Appellant not deemed to acquire control over target company; Regulation 12 not triggered; Appeal allowed.

The Tribunal concluded that the appellant did not acquire control over the target company under the agreement, and therefore, Regulation 12 was not triggered. The Board's direction to include Regulation 12 in the letter of offer was deemed unjustified. Consequently, the appeal was allowed, and the impugned direction was set aside with no order as to costs.

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Issues Involved
1. Whether the share subscription and shareholders agreement gives the appellant control over the target company.
2. Whether Regulation 12 of the takeover code was triggered by the appellant's acquisition of shares.

Detailed Analysis

Issue 1: Control Over the Target Company
The primary issue is whether the share subscription and shareholders agreement executed between the appellant and the target company confers control over the target company to the appellant.

1. Nominee Director: Clause 3.2(c) of the agreement allows the appellant to appoint a nominee on the board of directors of the target company. However, since the board consists of ten directors, the single nominee director cannot exercise control over the board or the company. This clause is primarily to keep the appellant informed and protect its investment.

2. Standstill Provision: Clause 4.1 is a transitional provision ensuring that the target company does not undergo significant changes between the signing of the agreement and the actual investment. This clause expires upon the investment being made and does not confer control.

3. Participation in Governance: Clauses 7.2 and 7.3 allow the appellant to appoint a nominee director and participate in board committees. These clauses do not confer control but ensure the appellant is informed of the company's governance.

4. Quorum Requirements: Clause 7.7 ensures the presence of the investor director for quorum in board meetings. However, in adjourned meetings as per Clause 7.8, the quorum can be constituted without the investor director, except for matters listed in Clause 9. These clauses do not confer control.

5. Protective Provisions: Clause 9 lists matters requiring the affirmative vote of the investor director, such as amendments to the memorandum, significant asset sales, loans, and key appointments. These provisions are meant to protect the appellant's investment and ensure good corporate governance, not to confer control. The appellant cannot unilaterally implement any proposal, indicating a lack of control.

6. Key Appointments: Sub-clause (n) requires the appellant's affirmative vote for appointing key officers. However, this does not mean the appellant can appoint its candidates, only that it can veto unsuitable appointments to protect its investment.

Issue 2: Triggering Regulation 12
The second issue is whether Regulation 12 of the takeover code, concerning the acquisition of control over a company, was triggered by the appellant's acquisition of shares.

1. Regulation 10 vs. Regulation 12: Regulation 10 applies when an acquirer exercises 15% or more of the voting rights in a company. Regulation 12 applies when an acquirer gains control over the target company, irrespective of share acquisition. Both regulations can apply simultaneously but can also operate independently.

2. Definition of Control: Control is defined as the right to appoint the majority of directors or control management or policy decisions by various means, including shareholding or agreements. Control is a proactive power to direct the company's actions, not merely to prevent actions.

3. Board's Conclusion: The Board's Deputy General Manager concluded that the appellant acquired control based on various clauses of the agreement. However, the Tribunal found that none of these clauses, individually or collectively, demonstrated control. The appellant's rights are protective, ensuring good governance and safeguarding its investment, not conferring control.

4. Effective Control: The Tribunal emphasized that control means effective control, where the acquirer is the driving force behind the company. The appellant's rights do not amount to effective control as they do not allow the appellant to direct the company's actions.

Conclusion
The Tribunal concluded that the appellant did not acquire control over the target company under the agreement, and therefore, Regulation 12 was not triggered. The Board's direction to include Regulation 12 in the letter of offer was unjustified. The appeal was allowed, and the impugned direction was set aside with no order as to costs.

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