54 PP-CRILW

9. Duly filled in and executed instrument(s) of transfer for shares held by the dissenting shareholders
10. Balance Sheets showing investments in the shares of the transferor company

TAKEOVER OF LISTED COMPANIES

Takeover of companies whose securities are listed on one or more recognized stock exchanges in India is
regulated by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011.

Therefore, before planning a takeover of a listed company, any acquirer should understand the compliance
requirements under the Regulations and also the requirements under the SEBI (LODR) Regulations, 2015
and the Companies Act, 2013. There could also be some compliance requirements under the Foreign
Exchange Management Act, 1999 if the acquirer were a person resident outside India.

As per Regulation 38, the listed entity shall comply with the minimum public shareholding requirements as
specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957 in the manner as
specified by the Board from time to time. In other words, the listed entity shall ensure that the public
shareholding shall be maintained at 25% of the total paid up share capital of the company failing which the
company shall take steps to increase the public shareholding to 25% of the total paid up share capital by the
methods as specified in Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957.

This provision shall not apply to entities listed on institutional trading platform without making a public issue.

DEFINITIONS
In order to understand the concept of the Regulations, it would be pertinent to go through some of the
important definitions:

The term ‘Takeover’ has not been defined under the said Regulations; the term basically envisages the
concept of an acquirer acquiring shares with an intention of taking over the control or management of the
target company. When an acquirer, acquires substantial quantity of shares or voting rights of the target
company, it results in the substantial acquisition of shares. Substantial is again not defined in the
Regulations and what is substantial for one company may not be substantial for another company. It can
therefore not be quantified in terms of number of shares.

1. Acquirer [Regulation 2(1)(a)]

“Acquirer” means any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or
through, or with persons acting in concert with him, shares or voting rights in, or control over a target
company;

2. Acquisition [Regulation 2(1)(b)]

“Acquisition” means, directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or
control over, a target company;

It means that agreement to acquire the share or voting or control in a listed company without actual
acquisition of share will also be treated as acquisition for the purpose of SEBI Takeover Regulations, 2011.

3. Control [Regulation 2(1)(e)]

“Control” includes the right to appoint majority of the directors or to control the management or policy
decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including
 Lesson 2 Acquisition of Company/Business 55

by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in

any other manner:

Provided that a director or officer of a target company shall not be considered to be in control over such
target company, merely by virtue of holding such position;

4. Frequently Traded Shares [Regulation 2(1)(j)]

Frequently traded shares means shares of a target company, in which the traded turnover of any stock
exchange during the twelve calendar months preceding the calendar month in which the public
announcement is made is at least ten per cent of the total number of shares of such class of the target
company.

Provided that where the share capital of a particular class of shares of the target company is not identical
throughout such period, the weighted average number of total shares of such class of the target company
shall represent the total number of shares.

5. Identified Date [Regulation 2(1)(k)]

Identified Date means the date falling on the tenth working day prior to the commencement of the tendering
period, for the purposes of determining the shareholders to whom the letter of offer shall be sent.

6. Immediate Relative [Regulation 2(1)(l)]

Immediate relative means any spouse of a person, and includes parent, brother, sister or child of such
person or of the spouse.

7. Maximum non Public Shareholding [Regulation 2(1)(o)]

Maximum permissible non-public shareholding means such percentage of shareholding in the target
company excluding the minimum public shareholding required under the Securities Contracts (Regulation)
Rules, 1957.

It means as per Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957 read with Regulation 38
of the SEBI (LODR) Regulations, 2015 every company shall ensure that at least 25% of each class or kind of
equity shares issued by a listed company is held by public shareholders in order to remain continuously
listed. Currently only Listed Public Sector Undertakings are exempted from this requirement and it is
sufficient if the public shareholding is maintained at 10% of the paid up capital of such public sector
enterprises, which are listed. Therefore the maximum permissible non-public shareholding in the general
sense of the term is 75% of the total paid up equity capital of the company for any listed company, which is
not a listed public sector undertaking.

8. Offer Period (Regulation 2(1)(p))

Offer Period means the period between the date of entering into an agreement, formal or informal, to acquire
shares, voting rights in, or control over a target company requiring a public announcement, or the date of the
public announcement, as the case may be, and the date on which the payment of consideration to
shareholders who have accepted the open offer is made, or the date on which open offer is withdrawn, as
the case may be.

9. Persons Acting in Concert (Regulation 2(1)(q))

Persons Acting in Concert means persons who, with a common objective or purpose of acquisition of shares
or voting rights in, or exercising control over a target company, pursuant to an agreement or understanding,
56 PP-CRILW

formal or informal, directly or indirectly co-operate for acquisition of shares or voting rights in, or exercise of
control over the target company.

10. Promoter (Regulation 2(1)(s))

Promoter has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2009 and includes a member of the promoter group.

11. Promoter Group (Regulation 2(1)(t))

Promoter Group has the same meaning as in the Securities and Exchange Board of India (Issue of Capital
and Disclosure Requirements) Regulations, 2009.

12. Shares (Regulation 2(1)(v))

Shares means shares in the equity share capital of a target company carrying voting rights, and include any
security which entitles the holder thereof to exercise voting rights. For the purpose of this clause, shares will
include all depository receipts carrying an entitlement to exercise voting rights in the target company.

13. “Target Company” (Regulation 2(1)(z))

“Target Company” means a company and includes a body corporate or corporation established under a
Central legislation, State legislation or Provincial legislation for the time being in force, whose shares are
listed on a stock exchange;

14. “Tendering period” (Regulation 2(1)(za))

“Tendering Period” means the period within which shareholders may tender their shares in acceptance of an
open offer to acquire shares made under these regulations;

15. “Volume weighted average market price” (Regulation 2(1)(zb))

“Volume weighted average market price” means the product of the number of equity shares traded on a
stock exchange and the price of each equity share divided by the total number of equity shares traded on the
stock exchange;

16. “Volume weighted average price” (Regulation 2(1)(zc))

“Volume weighted average price” means the product of the number of equity shares bought and price of
each such equity share divided by the total number of equity shares bought;

17. “Weighted average number of total shares” (Regulation 2(1)(zd))

“Weighted average number of total shares” means the number of shares at the beginning of a period,
adjusted for shares cancelled, bought back or issued during the aforesaid period, multiplied by a time-
weighing factor.

TRIGGER POINTS UNDER TAKEOVER REGULATIONS

By trigger points, we mean the threshold levels upon reaching which, an acquirer, either on its own individual
account or along with Persons Acting in Concert (PAC) acquiring shares or voting rights in a target company
is required to make a public announcement for an open offer and comply with the other provisions of the
Takeover Code with regard to an open offer.

These threshold levels are set in Regulation 3 of the SEBI (SAST) Regulations, 2011. In the following
 Lesson 2 Acquisition of Company/Business 57

paragraphs, the main points arising out of these regulations are discussed with illustrative examples.

Open offer thresholds

REGULATION 3(1): Substantial acquisition of shares or voting rights

As per Regulation 3(1) of the SEBI (SAST) Regulations, 2011, any acquirer can acquire shares or voting
rights in a target company, which when taken together with the shares or voting rights held by him either
individually or along with Persons Acting in Concert (PACs) with him entitles him / them to exercise 25% or
more of the voting rights in such a target company, only after making a public announcement of an open
offer in accordance with the provisions of the SAST Regulations. Suppose A Ltd is the target company listed
on the BSE and the shareholding pattern as on April 25, 2015 is as under:

Name of the Shareholder Number of shares held Percentage of voting rights

(in number) (in %)
A (promoter) 5000 50
B (Part of the Public) 500 5
Others (all constituting other Public 4500 45
Shareholders)
Total Equity Share Capital 10000 100

On April 26, 2015 if B were to acquire 2000 shares by way of a Share Purchase Agreement with A, the
promoter, his holding would increase to 2500 shares, which would be 25% of the voting rights of the
company and he would therefore under Regulation 3(1) of the SEBI (SAST) Regulations, 2011 be under an
obligation to make a public announcement in accordance with the SAST Regulations. He can proceed with
the acquisition only by giving a public announcement of making an open offer for acquiring the shares from
the shareholders of the target company.

