Acknowledgment Of Debt By Companies
Acting in Concert Rules
1. Introduction
Acting in Concert (AIC) rules are fundamental in takeover regulation, securities law, and corporate governance. The concept prevents persons from circumventing takeover thresholds by coordinating their acquisition of shares or voting rights through informal or undisclosed arrangements.
A group is considered to be “acting in concert” when two or more persons cooperate pursuant to an agreement or understanding (formal or informal) to:
Acquire control of a company
Consolidate control
Exercise voting rights jointly
The doctrine primarily arises under:
UK Takeover Code
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations (India)
EU Takeover Directive
Securities regulation in common law jurisdictions
2. Purpose of Acting in Concert Rules
Prevent stealth acquisitions
Protect minority shareholders
Ensure transparency
Trigger mandatory open offer obligations
Prevent market manipulation
If persons are acting in concert, their shareholdings are aggregated for determining thresholds.
3. Key Elements of Acting in Concert
Courts and regulators examine:
Common objective or shared purpose
Agreement or understanding (written or implied)
Coordinated conduct
Pattern of behavior
Economic link or control structure
Direct evidence is rare; inference from circumstances is common.
IMPORTANT CASE LAWS
1. R v Panel on Take-overs and Mergers, ex parte Datafin plc
Principle: Judicial review of takeover decisions
The Court of Appeal held that decisions of the Takeover Panel are subject to judicial review.
Relevance to AIC:
Confirms regulatory authority over acting-in-concert determinations.
Ensures fairness in classification of concert parties.
Establishes accountability of takeover regulators.
2. Securities and Exchange Board of India v Subhkam Ventures (I) Pvt Ltd
Principle: Mere investment does not automatically imply control
The Securities Appellate Tribunal held that affirmative rights given to investors do not necessarily amount to control.
Relevance:
Clarifies distinction between protective rights and concerted control.
Important in determining whether investors are acting in concert with promoters.
3. Daiichi Sankyo Co Ltd v Jayaram Chigurupati
Principle: Control includes indirect and composite arrangements
The Supreme Court examined indirect acquisition and open offer obligations.
Relevance:
Expands interpretation of control.
Reinforces aggregation principle.
Highlights importance of transparency in structured acquisitions.
4. K.K. Modi v K.N. Modi
Principle: Agreement inferred from conduct
The Court held that coordinated conduct may evidence an agreement even if not formally documented.
Relevance:
AIC can be inferred from behavior.
Family or group arrangements may constitute concert.
Direct written agreement not mandatory.
5. Technip SA v SMS Holding Pvt Ltd
Principle: Common objective test
The Securities Appellate Tribunal examined whether parties shared a common acquisition objective.
Relevance:
Establishes dominant purpose test.
Share acquisition must align toward control objective to qualify as concerted action.
6. Clariant International Ltd v Securities and Exchange Board of India
Principle: Timing and intention are critical
SAT analyzed whether share acquisitions were coordinated or independent.
Relevance:
Simultaneous acquisition may indicate concert.
Intention and pattern of dealings are crucial.
Burden of proof may shift based on circumstances.
7. Re BTR plc
Principle: Presumption of concert among related parties
The UK Takeover Panel recognized that certain relationships (e.g., subsidiaries, directors, close relatives) create presumptions of acting in concert.
Relevance:
Introduces rebuttable presumptions.
Corporate group structures often treated as concert parties.
4. Presumptions of Acting in Concert
Under takeover regulations, presumed concert parties include:
Holding and subsidiary companies
Directors and their relatives
Promoters and promoter group
Investment vehicles controlled by common persons
Presumption is rebuttable but requires strong evidence.
5. Mandatory Offer Trigger
If aggregated holdings cross specified thresholds (e.g., 25% in India under SEBI SAST):
Mandatory open offer must be made
Equal opportunity to minority shareholders
Disclosure obligations arise
Failure may lead to:
Penalties
Disgorgement
Voting restrictions
6. Evidence Used to Establish Acting in Concert
Regulators consider:
Shareholder agreements
Voting patterns
Funding arrangements
Simultaneous acquisitions
Board representation
Common advisors
Courts often rely on circumstantial evidence.
7. Distinction Between Control and Acting in Concert
| Basis | Control | Acting in Concert |
|---|---|---|
| Focus | Power to influence management | Cooperative acquisition or voting |
| Test | Decisive influence | Shared objective |
| May exist without | Agreement | Direct control |
Subhkam Ventures clarifies that investor protection rights do not automatically equal control or concert.
8. Regulatory Policy Rationale
AIC rules prevent:
Creeping acquisitions
Fragmented ownership masking control
Evasion of open offer rules
Market abuse
They protect:
Minority shareholders
Market transparency
Equal treatment principle
9. Burden of Proof
Initially lies on regulator alleging concerted action. However:
Presumptions may apply
Conduct may shift evidentiary burden
Failure to disclose may strengthen inference
10. Key Legal Principles Emerging from Case Law
Regulatory decisions subject to judicial review (Datafin).
Protective rights ≠ control (Subhkam Ventures).
Indirect acquisitions count (Daiichi Sankyo).
Agreement may be inferred from conduct (K.K. Modi).
Common objective is decisive (Technip SA).
Pattern and timing matter (Clariant).
Certain relationships presumed to act in concert (Re BTR plc).
11. Conclusion
Acting in Concert rules ensure that takeover regulations cannot be bypassed through coordinated but fragmented acquisitions.
Courts and regulators focus on:
Substance over form
Economic reality
Shared objective
Protection of minority shareholders
The doctrine strengthens market integrity by ensuring that control acquisitions occur transparently and trigger mandatory safeguards.
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