Gryphon Ltd. v. Absolem Ltd.

1. McTwisp does not have control over Gryphon pursuant to Annexure A; and the transfer
of shares to Gryphon does not breach the FDI limit.

1.1. It is humbly submitted before this Honble Court that the list of the Reserved Matters
under Schedule I of Annexure A, does not provide McTwisp the controlling rights over
Gryphon.

1.1.1 Control is not a strait-jacket rule to be applied in all cases.
The Press Note 4 of 2013
1
as notified by the Department of Industrial Policy and Promotion
replaced the earlier definition by the definition as given under the Takeover Regulations,
1997.
2
The Takeover Regulations Advisory Committee, deliberately did not include a blanket
provision for the word control and left the question of whether the protective veto rights
would result in control to be determined from case to case basis.
3

Further, it was laid down in Subhkam Ventures v. SEBI that control should positive and not
negative.
4

1.1.2 Control in the instant Case is Reactive and Proactive.
The definition of Control is inclusive in nature,
5
and does not include negative power.
6
The
SAT had held in Subhkam case that the test to determine control is by verifying if the

1
http://dipp.nic.in/English/acts_rules/Press_Notes/pn4_2013.pdf
2
Sec. 2 (c). check!
3
SEBI, Report of the Takeover Regulations Advisory Committee, July 19, 2010, 3.2 et esq., available at
http://www.sebi.gov.in/commreport/tracreport.pdf.
4
Subhkam v. SEBI page 6.
5
Luxottica SpA v. SEBI, (2004) 1 Comp LJ 258 (SAT) 53.
6
Subhkam Ventures (I) Private Limited v. SEBI, SAT Order dated 15 January, 2010, Appeal No. 8/2009 at p.6.
acquirer is the driving force in the company, i.e. the one providing motion in the company by
taking initiatives and not by preventing the decisions of the company which it may not like.
7

In the same judgment, the Appellate Tribunal had extensively discussed the financial
agreement which was akin to the Reserved Matters between McTwisp and Gryphon in the
instant case. For instance, appointment of key managerial personnel was not viewed as a
reason for the Target Company to be controlled by the acquirer as the appointment is merely
to safeguard the own interests of the acquirer, and to be aware of the happenings in the target
company.
8
Similarly, when dealing with the issue of Covenants, the tribunal held that such
provisions do not show control but safeguard the interests of the investors as it would prevent
the target company from deviating from the agreement that existed between the former and
the latter.
9

It is pertinent to note as well that the said case had further distinguished between governance
and control. The tribunal had observed that such rights of the companies exist to protect their
financial interests from the whims and fancies of the promoters of the target company.
10


In light of the factual matrix, List of Reserved Matters as mentioned in Schedule I of
Annexure A clearly suggests that the matters on which the consent of McTwisp were
required, did not envisage the control system of Gryphon; however, such rights were mere
Reactive powers to safeguard their own financial interests and not the control which would
constitute as a driving force for Gryphon.

1.1.3 In Arguendo, that the Honble Court is not inclined to view Subkham Ventures case as a
precedent, Gryphon is still not controlled by

In 2001, in Rhodia SA v. SEBI,
11
the SAT found that an acquirer had control over the Target
Company by virtue of veto rights. In this case, the acquirer had the right to veto matters such
as changes in business strategy, major transfer of assets to create a joint venture, changing of
the corporate form or splitting the business etc. The acquirer described the matters as major
decisions on structural and strategic changes. This case also suggests that it is not necessary

7
Ibid.
8
Subkham page. 7.
9
Subhkam page. 8
10
Subhkam page. 12.
11
Securities Appellate Tribunal, Appeal No 36/2001, dated 7 November 2001.
for the acquirer to have control over day to day operations in order for control to be
established.