REGULATION 3(2)

Regulation 3(2) of the SAST Regulations, stipulates that an acquirer, who along with persons acting in
concert has acquired and holds 25% or more of the shares or voting rights in a target company, in
accordance with the SEBI (SAST) Regulations, but less than the maximum permissible non-public
shareholding which is normally 75% of the total paid up share capital of the company, can acquire additional
shares or voting rights in a financial year in a target company, entitling them to exercise 5% of the voting
rights. Any acquisition beyond 5% of the voting rights of the target company can be made only after making a
public announcement of an open offer for acquiring shares of such a target company in accordance with the
provisions of the target company.

Regulation 3(2) further stipulates that the acquirer shall not enter into any Share Purchase Agreement or
acquire such number of shares, which when taken together with the shares already held by him along with
the PACs would take the aggregate shareholding of the Acquirer and the PACs beyond the maximum
permissible limit of non-public shareholding, which is normally 75% of the total paid up capital of the
company.

The above provisions are explained with the following example:

Suppose A Ltd. is the target company listed on the BSE and the shareholding pattern as on April 25, 2015 is
as under:
58 PP-CRILW

Name of the Shareholder Number of shares held Percentage of voting rights

(in number) (in %)
A (promoter) along with PACs / persons 5000 50
belonging to the promoter group
Others (all constituting other Public 5000 50
Shareholders)
Total Equity Share Capital 10000 100

In the above example, if A, who is holding 50% of the voting rights of the company, which has been acquired
in accordance with the provisions of the SEBI (SAST) Regulations, he can acquire another 5% of the voting
rights in the financial year beginning April 01, 2015. This acquisition can be done either by himself or by the
other members of the promoter group or partially by him and partially by the other members of the promoter
group.

Regulation 3(3)

As per the provisions of Regulation 3(3) of the SEBI Takeover Regulations, when any person or entity
acquires shares, if the individual shareholding of such an acquirer post such acquisition exceeds the
threshold limit of 25% as laid down in Regulation 3(1) of the Takeover Regulations or the creeping
acquisition limit of 5% in a financial year as laid down in Regulation 3(2) of the Takeover Regulations, that
person or individual or entity would be under an obligation to make a public announcement of an open offer.
This is irrespective of the aggregate shareholding of such an individual or an entity with persons acting in
concert with him. This condition can be best understood with the following example:

Example 1

The Paid up Equity Share Capital of A Ltd is 10000 shares as on April 01, 2014

The promoters hold 4000 shares as on April 01, 2014, which is 40% as on April 01, 2014

The promoters comprise of three shareholders, A who holds 2200 shares (i.e. 22%), B who holds 1500
shares (i.e. 15%) and C who holds 300 shares (i.e. 3%).

The company makes a preferential allotment of 800 shares to A as a result of which the post issue
shareholding of A would be 3000 shares.

Let us determine whether there would be a trigger using the methods enumerated in the previous pages:

(4800/10800)% - (4000/10000)% = 44.44% - 40% = 4.44%.

Since the acquisition by all the promoters together does not exceed 5% in a financial year there is no trigger.
However we need to check what would be the post issue holding of A the allottee, who is currently holding
22% of the paid up capital of the company, with respect to the fully expanded capital which works out to
3000/11000 = 27.27%, by virtue of which he has crossed the initial threshold limit of 25% as stipulated in
Regulation 3(1) of the Takeover Regulations. Therefore A has triggered the Code and is under an obligation
to make an public announcement.

Regulation 3(4)

As per Regulation 3(4), any acquisition of shares made by the promoters of the target company in an offer
made by them to the dissenting shareholders pursuant to an exit offer to be given to them in accordance with
 Lesson 2 Acquisition of Company/Business 59

Chapter VIA of the SEBI (ICDR) Regulations, 2009 shall not be treated as an acquisition under Regulation 3
of the SEBI (SAST) Regulations, 2011. In other words, this acquisition shall be exempt and shall not be
required to make an open offer as mandated by the Regulations. As exit offer is made when the company
which has made a public issue after April 01, 2014 wants to change the objects of the issue from the stated
object in the Prospectus and seeks the approval of the shareholders for the same. In case there are
dissenting shareholders the promoters and person in control of the company need to give an exit offer to
these shareholders. Such acquisitions made pursuant to the offer shall be exempt from the requirement of
making an open offer.

Regulation 4: Acquisition of control.

As per the provisions of Regulation 4 of the SEBI Takeover Regulations, 2011, an acquirer shall make a
public announcement of an open offer for acquiring shares of a company, in case he / she acquires control of
the target company either directly or indirectly. This is irrespective of the fact whether the acquisition of
control is accompanied by acquisition or holding of shares or voting rights of the target company.

Regulation 5: Indirect acquisition of shares or control.

Regulation 5(1) of the Takeover Regulations, states that any acquisition of shares or voting rights in a target
company or control over a company or any other entity which enables the person or persons acting in
concert with him to exercise or direct the exercise of such percentage of voting rights or control over a target
company, such acquisition would be deemed to have attracted the obligation of making a public
announcement of an open offer. This is considered an indirect acquisition of shares or voting rights or control
over a target company.

DELISTING AND THE TAKEOVER REGULATIONS

As per Regulation 7(4) and 7(5) of the SEBI (SAST) Regulations, 2011, in the event the shares accepted in
an open offer by an acquirer taken together with the shares held by him along with persons acting in concert
with him exceeds 75% or the maximum permissible non-public shareholding, the acquirer is required to bring
down the non-public shareholding to the level specified and within the time period specified in the Securities
Contracts (Regulation) Rules, 1957. The time period specified is 12 months from the expiry of the offer
period. Further, the acquirer whose shareholding exceeds the maximum permissible non-public
shareholding, following an open offer shall not be eligible to make a voluntary delisting offer under the SEBI
(Delisting of Equity Shares) Regulations, 2009 unless a period of 12 months has elapsed from the date of
expiry of the offer period. Hence it is evident that no voluntary delisting can be done unless the acquirer
takes steps to reduce the non-public shareholding to a level within the permissible limit within 12 months of
the completion of the offer period. The acquirer can make a voluntary delisting offer only after the expiry of
12 months.

The Regulations have however been recently amended and as per Regulation 5A, an acquiring who
declares his intention to delist the company at the time of making the detailed public announcement, may
delist the company in accordance with the provisions of the SEBI (Delisting of Equity Shares) Regulations,
2009 immediately, without waiting for the stipulated 12 month period. The Regulation reads as under:

Regulation 5A: Delisting offer

As per regulation 5A(1) of the SEBI Takeover Regulations, 2011 any acquirer who is desirous of delisting the
company post the acquisition of the company due to a variety of reasons, may proceed to voluntarily delist
the company under the SEBI Takeover Regulations, 2011 and the SEBI (Delisting of Equity Shares)
Regulations, 2009. The following are the main points:
60 PP-CRILW

1. Acquirer to intimate the Board of Directors.

2. Board to consider the proposal for delisting.
3. Public announcement in case delisting offer fails.
4. File draft letter of offer with SEBI.
5. Minimum details in the tentative schedule of activity.
6. Competing Offer.
7. Withdrawal of shares tendered.
8. Option to tender shares in open offer.

