MERGERS &

ACQUISITIONS
Unit 15 & 16
Unit 15- SEBI (Substantial Acquisition of Shares &
Takeover) Code 2011
 INTRODUCTION
Meaning of Takeover:
A takeover occurs when one company, known as the acquirer makes a
successful bid to assume control of or acquire another company, also known
as the target. A takeover can be done by purchasing majority share in target
firm or commonly through the process of mergers and acquisitions.

When an “acquirer” takes over the control of the “Target Company”, it is

termed as Takeover. When an acquirer acquires “substantial quantity of shares
or voting rights” of the Target Company, it results into substantial acquisition
of shares.
 NECESSITY
• The confidence of retail investors in the capital market is a crucial factor for its
development. Therefore, their interest needs to be protected.
• An exit opportunity shall be given to the investors if they do not want to
continue with the new management.
• Full and truthful disclosure shall be made of all material information relating to
the open offer so as to take an informed decision.
• The acquirer shall ensure the sufficiency of financial resources for the payment
of acquisition price to the investors.
• The process of acquisition and mergers shall be completed in a time bound
manner.
• Disclosures shall be made of all material transactions at earliest opportunity.
 OBJECTIVE
• To provide a transparent legal framework for facilitating takeover activities;
• To protect the interests of investors in securities and the securities market, taking into
account that both the acquirer and the other shareholders or investors and need a fair,
equitable and transparent framework to protect their interests;
• To balance the conflicting objectives and interests of various stakeholders in the context of
substantial acquisition of shares in, and takeovers of, listed companies.
• To provide each shareholder an opportunity to exit his investment in the target company
when a substantial acquisition of shares in or takeover of a target company takes place.
• To provide acquirers with a transparent legal framework to acquire shares in or control of the
target company and to make an open offer;
• To ensure that the affairs of the target company are conducted in the ordinary course when a
target company is subject matter of an open offer;
• To ensure that fair and accurate disclosure of all material information is made by persons
responsible for making them to various stakeholders to enable them to take informed
decisions;
• To regulate and provide for fair and effective competition among acquirers desirous of taking
over the same target company; and
• To ensure that only those acquirers who are capable of actually fulfilling their obligations
under the Takeover Regulations make open offers.
 Introduction to SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011

• The Regulation was initiated as a protective measure to guide the acquisition and takeover of shares
in a listed entity. It acts as a guardian, ensuring fairness and transparency in the stock market.
• The Role of an Acquirer: An Acquirer cannot acquire shares based solely on their financial capacity
or desire. The acquisition process is subject to specific requirements and disclosures, ensuring that
the acquirer’s actions don’t blindside other shareholders or unfairly tilt the balance of power.
• Introducing the Person Acting in Concert (PAC): A vital entity in this regulation is the PAC, which
refers to individuals or entities that collaborate with the acquirer in the process of acquiring shares.
Both the Acquirer and the PAC are bound by stringent disclosure requirements, ensuring they act in
the best interests of all shareholders.
• Protecting the Minority: One of the primary purposes of this regulation is to shield the interests of
minority shareholders. By placing checks on major acquisitions and takeovers, the regulation ensures
that minority shareholders aren’t marginalized or their interests compromised.
• Safeguarding against Hostile Takeovers: The regulation acts as a deterrent against hostile
takeovers, wherein an entity acquires a company without the approval or knowledge of the company’s
board. Such unchecked actions can often lead to the exploitation of public shareholders, and this
regulation ensures that every stakeholder gets a fair deal.
• Applicability of the Regulation:
a. To Whom is it Applicable? The SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011, broadly covers any direct or indirect
acquisition of shares, voting rights, or control over a Listed company. This
ensures that major acquisitions are governed by a standardized set of
regulations, ensuring transparency and fairness in the process.
b. Exemptions from the Regulation: It is crucial to note that this
regulation is not universally applicable. It does not cater to the acquisition
of shares or voting rights in, or control over, a company that is listed
without making a public issue on the Innovators Growth Platform of a
recognized stock exchange. This particular provision aims at promoting
innovation and growth without the constraints of typical regulatory
procedures, thereby fostering a more entrepreneurial ecosystem.
 DEFINITIONS

