Alpha Ltd makes an offer to the shareholders of Beta Ltd to buy their shares, so that Alpha Ltd can gain control of Beta Ltd. SEBI checks that the offer follows its rules. Which function of SEBI is at work here?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Regulation of takeover bids by companies
Option (1) Controlling insider trading and imposing penalties for such practices — Incorrect. This is a protective function aimed at insider trading. In the case, Alpha Ltd makes an open offer to gain control; no insider deals in the shares.
Option (2) Regulation of takeover bids by companies — Correct. A takeover bid is an offer by one company to buy the shares of another company so as to gain control of it. Alpha Ltd makes such a bid for Beta Ltd. SEBI regulates such bids, and this is one of its regulatory functions.
Option (3) Prohibition of fraudulent and unfair trade practices — Incorrect. This protective function stops misleading statements, manipulations and price rigging. Nothing in the case is a fraud; it is an offer to buy shares.
Option (4) Registration of brokers and sub-brokers and other players in the market — Incorrect. This is also a regulatory function, but it deals with registering market players. The case is about one company bidding to take control of another.
NCERT (Pre-rationalised Edition): “Regulatory Functions 1. Registration of brokers and sub-brokers and other players in the market. “Protective Functions 1. Prohibition of fraudulent and unfair trade practices like making misleading statements, manipulations, price rigging etc. |