Bombay Swadeshi Stores Ltd., is the only company to have availed this process till this date.

Regulation 6: Voluntary Offer

Any acquirer who either by himself or along with persons acting in concert with him hold shares or voting
rights in the target company which entitles him to exercise 25% or more but less than the maximum
permissible non-public shareholding, which is normally 75% of the total paid up capital of the company /
voting rights of the company, such an acquirer is entitled to voluntarily make a public announcement for an
open offer for acquiring shares in accordance with the Takeover Regulations. This is termed as voluntary
offer and can be made without triggering / attracting the provisions of Regulation 3, 4 and 5 of the Takeover
Regulations.

This provision is subject to the fact that in case the Acquirer or any person acting in concert with the Acquirer
has acquired shares of the target company in the preceding 52 weeks without attracting the provisions of the
Takeover Regulations, with regard to the obligation to make an open offer i.e. under an exemption, such an
Acquirer is ineligible to make a voluntary open offer under the Takeover Regulations.

As per Regulation 6(2) and 6(3) the Acquirer is further prohibited from acquiring shares in any other mode,
except in the voluntary open offer. The Acquirer and the persons acting in concert with him shall further not
acquire any shares for a period of 6 months from the completion of the open offer, except through another
voluntary open offer. The Acquirer can however make a competing offer during this period on any other
person who is making an open offer for acquiring the shares of the target company. The Acquirer is further
entitled to get shares in a bonus issue or acquire shares in a share split during this period of 6 months.

Regulation 6A - Prohibition by a wiful defaulter to make an open offer

As per the Takeover Regulations, a person who is a wilful defaulter shall not make a public announcement of
an open offer or enter into any transaction which will create an obligation on him to make a public
announcement. However he can make a competing offer, in respect of any offer that has been made by any
other person.

PROCEDURE FOR MAKING AN OPEN OFFER

Manager to the open offer

The Acquirer shall before making a public announcement, appoint a merchant banker registered with the
Board, who is not an associate of the acquirer, as the manager to the open offer. A Manager shall be termed
as an Associate if either the merchant banker or the acquirer controls directly or indirectly through its
subsidiary or holding company not less than 15% of the voting rights of the other or either of them directly or
 Lesson 2 Acquisition of Company/Business 61

indirectly by itself or in combination with other persons exercises control over the other or there is a common
director excluding nominee director amongst the acquirer, its subsidiary or holding company and the
merchant banker.

Public Announcement

The public announcement of the open offer for acquiring shares required under the Takeover Regulations
shall be made by the acquirer through manager to the open offer.

Timing of the Public Announcement

The public announcement made on crossing the thresholds mentioned in Regulation 3 and on acquiring
control under Regulation 4 shall be made in accordance with Regulation 14 and Regulation 15 of the
Takeover Regulations. The Public Announcement shall be made on the date of agreeing to acquire shares or
voting rights in, or control over the target company.

In case of market purchases, such a public announcement shall be made prior to placement of the purchase
order with the stock broker to acquire the shares that would take the entitlement to voting rights beyond the
stipulated thresholds.

In case of a voluntary offer under Regulation 6 of the Takeover Regulations, the public announcement shall
be made on the same day as the date on which the acquirer takes the decision to voluntarily make a public
announcement of an open offer for acquiring shares of the target company.

Offer Price

The open offer for acquiring the shares under regulations 3, 4, 5 or 6 of the Takeover Regulations, shall be
made at a price which shall not be lower than the price arrived at in accordance with the provisions laid down
in Regulation 8(2) or Regulation 8(3), as the case may be.

Direct Acquisition and Indirect Acquisition where the parameters set out under Regulation 5(2) are
satisfied

In case the shares of the target company are acquired directly or indirectly, but all the parameters set out in
Regulation 5(2) of the Takeover Regulations, are met, the offer price shall be the highest of the following:
(a) the highest negotiated price per share of the target company for any acquisition under the
agreement attracting the obligation to make a public announcement of an open offer. This would be
price agreed to be paid under a Share Price Agreement.
(b) the volume-weighted average price paid or payable for acquisitions, whether by the acquirer or by
any person acting in concert with him, during the fifty-two weeks immediately preceding the date of
the public announcement; This would be applicable if there are several acquisitions by the acquirer
during the 52 weeks preceding the public announcement and the volume weighted average price
shall be calculated for all such acquisitions.
(c) the highest price paid or payable for any acquisition, whether by the acquirer or by any person
acting in concert with him, during the twenty six weeks immediately preceding the date of the public
announcement. In this case the acquisition during the 26 weeks prior to the date of public
announcement is taken and the actual price paid is considered.
(d) the volume-weighted average market price of such shares for a period of sixty trading days
immediately preceding the date of the public announcement as traded on the stock exchange where
the maximum volume of trading in the shares of the target company are recorded during such
62 PP-CRILW

period, provided such shares are frequently traded. In order to arrive at this price, the first step is to
determine if the shares are frequently traded or not. In case they are frequently traded, then the
volume weighted average market price of such shares for a period of 60 trading days immediately
preceding the date of public announcement is to be calculated.
(e) where the shares are not frequently traded, the price determined by the acquirer and the manager
to the open offer taking into account valuation parameters including, book value, comparable trading
multiples, and such other parameters as are customary for valuation of shares of such companies.
This provision would be applicable only if the shares are not frequently traded and regulation (d)
above is not applicable.
SEBI may, if not satisfied with the valuation, at the expense of the acquirer, require valuation of the
shares by an independent merchant banker other than the manager to the open offer or an
independent chartered accountant in practice having a minimum experience of ten years.
(f) the per share value computed under sub-regulation (5), if applicable.

Indirect Acquisition where the parameters set out under Regulation 5(2) are not satisfied

As per Regulation 8(3) of the Takeover Regulations, in case of an indirect acquisition of shares or voting
rights in, or control over the target company, where the parameter referred to in sub-regulation (2) of
regulation 5 are not met, the offer price shall be the highest of:
(a) the highest negotiated price per share, if any, of the target company for any acquisition under the
agreement attracting the obligation to make a public announcement of an open offer,
(b) the volume-weighted average price paid or payable for any acquisition, whether by the acquirer or
by any person acting in concert with him, during the fifty-two weeks immediately preceding the
earlier of, the date on which the primary acquisition is contracted, and the date on which the
intention or the decision to make the primary acquisition is announced in the public domain,
(c) the highest price paid or payable for any acquisition, whether by the acquirer or by any person
acting in concert with him, during the twenty-six weeks immediately preceding the earlier of, the
date on which the primary acquisition is contracted, and the date on which the intention or the
decision to make the primary acquisition is announced in the public domain,
(d) the highest price paid or payable for any acquisition, whether by the acquirer or by any person
acting in concert with him, between the earlier of, the date on which the primary acquisition is
contracted, and the date on which the intention or the decision to make the primary acquisition is
announced in the public domain, and the date of the public announcement of the open offer for
shares of the target company made under the Takeover Regulations,
(e) the volume-weighted average market price of the shares for a period of sixty trading days
immediately preceding the earlier of, the date on which the primary acquisition is contracted, and
the date on which the intention or the decision to make the primary acquisition is announced in the
public domain, as traded on the stock exchange where the maximum volume of trading in the
shares of the target company are recorded during such period, provided such shares are frequently
traded, and
(f) the per share value computed under Regulation 8(5) of the Takeover Regulations.

Detailed Public Statement

Every acquirer shall after giving a Public Announcement, publish a detailed public statement through the
 Lesson 2 Acquisition of Company/Business 63

manager to the open offer not later than five w than five working days of the public announcement.

The public announcement shall be sent to all the stock exchanges on which the shares of the target
company are listed, and the stock exchanges shall forthwith disseminate such information to the public.