• Reg 2 (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;
• Reg 2 (b) “acquisition” means, directly or indirectly, acquiring
or agreeing to acquire shares or voting rights in, or control
over, a target company;
• Reg 2 (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 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;
• Reg 2 (q) “persons acting in concert” means,—
(1)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, formal or informal, directly or indirectly co-operate for acquisition of
shares or voting rights in, or exercise of control over the target company.
(2) Without prejudice to the generality of the foregoing, the persons falling within the
following categories shall be deemed to be person to be acting in concert:
1. A Company, its holding company, subsidiary company and any company under the same
management or control.
2. A Company, its directors, and any person entrusted with the management of the
company.
3. Directors of companies referred to in item (i) and (ii) of this sub-clause and associates of
such directors.
4. Promoters and members of the promoter group
5. Immediate relatives.
6. Mutual fund, its sponsor, trustees, trustee company, and asset management company.
7. Collective investment scheme and its collective investment management company,
trustees and trustee company.
8. Venture capital fund and its sponsor, trustees, trustee company and asset
management company.
9. Alternative Investment Fund and its sponsor, trustees, trustee company and
manager.
10. Merchant banker and its client, who is an acquirer.
11. Portfolio manager and its client, who is an acquirer.
12. Banks, Financial Advisors and Stock Brokers of the acquirer, or of any company
which is a holding company or subsidiary of the acquirer, and where the acquirer is an
individual, of the immediate relative of such individual. [Excluding the bank whose
sole role is that of providing normal commercial banking services or activities in
relation to an open offer under these regulations]
13. Investment company or fund and any person who has an interest in such
investment company or fund as a shareholder or unitholder having not less than 10
per cent of the paid-up capital of the investment company or unit capital of the fund,
and any other investment company or fund in which such person or his associate
holds not less than 10 per cent of the paid-up capital of that investment company or
unit capital of that fund. [Excluding the holding of units of mutual funds registered
with SEBI]
• Direct & Indirect Acquisition-
• Direct acquisition is when control of a public listed company is by
way of acquisition of shares of the target company directly where as
indirect acquisition the acquirer does not directly buy shares in the
target company. Instead, the acquirer gains control over the target
company by acquiring another entity that holds significant shares or
control in the target company. It is done by acquiring shares of a
holding company/parent company of the target company.
• The takeover code mandates an open offer process for both direct
as well as indirect acquisition of shares, voting rights or control if
such acquisition triggers the threshold prescribed under the
Takeover code
• The concept of Indirect acquisition of shares has been recognized under Regulation
5 of the Takeover Code 2011. It explains indirect acquisition as the acquisition of
shares, voting rights or control over any other company which would enable the
acquirer of shares, voting rights or control to exercise such percentage of voting
rights, which would otherwise have triggered an open offer process over which
would enable the acquirer to exercise control over a company.
• Certain indirect acquisitions are regarded as ‘deemed direct acquisitions’ if such
indirect acquisition satisfy the following conditions such as:
(a)the proportionate net asset value of the target company as a percentage of the
consolidated net asset value of the entity or business being acquired exceeds 80
percent; or
(b)the proportionate sales turnover of target company as a percentage of the
consolidated sales turnover of the entity or business being acquired exceeds 80
percent; or
(c)the proportionate market capitalisation of the target company as a percentage of
the enterprise value for the entity or business being acquired exceeds 80 percent;
The ‘deemed direct acquisition’ has to follow the same mandatory open offer related
requirements as a direct acquisition of shares, voting rights or control.
• Example of Direct Acquisition:
Example 1: Company A buys 51% of the shares of Company B directly from the
stock market. As a result, Company A acquires majority control over Company B, as it
now holds a majority of the voting rights.
Example 2: An investor buys 15% of the shares of a listed company through an open
offer. If the investor crosses a certain threshold (like 25%), the regulations may
require them to make a public announcement of the acquisition.
• Example of Indirect Acquisition:
Example 1: Company X acquires 100% of Company Y, which in turn holds 60% of
the shares in Company Z. As a result, Company X indirectly gains control of Company
Z without directly buying shares in Company Z. In this scenario, although Company X
did not acquire shares of Company Z directly, it now controls Z through its ownership
of Y.
Example 2: A global corporation acquires a holding company based in another
country, and the holding company owns 40% of a target company in India. The global
corporation now indirectly acquires a stake in the Indian company by virtue of the
acquisition of the holding company.
 Key Differences Between Direct and Indirect Acquisition:

