Approval to hold a stake in a financial sector company of more than 15%
Financial Sector (Shareholdings) Act 1998
SINCE
A. The Government of India (the applicant) has applied to the Treasurer under section 13 of the Financial Sector (Shareholdings) Act 1998 (the Act), for approval to hold a stake of more than 15% in Bank of Baroda ARBN 125 314 249 (the Company), a financial sector company under the Act; and
B. I am satisfied that it is in the national interest to approve the applicant holding a stake in the Company of more than 15%,
I, Keith Chapman, a delegate of the Treasurer, under subsection 14(1) of the Act, APPROVE
the applicant holding a stake in the Company of 60 %.
This Approval commences on the date it is signed and remains in force indefinitely.
Dated: 16 October 2012
[Signed]
Keith Chapman
Executive General Manager
Diversified Institutions Division
Interpretation Document ID: 205463
In this Notice:
financial sector company has the meaning given in section 3 of the Act.
stake in relation to a company, has the meaning given in clause 10 of Schedule 1 to the Act.
unacceptable shareholding situation has the meaning given in section 10 of the Act.
Note 1
Under paragraph 16(2)(a) of the Act, the Treasurer may, by written notice given to a person who
holds an Approval under section 14, impose one or more conditions or further conditions to which the Approval is subject. Under paragraph 16(2)(b) of the Act, the Treasurer may revoke or vary any condition imposed under paragraph 16(2)(a) of the Act or specified in the Notice of Approval. The Treasurer’s power under subsection 16(2) of the Act may be exercised on the Treasurer’s own initiative or on application made to the Treasurer in accordance with the requirements of subsection 16(4) of the Act, by the person who holds the Approval (see subsection 16(3) of the Act).
Note 2
A person who holds an Approval under section 14 may apply to the Treasurer under section 17(1) of
the Act, to vary the percentage specified in the Approval.
Note 3
Under subsection 17(6) of the Act, the Treasurer may, on the Treasurer’s own initiative, by written
notice given to a person who holds an Approval under section 14, vary the percentage specified in the
Approval if the Treasurer is satisfied that it is in the national interest to do so.
Note 4
The circumstances in which the Treasurer may revoke a person’s Approval under section 14 are set
out in subsection 18(1) of the Act.
Note 5
Section 19 of the Act provides for flow-on approvals. If an Approval has been granted for the
holding of a stake in a financial sector company and the financial sector company is a holding company for an authorised deposit-taking institution or an authorised insurance company, then an approval is taken to exist for the holding of a stake of equal value in each financial sector company that is a 100% subsidiary of the holding company.
Note 6
Under section 14 of the Act, the Treasurer must give written notice of this Approval to the applicant
and financial sector company concerned, and must publish a copy of this Notice in the Gazette.
Note 7
Under section 11 of the Act, a person or 2 or more persons under an arrangement are guilty of an
offence if the person(s) acquires shares in a company and the acquisition has the result, in relation to a financial sector company, that:
(i) an unacceptable shareholding situation comes into existence; or
(ii) if an unacceptable shareholding situation already exists in relation to the company and in relation to a person – there is an increase in the stake held by the person in the company;
and the person(s) was reckless as to whether the acquisition would have that result. A maximum penalty of
400 penalty units applies or by virtue of subsection 4B(3) of the Crimes Act 1914, in the case of a body corporate, a penalty not exceeding 2,000 penalty units. By virtue of section 39 of the Act, an offence against section 11 is an indictable offence.
Overview
The Financial Sector (Shareholdings) Act 1998 was enacted to address potential risks to the stability and integrity of Australia's financial sector arising from excessive foreign ownership or control. This Act empowers the Treasurer to approve or disapprove shareholdings in financial sector companies, ensuring that any significant stake acquisitions do not jeopardise the national financial system. The Commonwealth Parliament enacted this legislation to provide a regulatory framework that safeguards Australia’s financial institutions from undue foreign influence, thereby maintaining public confidence and financial stability.
Under the Act, the Treasurer is tasked with determining whether the acquisition of a stake in a financial sector company is in the national interest. The Act allows for the imposition of conditions on approvals and provides mechanisms for varying or revoking these approvals if circumstances change. The Act also criminalises reckless acquisitions that lead to unacceptable shareholding situations, with significant penalties for non-compliance. This legislative approach ensures that the financial sector remains robust and resilient against potential external threats.
Scope and Application
The Financial Sector (Shareholdings) Act 1998 applies to any entity, including individuals, corporations, and foreign governments, that seek to hold a stake in a financial sector company exceeding 15%. This Act governs the approval process necessary for such shareholdings, ensuring they align with national interests. The Act's jurisdiction extends across Australia, with the Treasurer having the authority to approve or deny applications for significant shareholdings based on national interest considerations. Additionally, the Act allows for the imposition of conditions, variation, or revocation of approvals through subordinate instruments, thereby providing flexibility in managing significant shareholdings within the financial sector. The Act does not specify exclusions or thresholds beyond the 15% shareholding limit, but it outlines stringent penalties for reckless acquisitions that result in unacceptable shareholding situations, reinforcing the importance of compliance.
Key Provisions
The Financial Sector (Shareholdings) Act 1998 primarily concerns the regulation of shareholdings in financial sector companies. Section 13 of the Act provides a mechanism by which an applicant, such as the Government of India, can apply to the Treasurer for approval to hold a stake in a financial sector company that exceeds 15%. The delegate of the Treasurer, Keith Chapman, approved such an application under section 14 of the Act, allowing the Government of India to hold up to 60% of Bank of Baroda. This approval, as stated in section 14, is effective indefinitely from the date it is signed.
Under this Act, the Treasurer is vested with significant powers to manage and regulate shareholdings. For instance, under section 16, the Treasurer can impose conditions on any approval granted, revoke or vary these conditions, or even revoke the approval entirely if it is deemed to be against the national interest, as outlined in subsection 18(1). Additionally, the Act allows for flow-on approvals, where a holding in a parent company automatically extends to its subsidiaries, provided certain criteria are met, as described in section 19.
Those subject to the Act must adhere to its provisions to avoid legal repercussions. For example, section 11 imposes strict liability for creating or exacerbating an "unacceptable shareholding situation" in a financial sector company through reckless acquisition of shares. Such an offence carries a maximum penalty of 400 penalty units for individuals and 2,000 penalty units for corporate bodies, as stipulated in the Crimes Act 1914. Importantly, an offence under section 11 of the Act is classified as an indictable offence, which means it can be prosecuted in a higher court and carries more severe penalties if convicted.
The Act also includes provisions for the application and notification processes. For instance, section 14 mandates that the Treasurer must notify both the applicant and the financial sector company of any approval granted and publish a copy of the approval in the Gazette. Furthermore, under section 17, an applicant can seek to vary the percentage specified in an approval, and the Treasurer has the authority to adjust this percentage independently if it is deemed to be in the national interest, as detailed in subsection 17(6).