The Acquirer shall send a copy of the public announcement to SEBI and to the target company at its
registered office within one working day of the date of the public announcement through the Manager to the
Offer.

The detailed public statement pursuant to the public announcement shall be published in all editions of any
one English national daily with wide circulation, any one Hindi national daily with wide circulation, and any
one regional language daily with wide circulation at the place where the registered office of the target
company is situated and one regional language daily at the place of the stock exchange where the maximum
volume of trading in the shares of the target company are recorded during the sixty trading days preceding
the date of the public announcement.

Letter of Offer

The Acquirer through the merchant banker shall within five working days from the date of the detailed public
statement made file with SEBI a draft of the letter of offer containing such information as may be specified
along with a non-refundable fee, by way of a banker’s cheque or demand draft payable in Mumbai in favour
of Securities and Exchange Board of India.

The Manger to the Open offer shall provide the soft copies of the Public Announcement, Detailed Public
Statement and the Letter of Offer to SEBI and the same shall be uploaded on the website of SEBI.

SEBI shall give its comments on the draft letter of offer as expeditiously as possible but not later than fifteen
working days of the receipt of the draft letter of offer and in the event of no comments being issued by SEBI,
it is deemed that SEBI does not have comments to offer.

Escrow Account

The acquirer, shall not later than two working days prior to the date of the detailed public statement of the
open offer for acquiring shares, create an escrow account towards security for performance of his obligations
and deposit in escrow account such aggregate amount as per the following scale:

Sl. No. Consideration payable under the Open Offer Escrow Amount

A On the first five hundred crore rupees an amount equal to twenty-five per cent
of the consideration

B On the balance consideration Rupees 125 crores plus 10% of the

balance consideration

Where an open offer is made conditional upon minimum level of acceptance, hundred percent of the
consideration payable in respect of minimum level of acceptance or fifty per cent of the consideration
payable under the open offer, whichever is higher, shall be deposited in cash in the escrow account.

The consideration payable under the open offer shall be computed as shall be calculated with reference to
the open offer price assuming full acceptances of the open offer, in case the offer is subject to differential
64 PP-CRILW

pricing, it shall be computed on the highest offer price, irrespective of the manner of payment of the
consideration. If the offer price is revised the value of the escrow amount shall be computed on the revised
consideration calculated at such revised offer price, and the additional amount shall be brought into the
escrow account prior to effecting such revision.

The escrow account may be in the form of cash deposited with any scheduled commercial bank or a bank
guarantee issued in favour of the manager to the open offer by any scheduled commercial bank; or by way of
deposit of frequently traded and freely transferable equity shares or other freely transferable securities with
appropriate margin. It shall be borne in mind that the cash or bank guarantee shall be only with a scheduled
commercial bank and that of a co-operative bank shall not be accepted.

In the event of the escrow account being created by way of a bank guarantee or by deposit of securities, the
acquirer shall also ensure that at least one per cent of the total consideration payable is deposited in cash
with a scheduled commercial bank as a part of the escrow account.

Release of amount from Escrow Account

The manager to the open offer shall not release the escrow account until the expiry of thirty days from the
completion of payment of consideration to shareholders who have tendered their shares in acceptance of the
open offer, save and except for transfer of funds to the special escrow account as required under regulation
21 of the Takeover Regulations.

In the event of non-fulfillment of obligations under the Takeover Regulations, by the acquirer SEBI may direct
the manager to the open offer to forfeit the escrow account or any amounts lying in the special escrow
account, either in full or in part. The escrow account deposited with the bank in cash shall be released only in
the following manner:
(a) the entire amount to the acquirer upon withdrawal of offer in terms of regulation 23 of the Takeover
Regulations as certified by the manager to the open offer;
(b) for transfer of an amount not exceeding ninety per cent of the escrow account, to the special escrow
account in accordance with regulation 21 of the Takeover Regulations;
(c) to the acquirer, the balance of the escrow account after transfer of cash to the special escrow
account, on the expiry of thirty days from the completion of payment of consideration to
shareholders who have tendered their shares in acceptance of the open offer, as certified by the
manager to the open offer;
(d) the entire amount to the acquirer upon the expiry of thirty days from the completion of payment of
consideration to shareholders who have tendered their shares in acceptance of the open offer, upon
certification by the manager to the open offer, where the open offer is for exchange of shares or
other secured instruments;
(e) the entire amount to the manager to the open offer, in the event of forfeiture for non-fulfillment of
any of the obligations under these regulations, for distribution in the following manner, after
deduction of expenses, if any, of registered market intermediaries associated with the open offer—
(i) one third of the escrow account to the target company;
(ii) one third of the escrow account to the Investor Protection and Education Fund established
under the Securities and Exchange Board of India (Investor Protection and Education Fund)
Regulations, 2009; and
(iii) one third of the escrow account to be distributed pro-rata among the shareholders who have
accepted the open offer.
 Lesson 2 Acquisition of Company/Business 65

Other Procedures
The acquirer, simultaneously with the filing of the draft letter of offer with SEBI shall send a copy of the draft
letter of offer to the target company at its registered office address and to all the stock exchanges where the
shares of the target company are listed.

On receipt of the observations from SEBI, the Acquirer through the Manager to the Offer, shall ensure that
the letter of offer is dispatched to the shareholders whose names appear on the register of members of the
target company as of the identified date, not later than seven working days from the receipt of comments
from the Board. In case no comments / observations are received from SEBI, the letter of offer shall be
dispatched within seven working days from the expiry of the period stipulated in sub-regulation (4) of
regulation 16, which is 15 working days from the date of filing of the draft letter of offer with SEBI.

The acquirer shall disclose during the offer period every acquisition made by the acquirer or persons acting
in concert with him of any shares of the target company in such form as may be specified, to each of the
stock exchanges on which the shares of the target company are listed and to the target company at its
registered office within twenty-four hours of such acquisition, and the stock exchanges shall forthwith
disseminate such information to the public. However, the acquirer and persons acting in concert with him
shall not acquire or sell any shares of the target company during the period between three working days prior
to the commencement of the tendering period and until the expiry of the tendering period.

(a) Stock Exchange mechanism

The acquirer shall facilitate tendering of shares by the shareholders and settlement of the same, through the
stock exchange mechanism as specified by SEBI.

SEBI has further mandated the following additional disclosures to be made in the Detailed Public Statement
and the Letter of Offer:
• Name and address of the stock broker appointed by the Acquirer/Company;
• Name of the Stock Exchanges with nationwide trading terminals where the Acquisition Window shall be
available including the name of the Designated Stock Exchange.
• Methodology for placement of orders, acceptances and settlement of shares held in dematerialised
form and physical form
• Details of the special account opened with Clearing Corporation.

Pre Offer Advertisement

The acquirer shall issue an advertisement in such form as may be specified, one working day before the
commencement of the tendering period, announcing
• the schedule of activities for the open offer or the revised schedule, if any
• the status of statutory and other approvals, if any, whether for the acquisition attracting the obligation to
make an open offer or for the open offer,
• unfulfilled conditions, if any, and their status,
• the procedure for tendering acceptances and such other material detail as may be specified.

Such an advertisement shall be published in all the newspapers in which the detailed public statement
pursuant to the public announcement was made and simultaneously sent to SEBI, all the stock exchanges
on which the shares of the target company are listed, and the target company at its registered office.
66 PP-CRILW

Mode of Payment

The offer price may be paid either:

• in cash; or
• by issue, exchange or transfer of listed shares in the equity share capital of the acquirer or any person
acting in concert with the acquirer; or
• by way of an issue, exchange or transfer of listed secured debt instruments issued by the acquirer or
any person acting in concert with a rating not below investment grade as rated by a credit rating
agency registered with SEBI; or
• by issue, exchange or transfer of convertible debt securities entitling the holder thereof to acquirer
listed shares in the equity share capital of the acquirer or any person acting in concert with the
acquirer; or
• a combination of the mode of payment of consideration stated above.

