In 2012, the Diageo Group (comprising Relay B.V., Diageo Plc and their related parties) entered into certain share acquisition arrangements (which included a shareholders’ agreement (‘SHA’)) with the UB Group (comprising United Breweries Holding Ltd., Kingfisher Finvest India Limited and their related parties) in relation to shares of United Spirits Limited (‘USL’). The SHA accorded certain limited veto rights to the UB Group and prescribed certain voting arrangements between the shareholders in relation to USL. An open offer was undertaken pursuant to execution of such arrangements, followed by a voluntary open offer by the Diageo Group, as a result of which the shareholding of Diageo Group and UB Group in USL was 54.78% and 4%, respectively, thereby rendering the voting arrangement clause in the SHA infructuous. Subsequently, (following certain events) the SHA ceased to exist with effect from November 24, 2015. By way of its order dated September 6, 2018, SEBI inter alia deliberated on the issue of whether the UB Group held joint control over USL due to its veto rights under the SHA after completion of the voluntary open offer and prior to cessation of the SHA.

SEBI held that the UB Group’s veto rights were protective in nature and could not be construed as the UB Group having ‘control’ over USL, and that veto rights can grant control only if they are sufficient enough to govern the decision making process of a company’s management. It was also observed that listed companies would undergo repeated corporate restructuring if limited protective shareholder rights were equated with control. Therefore, the Diageo Group had acquired sole control over USL post the voluntary open offer, when the voting arrangement clause had ceased to exist. No change in control had taken place on November 24, 2015 with the cessation of the SHA. It was also noted that cessation of any one person from joint control, leaving the remaining person with sole control, cannot be considered as ‘change in control’ under the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011 considering that the public shareholders are already aware of the persons who are in control.