Aspect Direct Acquisition Indirect Acquisition

Control over the target
Shares or voting rights of
company is obtained by
the target company are
Ownership Transfer acquiring an intermediate
directly transferred to the
company that holds shares
acquirer.
in the target.
Indirect acquisitions may
Direct acquisitions typically
also trigger disclosure if
trigger immediate
the underlying target
Regulatory Disclosure disclosure requirements
company changes control,
(e.g., open offers under
though this may be
takeover regulations).
delayed or more complex.
Control is established
Direct control of the target indirectly through
Control company is established ownership of a company
immediately. that holds shares in the
target.
Relatively simple, as the More complex, as the
acquirer directly buys the acquirer must manage the
Complexity
Unit 16- Open Offer Process
• Reg 3- Substantial acquisition of shares or voting rights.-
• Substantial Acquisition Threshold - 25% or More - An acquirer, along with
persons acting in concert (PACs), cannot acquire 25% or more of the shares or
voting rights in a target company without making a public announcement of an
open offer to acquire shares from the remaining shareholders.
• Further Acquisition Limit Beyond 25% -
• Holding Between 25% and Maximum Non-Public Shareholding: If an
acquirer, along with PACs, already holds between 25% and the maximum
permissible non-public shareholding (usually 75% in India), they are allowed to
acquire up to 5% more shares or voting rights in a financial year without triggering
an open offer.
• Public Announcement Obligation Beyond 5%: Any acquisition beyond 5%
within a financial year requires a public announcement of an open offer,
maintaining the principle of transparency and fairness.
• 2020-21 Exception for Promoters: During the financial year 2020-21, an
exception allowed promoters to acquire between 5% and 10% of voting rights
without triggering an open offer if such acquisition was through a preferential issue
of equity shares by the target company.
• Provided that such acquirer shall not be entitled to acquire or
enter into any agreement to acquire shares or voting rights
exceeding such number of shares as would take the
aggregate shareholding pursuant to the acquisition above the
maximum permissible non-public shareholding.
• Providedfurther that, acquisition pursuant to a resolution
plan approved under section 31 of the Insolvency and
Bankruptcy Code, 2016 shall be exempt from the obligation
under the proviso of regulation 3.
• Forpurposes of determining the quantum of acquisition of
additional voting rights under this sub-regulation,—
(i) Gross Acquisitions: When calculating the quantum of additional acquisitions, only
gross acquisitions (total shares or voting rights acquired) are counted. Any
temporary falls in shareholding—whether due to sales of shares or or dilution of
voting rights owing to fresh issue of shares by the target company—are not
considered.
• Example: An acquirer holds 10% of the shares in a company. The acquirer buys an
additional 5% of the shares, but later sells 2%. Regardless of the sale, the gross
acquisition of 5% will be counted towards the acquirer's total acquisition for
regulatory purposes.
(ii) New Share Issuance: When a company issues new shares in any financial year,
the quantum of additional voting rights acquired by the acquirer is determined by the
difference between their pre-issue and post-issue percentage of voting rights.
Example: Before the issuance of new shares, the acquirer holds 10% voting rights in
the target company. The company issues new shares, and the acquirer subscribes to
some of them. After the issuance, the acquirer's voting rights increase to 12%. The
difference between the pre-issue voting rights (10%) and the post-issue voting
rights (12%) is 2%, which is considered the quantum of additional acquisition.
• Obligation for Open Offer at Individual Shareholding Exceeding
Thresholds: If any individual acquirer crosses the stipulated thresholds
(25% or 5% additional acquisition), an open offer is triggered, even if there
is no change in the aggregate shareholding with PACs. This ensures that
individual acquisitions are scrutinized, and public offers are made if they
surpass the thresholds.
• Exemption for Promoters/Shareholders in Control: The acquisition of
shares or voting rights by promoters or shareholders in control is exempt
from this regulation if done in accordance with the provisions of Chapter VI-
A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations,
2009.
• Higher Threshold for Innovators Growth Platform: For companies
listed on the IGP, the threshold for triggering a public offer is 49% instead
of 25%. The IGP is designed for start-ups and innovators, and this higher
threshold allows for greater flexibility in ownership changes while
promoting growth and innovation.
• Step 1: Initial Acquisition
• Acquirer + PAC (Persons Acting in Concert) | Reaches 25% or
more voting rights in the target company | Public
Announcement of an Open Offer
• Step 2: Post-25% Acquisition
• Holds more than 25% but less than maximum non-public
shareholding | Additional acquisition within the financial year
| Cannot exceed 5% without an Open Offer
• Reg 4- Acquisition of control-
Irrespective of acquisition or holding of shares or voting rights
in a target company, no acquirer shall acquire, directly or
indirectly, control over such target company unless the acquirer
makes a public announcement of an open offer for acquiring
shares of such target company in accordance with these
regulations.
• Reg 5- Indirect acquisition of shares or control-
• What is Indirect Acquisition?:
• Indirect acquisition refers to the acquisition of shares, voting rights, or control in
one company or entity, which indirectly gives the acquirer control or substantial
ownership of a target company.
• If such an acquisition would otherwise trigger a public announcement of an open
offer under regulations 3 or 4 (which govern substantial acquisitions and change in
control), then it is considered an "indirect acquisition" of the target company.