As per the SEBI Takeover regulations, in case the shareholders have been provided with an option to accept
payment in cash or by way of securities or by way of combination thereof, the pricing of the open offer may
be different for each option. This shall however be subject to the compliance with the requirement of
minimum offer price and further the Detailed Public Statement and Letter of Offer shall contain the
justification for such differential pricing.

Completion of Acquisition

The acquirer shall not complete the acquisition of shares or voting rights in, or control over, the target
company, whether by way of subscription to shares or a purchase of shares attracting the obligation to make
an open offer for acquiring shares, until the expiry of the offer period.

However, if the offer is made pursuant to a preferential allotment, the offer shall be completed within the
period as provided under sub-regulation (3) of regulation 74 of Securities and Exchange Board of India
(Issue of Capital and Disclosure Requirements) Regulations, 2009.

In case the acquirer deposits 100% of the consideration payable under the open offer in cash in the escrow
account assuming full acceptance of the open offer, the parties to such agreement may after the expiry of
twenty-one working days from the date of detailed public statement, act upon the agreement and the
acquirer may complete the acquisition of shares or voting rights in, or control over the target company as
contemplated.

The acquirer shall complete the acquisitions contracted under any agreement attracting the obligation to
make an open offer not later than twenty-six weeks from the expiry of the offer period.

Provided that in the event of any extraordinary and supervening circumstances rendering it impossible to
complete such acquisition within such period, the Board may for reasons to be published, may grant an
extension of time by such period as it may deem fit in the interests of investors in securities and the
securities market.

WITHDRAWAL OF THE OFFER

An open offer for acquiring shares once made shall not be withdrawn except under any of the following
circumstances,—
(a) statutory approvals required for the open offer or for effecting the acquisitions attracting the
 Lesson 2 Acquisition of Company/Business 67

obligation to make an open offer under these regulations having been finally refused, subject to
such requirements for approval having been specifically disclosed in the detailed public statement
and the letter of offer.
Note: the statutory approval must be rejected and anticipation of rejection shall not be a ground for
withdrawal of open offer.
(b) the acquirer, being a natural person, has died;
(c) any condition stipulated in the agreement for acquisition attracting the obligation to make the open
offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is
rescinded, subject to such conditions having been specifically disclosed in the detailed public
statement and the letter of offer; or
(d) such circumstances as in the opinion of the Board, merit withdrawal. In this case, SEBI shall pass a
reasoned order permitting withdrawal, and such order shall be hosted by the Board on its official
website.

In the event of withdrawal of the open offer, the acquirer shall through the manager to the open offer, within
two working days, make an announcement in the same newspapers in which the public announcement of
the open offer was published, providing the grounds and reasons for withdrawal of the open offer
simultaneously with the announcement, inform in writing to SEBI, all the stock exchanges on which the
shares of the target company are listed, and the stock exchanges shall forthwith disseminate such
information to the public and the target company at its registered office.

CONDITIONAL OFFERS
An acquirer may make an open offer conditional as to the minimum level of acceptance. Provided that where
the open offer is pursuant to an agreement, such agreement shall contain a condition to the effect that in the
event the desired level of acceptance of the open offer is not received the acquirer shall not acquire any
shares under the open offer and the agreement attracting the obligation to make the open offer shall stand
rescinded.

Where an open offer is made conditional upon minimum level of acceptances, the acquirer and persons
acting in concert with him shall not acquire, during the offer period, any shares in the target company except
under the open offer and any underlying agreement for the sale of shares of the target company pursuant to
which the open offer is made.

COMPETING OFFERS
When a public announcement for acquiring shares of a target company in an open offer is made, any person,
other than the acquirer who has made such public announcement, shall be entitled to make a public
announcement of an open offer within fifteen working days of the date of the detailed public statement made
by the acquirer who has made the first public announcement. The competing open offer shall be for such
number of shares which, when taken together with shares held by such acquirer along with persons acting in
concert with him, shall be at least equal to the holding of the acquirer who has made the first public
announcement, including the number of shares proposed to be acquired by him under the offer and any
underlying agreement for the sale of shares of the target company pursuant to which the open offer is made.

No person shall be entitled to make a public announcement of an open offer for acquiring shares, or enter
into any transaction that would attract the obligation to make a public announcement of an open offer for
acquiring shares under the Takeover regulations, after the period of fifteen working days from the date of first
public announcement and until the expiry of the offer period for such open offer.
68 PP-CRILW

Unless the open offer first made is an open offer conditional as to the minimum level of acceptances, no
acquirer making a competing offer may be made conditional as to the minimum level of acceptances.

The schedule of activities and the tendering period for all competing offers shall be carried out with identical
timelines and the last date for tendering shares in acceptance of the every competing offer shall stand
revised to the last date for tendering shares in acceptance of the competing offer last made. Once a
competing offer has been made, an acquirer who had made a preceding competing offer shall be entitled to
revise the terms of his open offer provided the revised terms are more favourable to the shareholders of the
target company. Further, the acquirers making the competing offers shall be entitled to make upward
revisions of the offer price at any time up to three working days prior to the commencement of the tendering
period.

All the provisions of the Takeover regulations shall apply to every competing offer.

EXEMPTIONS
Under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, an acquirer together with
Persons Acting in Concert (PAC) are under obligation to make public announcement of an open offer
pursuant to Regulation 3 and 4 of these regulations, in the event of their becoming entitled to exercise 25%
or more of the voting rights in a target company. However, there are circumstances when such acquirers
acting together with PAC are not under an obligation to make a public announcement of an open offer.

The exemptions available under the SEBI (SAST) Regulations are broadly of two types:

GENERAL EXEMPTION – Regulation 10

(a) General Exemption – governed by Regulation 10 for which application need not be made to SEBI,
but based on facts and circumstances of the case, the acquirer and the PAC have to take a view
whether or not they are entitled to the exemption provided under Regulation 10 from complying with
the regulations to make public announcement of open offer. In all such cases, the regulations
require filing of reports with the Stock Exchange after the transaction has been completed. Filing of
such report within the due date is a strict requirement, which if not fulfilled, will trigger an obligation
to make public announcement of open offer.

Regulation 10 of the SEBI (SAST) Regulations, stipulates the various exemptions that would be
automatically or generally available from the obligation of making a public announcement of an open offer
under Regulation 3 and / or Regulation 4 of the SEBI Takeover Regulations, subject to fulfillment of
necessary conditions. It is to be noted that that there are no exemptions from the compliance of Regulation 5
at any point in time.

Regulation 10(1)(a)
(1) The following acquisitions shall be exempt from the obligation to make an open offer under
regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefore,—
(a) acquisition pursuant to inter se transfer of shares amongst qualifying persons, being,—
(i) immediate relatives;
(ii) persons named as promoters in the share holding pattern filed by the target company in
terms of the listing agreement or these regulations for not less than three years prior to the
proposed acquisition;
(iii) a company, its subsidiaries, its holding company, other subsidiaries of such holding
 Lesson 2 Acquisition of Company/Business 69

company, persons holding not less than fifty per cent of the equity shares of such
company, other companies in which such persons hold not less than fifty per cent of the
equity shares, and their subsidiaries subject to control over such qualifying persons
being exclusively held by the same persons;
(iv) persons acting in concert for not less than three years prior to the proposed acquisition,
and disclosed as such pursuant to filings under the listing agreement;
(v) shareholders of a target company who have been persons acting in concert for a period
of not less than three years prior to the proposed acquisition and are disclosed as
such pursuant to filings under the listing agreement, and any company in which the entire
equity share capital is owned by such shareholders in the same proportion as their
holdings in the target company without any differential entitlement to exercise voting rights
in such company:
Provided that for purposes of availing of the exemption under this clause,—
(i) If the shares of the target company are frequently traded, the acquisition price per share
shall not be higher by more than twenty-five per cent of the volume-weighted average
market price for a period of sixty trading days preceding the date of issuance of notice for
the proposed inter se transfer under sub-regulation (5), as traded on the stock exchange
where the maximum volume of trading in the shares of the target company are recorded
during such period, and if the shares of the target company are infrequently traded, the
acquisition price shall not be higher by more than twenty-five per cent of the price
determined in terms of clause (e) of sub-regulation(2) of regulation 8; and
(ii) the transferor and the transferee shall have complied with applicable disclosure
requirements set out in Chapter V.

