"There is a provision for making a conditional offer under the Sebi takeover code. But I cannot offer any comment on the VST Industries takeover issue as it is hypothetical. If they file an offer document with us then we will look into it and consider the eligibility or otherwise," Sebi board member Prof JR Varma told The Financial Express.

When asked specifically whether the company could utilise the conditionality clause in takeover code in the case of FIPB nod, Prof Verma refused to comment on the issue, stating that, "It was for the company to take an initiative, and Sebi will only take a decision on whether such a move can be allowed or not based on the merits of the case." Takeover experts and market operators were of the view that BAT, whose pleas for increasing stake in its Indian subsidiaries have not been allowed twice during the last four year, has to take the FIPB nod before making a counter offer to Brightstar's open offer.

BAT is holding just over 32 per cent stake and for further hiking its stake it should get the FIPB nod, while the raiders holding may go up to a shade below 35 per cent if the offer is successful in garnering all 20 per cent of shares as they proposed. Financial institutions, mainly Life Insurance Corporation (LIC) and Unit Turst of India (UTI) are holding about 20 per cent of the paid-up capital of the company and the remaining 33 per cent is with the public.

While there is no mention of conditional offers being subject to statutory approvals, there were some implicit norms in the takeover code which allow conditional offers, particularly when statutory requirements are involved, another Sebi official said. Regulation 27, which specifies the circumstances under which withdrawal of offer can be made, also says this could be done when "the statutory approval(s) required have been refused." "The acquirer or the target company is allowed to make an open offers/ counter offer, pending statutory clearances or obtaining approval of creditors. Castrol India's offer was one such example, for which the FIPB approval was granted very recently, while the open offer was made a few months ago," the official said.

He also cited the example of the more recent case when Bank of Rajasthan had made an open offer, but it has been considered "a failed offer" when the Reserve Bank of India (RBI) did not grant permission for the same. The rule is applicable to non-resident Indians (NRIs) who want to make an open offer. The NRI can proceed with the open offer pending required clearances. But, when he or his company failed to get such clearances, they would be automatically considered failed. Particularly, when BAT wanted to increase its stake in VST Industries in 1998 through rights issue by offering to buy the unsubscribed shares, the members of parliament (MPs) raised objections to such a move, smelling a rat in its intentions to hike its stake beyond 50 per cent in the company.

Though, in principle, there is no bar on the 100 per cent foreign direct investment (FDI) by the Centre, foreign tobacco giants were facing the same kind of resistance from the political circles like they do in other countries, including where their global headquarters are located.