• Explanation: This applies when an acquirer gains control of an entity

that owns a significant stake in a target company. By acquiring control of
the first entity, the acquirer effectively gains control or substantial
ownership of the target company. For example, if a holding company has
control over a listed company (the "target company"), and an acquirer
gains control over the holding company, the acquirer also indirectly
controls the target company.
• Key Point: The regulation ensures that indirect acquisitions do not
escape the requirement to make an open offer to the shareholders of the
target company. Indirect control or substantial ownership requires the
same level of disclosure and fairness as direct acquisitions.
• Indirect Acquisition Process
Acquisition of Parent Company - Does this give control over Target
Company? No Control or Voting Rights in Target Company- No Public
Offer Needed
But if yes then Public Offer Triggered under Regulation 3 & 4
• When Indirect Acquisition is Considered as Direct
Acquisition:
Indirect Acquisition of Parent Company
Check if Target Company accounts for: (a) >80% of Net Asset Value
of Parent Entity (b) >80% of Sales Turnover of Parent Entity (c) >80%
of Market Capitalization of Parent Entity
If YES, Indirect Acquisition = Direct Acquisition Public Offer Required
(timing, pricing, compliance)
 Criteria for Treating Indirect Acquisition as Direct Acquisition- specifies
that if the target company forms a substantial part of the entity being acquired,
the indirect acquisition will be treated as a direct acquisition. This has critical
implications, particularly for the compliance obligations relating to open offers
(timing, pricing, etc.).
• Threshold Criteria for Direct Acquisition Treatment: If any of the
following three metrics exceed 80%, the acquisition will be considered a direct
acquisition:
(a) Proportionate Net Asset Value of the Target Company: If the target
company's net asset value exceeds 80% of the total consolidated net asset
value of the entity being acquired, it is treated as a direct acquisition.
(b) Proportionate Sales Turnover of the Target Company: If the target
company's sales turnover exceeds 80% of the total consolidated sales turnover
of the entity being acquired, the acquisition is treated as direct.
(c) Proportionate Market Capitalization of the Target Company: If the
target company’s market capitalization exceeds 80% of the enterprise value of
the entity being acquired, the acquisition is treated as a direct acquisition.
• Outcome: If any one of the above three criteria is met, the indirect acquisition
will be treated as a direct acquisition, meaning the acquirer has to follow all
regulations applicable to direct acquisitions, including compliance with timing,
pricing, and making a public announcement of an open offer.
• Explanation to Market Capitalization Calculation- The
market capitalization is to be calculated based on the
volume-weighted average market price (VWAP) of the
target company's shares on the stock exchange over a period
of 60 trading days.
• Details of Calculation:
• The 60 trading day period starts from the date on which the primary
acquisition (i.e., the acquisition of the holding company or entity that
owns the target company) is either:
• Contracted (i.e., the agreement for acquisition is signed), or
• Announced to the public (whichever comes earlier).
• The stock exchange used for the calculation is the one where the
maximum trading volume of the target company's shares occurred
during the 60 trading day period.
• Key Considerations for Acquirers
• Obligations: If an acquisition is treated as direct (based on the criteria
outlined above), the acquirer must comply with all regulatory obligations,
including:
• Timing: The acquirer must make a public announcement of the open offer within the
specified time frame (typically within 4 working days of signing the agreement or making
the announcement of the acquisition).
• Pricing: The open offer price must be determined in accordance with the relevant pricing
regulations (which often involve considering the highest price paid by the acquirer for the
shares within the last 12 months, or the market price during a specified period).
• Open Offer: The acquirer must make an open offer to the shareholders of the target
company, ensuring they have the opportunity to exit at the offer price if they wish.