Analysis of the Regulation

Regulation 10(1) lays down certain circumstances which exempt an acquirer from making an open offer
under Regulation 3 and Regulation 4 of the Takeover Regulations. As per Regulation 10(1)(a) any
acquisition pursuant to inter-se transfer amongst qualifying persons are exempted. The qualifying
persons are

(i) Immediate relatives: Any inter-se transfer amongst persons who are immediate relatives would be
exempted from the requirement of making an open offer. Hence with reference to the acquirer, any transfer
from his spouse, children, parents, brother, sister, parents of his spouse and the brother / sister of his spouse
is automatically exempted. However an inter-se transfer from a grandfather to his grandson or from an uncle
to his nephew or his niece is not exempted, as they do not fall within the definition of immediate relatives
within the meaning of Regulation. Similarly, any transfer from a person to his brother’s wife or sister’s
husband is also not exempted automatically, for the same reason.

(ii) Inter-se transfers of shares amongst named promoters: Any inter-se transfer of shares amongst
persons named as promoters in the shareholding pattern filed by the target company with the stock
exchange in accordance with Clause 35 of the Listing Agreement (Regulation 31 of the SEBI (Listing
Obligations and Disclosure Regulations, 2015) or any filing made of the promoters’ shareholding under the
SEBI Takeover Regulations (i.e. Regulation 30 of the SEBI (SAST) Regulations, 2011) for a period of not
less than 3 years prior to the proposed acquisition shall be exempted. In other words, in order to obtain an
exemption, both the transferors and transferees must have held shares in the company as a promoter for a
continuous period of 3 years prior to the date of the proposed acquisition.
70 PP-CRILW

(iii) (a)Inter se transfers amongst Holding, subsidiary and fellow subsidiary companies: Any inter-se
transfer amongst a company and its subsidiaries, its holding company and its other holding company is
exempted.

To explain this if in Target Company A Ltd., the shares are held by B Ltd., which is the subsidiary of C Ltd. C
Ltd in turn has two other subsidiaries Y Ltd and Z Ltd. Further B Ltd in turn has a subsidiary P Ltd and Q Ltd .
This is diagrammatically shown as under:

Shares of A Ltd., held by B Ltd

C LTD

B LTD Y LTD
Z LTD

P LTD Q LTD

Any transfer of shares held by B Ltd in the target company to its holding Company C Ltd., or to its
subsidiaries P Ltd or Q Ltd or to the other subsidiaries of its holding company Y Ltd and Z Ltd., would be
exempted.

(iii)(b) Inter-se transfer to persons holding not less than fifty percent of the equity shares of a
company

Any transfer amongst persons who hold not less 50% of the company which holds shares in the target
company would be exempted from the requirement of making a public announcement for an open offer. This
can be best explained with an example.

Example:

In target company, A Ltd., more than 25% (beyond the initial threshold as laid down under Regulation 3(1)) is
held by a company Viz., B Ltd. How can these shares be transferred without attracting the provisions of the
Takeover Regulations. One option available is to look at the shareholding pattern of B Ltd., and in this case if
75% of the share capital is held by C, then the shares of A Ltd., which is held by B Ltd. can be transferred to
C, who holds more than 50% of itself.

(iii)(c) Inter-se Transfer to other companies in which such persons hold not less than 50% of the
equity shares and their subsidiaries

Such Inter Se transfers are exempt, subject to the condition that control over such qualifying persons being
exclusively held by the same persons.

Any inter se-transfer of shares to a company in which the same set of persons hold not less than 50% of the
equity shares would be exempted from the requirement of making a public announcement for an open offer.
This can be best explained with the following example:
 Lesson 2 Acquisition of Company/Business 71

Example:

35% of the paid up equity share capital of A Ltd., is held by B Ltd., which is promoted by A, B and C. They
together hold 90% of the Share capital of B Ltd and also hold 65% of the share capital of C Ltd. If B Ltd., is
desirous of transferring its entire shareholding in A Ltd., to C Ltd, the acquisition of 35% by C Ltd., would be
automatically exempted from the provisions of Regulation 3 and 4 of the Takeover Regulations, with regard
to the obligation to make the open offer, since the same set of persons hold more than 50% of the share
capital of the companies B Ltd and C Ltd.

(iv) persons acting in concert for not less than three years prior to the proposed acquisition, and
disclosed as such pursuant to filings under the listing agreement.

Any transfer of shares amongst persons who are acting in concert for a period of not less than 3 years before
the transaction and the same has been disclosed in the shareholding patterns filed with the stock exchange
under Clause 35 of the Listing Agreement (Regulation 31 of the SEBI Listing Regulations, 2015) would be
exempted.

(v) shareholders of a target company who have been persons acting in concert

Any inter se transfer between PACI for a period of not less than three years prior to the proposed acquisition
and are disclosed as such pursuant to filings under the listing agreement, and any company in which the
entire equity share capital is owned by such shareholders in the same proportion as their holdings in the
target company without any differential entitlement to exercise voting rights in such company.

In case the shareholders have been persons acting in concert for a period of not less than 3 years prior to
the proposed acquisition of shares and their shareholding has been disclosed as such in the shareholding
patterns filed with the stock exchange under Clause 35 of the Listing Agreement (Regulation 31 of the SEBI
Listing Regulations, 2015), an inter-se transfer of shares to another company in which the same persons
hold the share capital in the same proportion as that in which they hold shares in the target company would
be exempted. This can be best explained by an example:

Example:

If the A B & C hold 10,000; 40,000 and 50,000 shares of Target Company A Ltd., and they are termed as
PACs in the share holding pattern filed with the stock exchange. They are also the only shareholders of ABC
Pvt Ltd., in which the share capital is 50,000 shares of Rs. 10 each. A B & C are desirous of transferring their
shareholding in A Ltd., to ABC Pvt Ltd., This is automatically exempt only if the entire 50, 000 shares in ABC
Private Ltd are held as A : 5,000 shares, B: 20,000 shares and C : 25,000 shares. In other words the entire
share capital of ABC Pvt Ltd., must be held in the same proportion of 1:4:5 as that of their shareholding in
the target company, in order that this inter-se transfer be automatically exempted.

Conditions to be satisfied for availing the exemption in case of inter-se transfers amongst qualifying
persons:

Exemption under Regulation 10(1)(a)(i) to (v) would however be available only if the following conditions are
also met by the transferor and the transferees.

The Conditions to be fulfilled for availing inter-se exemption are classified under two categories namely
(a) frequently traded shares
(b) Not frequently traded shares
1. If shares are frequently traded: In case the shares are frequently traded, the volume weighted
72 PP-CRILW

average market price for a period of 60 days prior to the date of prior intimation of the proposed
inter-se transfer of shares is to be calculated and the acquisition price at which the inter se
transfer is to be done shall not be more than 25% of the weighted average market price as
calculated
2. If shares are not frequently traded: In case the shares are infrequently traded, the price at which
the inter se transfer is to be done is to be calculated as per the parameters laid down in
Regulation 8(2)(e) of the SAST Regulations and shall not be more than 25% of the price so
calculated as per the parameters discussed.

