3rd of June, 2013. As per the section 19(7) of the RTI Act, the decision of the CIC shall be binding. Thus, to eliminate possibility of any action against the political parties for non compliance of the said CIC decision during the period from 3rd of June, 2013 till date, it would be imperative to bring this Act into force from 3rd of June, 2013.’’
  4. The Cabinet Note argues that transparency prevails even without political parties coming under the RTI Act. Excerpts: “… There are already provisions in the Representation of the People Act, 1951 as well as in the Income Tax Act which lead to necessary transparency regarding the financial aspects of a political party.’’ The note also gives several other aspects of financial transparency (you may refer to the link provided in this article to see details) and then goes on to add: “Declaring a political party as public authority under the RTI would hamper its smooth internal working, which is not the objective of the RTI Act and was not envisaged by the Parliament under the RTI Act. Further, the political rivals may maliciously file a large number of RTI applications with the CPIOs of political parties, thereby adversely affecting the political functioning of the political parties. Thus, it is necessary to annul the adverse effects of the erroneous conclusion by the CIC that political parties are public authorities under the RTI.’’

Thus, it is imperative that a very large number of citizens send their suggestions/ objections to the Standing Committee by 6th October. The Standing Committee would be submitting its report by mid-December.

Venkatesh Nayak, who has picked up cudgels for the people on this campaign through Commonwealth Human Rights Initiative (CHRI), says, “While the powers that be might be inclined to do a rethink on the Ordinance intended to let convicted MPs and hold on to their seats, the effort to amend the RTI Act to keep political parties out of its ambit goes on without much soul-searching. “

Recent news reports about the Cabinet Note attached to the Bill (accessible on the Dept. of Personnel’s website ) have indicated that the Government intends to exclude all political parties from the Right to Information Act, 2005 (RTI Act) and not just those six national parties which were declared as public authorities by the CIC in June this year. In fact the text of the RTI Amendment Bill itself makes this intention very clear. The Cabinet Note only provides the reasoning for this retrograde move of the Government.

Nayak adds, “Unfortunately, by claiming that political parties are private bodies, political leaders opposed to transparency have reduced the status and prestige of their parties to the level of ordinary associations and clubs which appear and disappear with time.”

Other stories on this issue: RTI Amendment Bill: Why people can’t file suggestions, objections in languages other than Hindi, English?

Over one lakh signatories request PM for public consultations on RTI amendment

(Vinita Deshmukh is the consulting editor of Moneylife, an RTI activist and convener of the Pune Metro Jagruti Abhiyaan. She is the recipient of prestigious awards like the Statesman Award for Rural Reporting which she won twice in 1998 and 2005 and the Chameli Devi Jain award for outstanding media person for her investigation series on Dow Chemicals. She co-authored the book “To The Last Bullet - The Inspiring Story of A Braveheart - Ashok Kamte” with Vinita Kamte and is the author of “The Mighty Fall”)



Gopalakrishnan T V

3 years ago

This exposure of secret cabinet note is amazing.Law of the land is applicable to all equally and Politicians and political parties cannot expect to have an exemption. If the laws made in this country are made equally applicable and enforceable, The Governance standards would have been very high and the economy would have prospered long back. It is doubtful the Income Tax act and other acts intended to raise revenue are made applicable to all without fear or favor. Had this been made applicable to all with equal force and vigor as is the case with middle class and lower middle class, the fiscal deficit cannot be this high making the economy vulnerable.It is doubtful many of the Crorepatis in the country are having PAN Card even and they quote their PAN Card details for major transactions.


3 years ago

Thank you Vanita for sharing the Cabinet note with us . This just goes to show to what extent the Manmohan Singh Government along with the rest of the Poltical parties will go to protect their self interests . What have the political parties got to hide if they were transparent in their financial transactions and inner party internal working . The Verma Commission in it's report had precisely raised the inner party working in it's questionaire to Election Commission of India . The time has come to seriously consider for framing a new Constitution for India as the entire political class has made a mockery of the existing Constitution .

Govt gives more money to PSU banks for lending during festival season

Government expect state-run banks to lend this additional money to consumers for buying auto, consumer durables at lower rates during the festival season

Ahead of the festival season, the Indian government on Thursday decided to enhance capital infusion into the public sector banks (PSBs) over and above what was provided in the Budget to enable them to extend more credit to auto and consumer durables sectors to stimulate demand and combat slowdown.


The decision to increase the quantum of capital infusion was taken at a meeting between the Finance Minister P Chidambaram, Reserve Bank of India (RBI) governor Raghuram Rajan and Economic Affairs Secretary, Arvind Mayaram.


“This amount (Rs14,000 crore provided for capital infusion in the Budget) will be enhanced sufficiently. The additional amount of capital will be provided to banks to enable them to lend to borrowers in select sectors such as two-wheeler, consumer durables, etc at lower rates in order to stimulate demand,” a finance ministry statement said.


It further said the additional fund infusion would help in combating slowdown and boost output.


“While this will bring relief to consumers, especially the middle class, it is also expected to give a boost to capacity addition, employment and production,” it added.


Consumer durables, a reflection of demand for manufactured products, include TV, fridge, washing machine.


The two-wheeler sales recorded a flat growth of 0.72% in April-August period current fiscal, as against a growth of 6.8% in the corresponding period last year.


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