• Avoiding Circumvention: This regulation prevents acquirers from bypassing

the takeover regulations through complex corporate structures or acquisitions
of holding companies. If an indirect acquisition results in control of a target
company, it triggers the same obligations as a direct acquisition, ensuring
that the takeover regulations are applied fairly and consistently.
• Reg 6- Voluntary Offer-
• Conditions for Making a Voluntary Offer:
• An acquirer, along with persons acting in concert (PAC), who already holds at least 25%
of the shares or voting rights of a target company (but less than the maximum permissible
non-public shareholding, i.e., 75%), can voluntarily make a public announcement for an
open offer to acquire more shares.

• Important Restrictions:
• The total shareholding of the acquirer and PAC after the voluntary open offer cannot
exceed 75%, ensuring that the company continues to meet the public shareholding
requirement.
• Eligibility Restriction: If the acquirer or PAC has purchased any shares in the target
company in the preceding 52 weeks without triggering a mandatory open offer (under
regulation 3 or 4), they cannot make a voluntary open offer.
• Relaxation: However, this restriction was relaxed until March 31, 2021, meaning that until
that date, acquirers could proceed with a voluntary offer even if they had made
acquisitions within the prior 52-week period.
• Prohibition During the Offer Period: Once the public announcement for the voluntary
offer is made, the acquirer is prohibited from acquiring any shares in the target company
outside the voluntary offer mechanism during the offer period. This ensures that the
acquirer cannot circumvent offer rules by buying shares directly from the market or via
private deals during the offer period.
Restrictions on Acquiring Shares After Completion of the Open Offer-
• Six-Month Restriction on Further Acquisitions: After completing the
voluntary open offer, the acquirer and PAC are restricted from acquiring
further shares in the target company for six months. This prevents the
acquirer from gradually gaining further control or ownership after the offer is
complete.
• Exceptions:
• This restriction does not apply if the acquirer wants to make another voluntary open offer
within the six-month period.
• The acquirer is also allowed to make a competing offer in response to another person’s
open offer for the target company during the six-month period. Competing offers allow
shareholders to receive alternative offers and ensure a level playing field in takeovers.

• Exclusion of Bonus Issues and Stock Splits from Dis-Entitlement

• Shares that the acquirer receives through bonus issues or stock splits do not count
towards the dis-entitlement to make a voluntary open offer or as part of shareholding
limits.
• This provision ensures that passive increases in shareholding due to corporate actions like
bonus issues or splits do not prevent an acquirer from making a voluntary offer or trigger
additional restrictions.
• Higher Threshold for Innovators Growth Platform: For companies listed on the
Innovators Growth Platform (a platform for start-ups and high-growth
companies), the threshold for making a voluntary open offer is 49% instead of 25%.

• Disqualification of Wilful Defaulters from Making a Voluntary Offer- A wilful

defaulter is a person or entity that has intentionally defaulted on debt obligations,
particularly to financial institutions, and has been officially classified as such.
• Wilful defaulters are prohibited from making a public announcement for an open offer or
entering into any transaction that would trigger an open offer obligation.
• However, wilful defaulters can still make a competing offer if another person makes an open
offer for the target company, as this maintains competitive fairness in the bidding process.