Further the transferor and the transferee must have complied with the requirements of making disclosures
under Regulation 29, 30 and 31 of the SAST regulations. In case both the conditions are not fulfilled and
either of the conditions are not fulfilled, the exemption that would have been available automatically would
not be available to the transaction.

Note: Prior intimation needs to be given to the stock exchange where the shares of the company are listed at
least 4 working days before the transaction in all the above cases.

Regulation 10(1)(b)

Any acquisition in the ordinary course of business by—

(i) an underwriter registered with the Board by way of allotment pursuant to an underwriting agreement
in terms of the Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009;
(ii) a stock broker registered with the Board on behalf of his client in exercise of lien over the shares
purchased on behalf of the client under the bye-laws of the stock exchange where such stock
broker is a member;
(iii) a merchant banker registered with the Board or a nominated investor in the process of market
making or subscription to the unsubscribed portion of issue in terms of Chapter X B of the Securities
and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009;
(iv) any person acquiring shares pursuant to a scheme of safety net in terms of regulation 44 of the
Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009;
(v) a merchant banker registered with the Board acting as a stabilising agent or by the promoter or pre-
issue shareholder in terms of regulation 45 of the Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements) Regulations, 2009; (This is normally done when the company
opts for a Green Shoe Option in a Public issue of securities made in accordance with the SEBI
(ICDR) Regulations, 2009.)
(vi) by a registered market-maker of a stock exchange in respect of shares for which he is the
market maker during the course of market making;
(vii) a Scheduled Commercial Bank, acting as an escrow agent; and
(viii) invocation of pledge by Scheduled Commercial Banks or Public Financial Institutions as a pledgee.

Any shares acquired in the ordinary course of business by the above category of persons is exempted from
the requirement of making a public announcement for an open offer, pursuant to Regulation 3 and
Regulation 4 of the SEBI Takeover Regulations.
 Lesson 2 Acquisition of Company/Business 73

Regulation 10(1)(c)

Acquisitions at subsequent stages, by an acquirer who has made a public announcement of an open offer for
acquiring shares pursuant to an agreement of disinvestment, as contemplated in such agreement:

Provided that,—
(i) Both the acquirer and the seller are the same at all the stages of acquisition; and
(ii) Full disclosures of all the subsequent stages of acquisition, if any, have been made in the public
announcement of the open offer and in the letter of offer.

In other words, if there is an Share Purchase Agreement to acquire shares and pursuant to the same, if the
acquirer has made a public announcement, any acquisitions subsequently between the same seller and the
acquirer would also be exempted from the requirement of making a public announcement, if such an
intention and full disclosure of the same has been made in the public announcement and in the letter of offer.

Regulation 10(1)(d)

Acquisition pursuant to a scheme:

(i) made under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) or any
statutory modification or re-enactment thereto. In other words, any acquisition pursuant to a scheme sanction
by the Hon’ble BIFR would be exempted from the applicability of these regulations from the requirement of
making a public announcement.

(ii) of arrangement involving the target company as a transferor company or as a transferee company, or
reconstruction of the target company, including amalgamation, merger or demerger, pursuant to an order of
a court or a competent authority under any law or regulation, Indian or foreign. In other words, any
acquisition of shares pursuant to a scheme of amalgamation or merger or demerger or any reconstruction,
involving the target company as a transferor company or transferee company, would be exempted, provided
such a scheme is pursuant to an Order of the Court, under any Indian or Foreign Law.

(iii) of arrangement not directly involving the target company as a transferor company or as a transferee
company, or reconstruction not involving the target company’s undertaking, including amalgamation, merger
or demerger, pursuant to an order of a court or a Tribunal or a competent authority under any law or
regulation, Indian or foreign, subject to,
(A) the component of cash and cash equivalents in the consideration paid being less than twenty-five
per cent of the consideration paid under the scheme and
(B) where after implementation of the scheme of arrangement, persons directly or indirectly holding at
least thirty-three per cent of the voting rights in the combined entity are the same as the persons
who held the entire voting rights before the implementation of the scheme.

Regulation 10(1)(da)

Acquisition pursuant to a resolution plan approved under Section 31 of te Insolvency and Bankruptcy Code,
2016.

Regulation 10(1)(e)

Any acquisition pursuant to the provisions of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (54 of 2002) would be exempted from the applicability of the
provisions of Regulation 3 and Regulation 4 with regard to making a public announcement for an open offer.
74 PP-CRILW

Regulation 10(1)(f)

Any acquisition pursuant to the delisting offer made under the provisions of the Securities and Exchange
Board of India (Delisting of Equity Shares) Regulations, 2009 would be exempted from the applicability of the
provisions of Regulation 3 and Regulation 4 with regard to making a public announcement for an open offer.

Regulation 10(1)(g)

Any acquisition by way of transmission, succession or inheritance, would be exempted from applicability of
the provisions of Regulation 3 and Regulation 4 with regard to making a public announcement for an open
offer.

Regulation 10(1)(h)

Any acquisition of voting rights or preference shares carrying voting rights arising out of the operation of sub-
section (2) of section 87 of the Companies Act, 1956 (1 of 1956), (now to be read as Section 47(2) of the
Companies Act, 2013), would be exempted from applicability of the provisions of Regulation 3 and
Regulation 4 with regard to making a public announcement for an open offer.

As per Proviso to Section 47(2) of the Companies Act, 2013, where dividend in respect of a class of
preference shares has not been paid for a period of two years or more, such class of preference
shareholders shall have the right to vote on all resolutions placed before the company. In other words, these
shareholders acquire voting rights which could lead to a situation that they may either exceed the threshold
limit of 25% or the creeping acquisition limit of 5% in a financial year as stipulated under Regulations 3(1)
and 3(2) respectively. This exemption was laid down by the SAT in the matter of Weizmann Ltd v. SEBI.

Regulation 10(1)(i)

Conversion of debt into equity under Strategic Debt Restructuring Scheme - Acquisition of equity shares by
the consortium of banks, financial institutions and other secured lenders pursuant to conversion of their debt
as part of the Strategic Debt Restructuring Scheme in accordance with the guidelines specified by the
Reserve Bank of India:

Provided that the conditions specified under sub-regulation (5) or (6) of regulation 70 of the Securities and
Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as may be
applicable, are complied with.

Regulation 10(1)(j)

“Increase in voting rights arising out of the operation of sub-section (1) of section 106 of the Companies Act,
2013 or pursuant to a forfeiture of shares by the target company, undertaken in compliance with the
provisions of the Companies Act, 2013 and its articles of association."

Regulation 10(2)

The acquisition of shares of a target company, not involving a change of control over such target company,
pursuant to a scheme of corporate debt restructuring in terms of the Corporate Debt Restructuring Scheme
notified by the Reserve Bank of India vide circular no. B.P.BC 15/21.04, 114/2001 dated August 23, 2001, or
any modification or re-notification there to provided such scheme has been authorized by shareholders by
way of a special resolution passed by postal ballot, shall be exempted from the obligation to make an open
offer under regulation 3.

As per Regulation 10(2) of the SEBI Takeover Regulations, any acquisition of shares of a target company,
 Lesson 2 Acquisition of Company/Business 75

not involving a change of control over such target company, pursuant to a scheme of corporate debt
restructuring (CDR) in terms of the Corporate Debt Restructuring Scheme notified by the Reserve Bank of
India vide circular no. B.P.BC 15/21.04, 114/2001 dated August 23, 2001, or any modification or re-
notification thereto provided such scheme has been authorised by shareholders by way of a special
resolution passed by postal ballot, shall be exempted from the obligation to make an open offer under
regulation 3.

The following points are to be kept in mind while claiming an exemption when an acquisition is pursuant to a
CDR Package:
(a) The Exemption is available only from the applicability of Regulation 3 of the SEBI Takeover
Regulations and not Regulation 4. In other words if pursuant to the CDR Package, there is a change
of control of the target company, no exemption would be available.
(b) The entire CDR package should be approved by the shareholders and not merely the additional
allotment of shares pursuant to the CDR Package.
(c) Such shareholder approval should be obtained by the company by way of a postal ballot process
and not physical voting.

Regulation 10(3)

An increase in voting rights in a target company of any shareholder beyond the limit attracting an obligation
to make an open offer under sub-regulation (1) of regulation 3, pursuant to buy-back of shares shall be
exempt from the obligation to make an open offer provided such shareholder reduces his shareholding such
that his voting rights fall to below the threshold referred to in sub-regulation (1) of regulation 3 within ninety
days from the date of closure of the buy-back offer.

Regulation 10(4)

The following acquisitions shall be exempt from the obligation to make an open offer under sub-regulation (2)
of regulation 3, i.e. the creeping acquisition of limit of 5% in a financial year. In other words, the following
acquisitions would permit the shareholders who hold more than 25% but less than 75% of the paid up capital
of the company to acquire more than 5% in a financial year beginning April 01.
(a) acquisition of shares by any shareholder of a target company, upto his entitlement, pursuant to a
rights issue. In other words, any acquisition of shares in a target company upto a person’s
entitlement in a rights issue would be exempted from the applicability of Regulation 3(2).
(b) acquisition of shares by any shareholder of a target company, beyond his entitlement, pursuant to a
rights issue, subject to fulfillment of the following conditions,
(i) the acquirer has not renounced any of his entitlements in such rights issue;
(ii) the price at which the rights issue is made is not higher than the ex-rights price of the shares of
the target company, being the sum of:
(A) the volume weighted average market price of the shares of the target company during a
period of sixty trading days ending on the day prior to the date of determination of the
rights issue price, multiplied by the number of shares outstanding prior to the rights issue,
divided by the total number of shares outstanding after allotment under the rights issue:
Provided that such volume weighted average market price shall be determined on the
basis of trading on the stock exchange where the maximum volume of trading in the shares
of such target company is recorded during such period; and
76 PP-CRILW

(B) the price at which the shares are offered in the rights issue, multiplied by the number of
shares so offered in the rights issue divided by the total number of shares outstanding after
allotment under the rights issue:

In other words, any acquisition of shares beyond a shareholders’ entitlement would be exempted from the
applicability of Regulation 3(2), provided the applicant is a shareholder and the shareholder has applied for
his entire entitlement without renouncing even a single share and the price at which the application is made
is not higher that the ex-rights price. This can be explained with the following example:

SPECIFIC EXEMPTION ─ Regulation 11

If the proposed transaction is not automatically exempted under the various categories mentioned in
Regulation 10 discussed in the preceding paragraphs above and the acquirers are of the opinion that the
transaction that they propose to enter into requires an exemption, the Acquirer must make an application to
SEBI seeking exemption. It must however be noted that application shall be made before the transaction /
acquisition is initiated. Post facto exemptions are not granted by SEBI.

The application for exemption shall be under Regulation 11(3) of the Takeover Regulations, and submitted
along with a non-refundable fee of Rs.3,00,000 payable by way of a demand draft payable at Mumbai,
favouring Securities and Exchange Board of India.

The application shall be supported by a duly sworn affidavit, giving details of the proposed acquisition and
the grounds on which the exemption has been sought.

Under this regulation SEBI has powers to grant exemption from the strict compliance of procedural
requirement in Chapter III and IV in the interest of investors in securities and the securities market.

The option of seeking specific exemption is available only in cases where the target company is a company
in respect of which the Central Government or State Government or any other regulatory authority has
superseded the board of directors of the target company and has appointed new directors under any law.

SEBI has to be satisfied that

a. the Board of Directors of such target company have formulated a plan which provides for
transparent, open, and competitive process for acquisition of shares or voting rights in, or control
over the target company to secure the smooth and continued operation of the target company in
the interests of all stakeholders of the target company and such plan does not further the interests
of any particular acquirer
b. the conditions and requirements of the competitive process are reasonable and fair
c. the processed opted by the board of directors of the target company provides for details including
the time when the open offer for acquiring shares would be made, completed and the manner in
which the change in control would be effected.
SEBI after affording reasonable opportunity of being heard to the applicants and after considering
all relevant facts and circumstances shall pass a reasoned order either granting or rejecting the
exemption or relaxation sought as soon as possible. It is also provided that SEBI may constitute a
panel of experts to which the application for exemption may be referred for their recommendations,
if considered necessary.
The order passed by SEBI granting exemption is hosted by SEBI on its official website
www.sebi.gov.in.
 Lesson 2 Acquisition of Company/Business 77

(c) increase in voting rights in a target company of any shareholder pursuant to buy-back of shares:
Provided that:
(i) such shareholder has not voted in favour of the resolution authorising the buy-back of securities
under section 77A of the Companies Act, 1956 (1 of 1956) (Corresponds to Section 67 of the
Companies Act, 2013);
(ii) in the case of a shareholder resolution, voting is by way of postal ballot;
(iii) where a resolution of shareholders is not required for the buyback, such shareholder, in his
capacity as a director, or any other interested director has not voted in favour of the resolution
of the board of directors of the target company authorising the buy-back of securities under
section 77A of the Companies Act, 1956 (1 of 1956); and
(iv the increase in voting rights does not result in an acquisition of control by such shareholder over
the target company:

Provided further that where the aforesaid conditions are not met, in the event such shareholder reduces his
shareholding such that his voting rights fall below the level at which the obligation to make an open offer
would be attracted under sub-regulation (2) of regulation 3, within ninety days from the date on which the
voting rights so increase, the shareholder shall be exempt from the obligation to make an open offer;

Transferors and such promoter

Note: Prior intimation needs to be given to the stock exchange where the shares of the company are listed at
least 4 working days before the transaction in the above case in the specified format under Regulation 10(5)
(d) acquisition of shares in a target company from a venture capital fund or a foreign venture capital
investor registered with the Board, by promoters of the target company pursuant to an agreement
between such venture capital fund or foreign venture capital investor and such promoters.

Note: Prior intimation needs to be given to the stock exchange where the shares of the company are listed at
least 4 working days before the transaction in the above case in the specified format under Regulation 10(5).

OBLIGATIONS
Obligations of the Directors of the Target Company

The obligations of the directors of the target company are covered by Regulation 24 of the SEBI Takeover
Regulations. As per the said Regulation, no person representing the acquirer or the person acting in concert
with him shall be appointed as a director on the Board of Directors of the target company, either as an
additional director or in a casual vacancy during the offer period. However if the acquirer has deposited
100% of the consideration payable in the escrow account, persons representing the acquirer can be
appointed on the Board of Directors of the target company after expiry of the initial 15 working days from the
date of publication of the Detailed Public Statement. Where the acquirer has specified conditions, in the
agreement for the acquisition of shares, which attracted the obligation to make an open offer, no director
representing the acquirer may be appointed to the board of directors of the target company during the offer
period unless the acquirer has waived or attained such conditions and complies with the requirement of
depositing cash in the escrow account.

Where the open offer is a conditional offer, subject to the a minimum level of acceptance by the acquirer in
the open offer, the acquirer and persons acting in concert shall regardless of the amount of cash deposited in
the escrow account not be entitled to appoint any director representing the acquirer or any person acting in