• 6. Disqualification of Fugitive Economic Offenders from Making a Voluntary

Offer
• A fugitive economic offender is someone who has fled the country to avoid legal
proceedings related to economic offenses, such as money laundering or fraud.
• Fugitive economic offenders are completely barred from making a public announcement for an
open offer, including competing offers, and from acquiring shares or voting rights in a target
company, whether directly or indirectly.
• Reg 7- Offer Size-
• Minimum Offer Size for Acquirers –
• For acquisitions triggering Regulation 3 (substantial acquisition of shares or voting
rights) or Regulation 4 (acquisition of control), the acquirer and persons acting in
concert (PAC) must make an open offer to acquire at least 26% of the total
shares of the target company.
• This 26% is calculated as of the 10th working day from the closure of the
tendering period, ensuring that the offer size is based on the actual number of
outstanding shares at the conclusion of the offer period.

• Accounting for Potential Share Increases:

• The offer size must consider any potential increases in the number of shares
of the target company during the offer period. These may include conversions of
convertible securities (like debentures or warrants) into equity shares that have
been planned or announced before the public announcement.
• Increase in Offer Size: If the total number of shares increases after the public
announcement (and this increase was not anticipated or announced), the offer size
must be proportionately increased to reflect the new number of outstanding
shares.
• Offer Size in Voluntary Offers :
• For open offers made under Regulation 6 (voluntary offers), the acquirer
must offer to purchase enough shares to enable them to acquire an
additional 10% voting rights in the target company.
• However, the offer must be capped so that the acquirer and PAC's post-offer
shareholding does not exceed 75%, which is the maximum permissible
non-public shareholding limit.

• Flexibility in Competing Offers:

• If a competing offer is made by another party, the acquirer (who initiated
the voluntary offer) is allowed to increase the offer size to any number of
shares they deem appropriate.
• However, this decision to increase the offer size must be made within 15
working days of the public announcement of the competing offer. If the
acquirer fails to increase the offer size within this timeframe, they lose the
right to do so.
• Consequence of Increasing Offer Size –
• If the acquirer chooses to increase the offer size as mentioned in Sub-Regulation 7(2),
the voluntary offer will be deemed to have been made under Regulation 3(2)
• This means that all the provisions applicable to open offers under Regulation 3(2) will
apply to the voluntary offer once the offer size is increased.

• Non-Public Shareholding Exceeding Permissible Limit- If, upon the

completion of the open offer, the acquirer's shareholding (together with PAC)
exceeds the maximum permissible non-public shareholding limit (i.e.,
75%), the acquirer is required to reduce their shareholding to meet this limit.
This reduction must occur within the timeframe specified under the
Securities Contracts (Regulation) Rules, 1957.
• Proportionate Reduction Option: If the acquirer had made a public
announcement indicating their intention to retain the company's listing, they
can choose to reduce the shares acquired through the open offer or through
any underlying acquisition agreement to avoid exceeding the 75%
threshold.
• Preferential Allotment Special Case: In cases where a preferential
allotment of shares is involved (for example, triggered by a share
subscription agreement), the necessary board and shareholder
resolutions must include specific wording on the effective date and quantity
of allotment, especially when scaling down the acquisition to maintain public
shareholding.
• Scale-Down Mechanism: If the acquirer opts to scale down their
acquisition, they must comply with the 15-day window set by the SEBI
(Issue of Capital and Disclosure Requirements) Regulations, 2018,
meaning the shares must be allotted within 15 days of the closure of
the tendering period for the open offer.
• Restrictions on Scale-Down Participants: The acquirer undertaking
the scale-down must not have been, in the preceding two years, a:
• Promoter or part of the promoter group,
• Person in control of the target company,
• Holder of more than 25% shares or voting rights.

• Restrictions on Voluntary Delisting After an Open Offer -

• If an acquirer’s shareholding exceeds 75% due to an open offer, they
cannot make a voluntary delisting offer under the SEBI Delisting
Regulations unless 12 months have passed since the completion of
the open offer.
• Offer to All Shareholders Except Specific Parties- The
open offer must be extended to all shareholders of the
target company, except the following:
• The acquirer and PAC (since they are making the offer),
• Parties to any underlying acquisition agreement (like promoters
selling their stake),
• Persons deemed to be acting in concert with the above parties.

• This provision ensures that only the public shareholders who

are eligible to tender their shares are included in the offer,
preventing any conflict of interest or undue advantage to the
parties involved in the acquisition.
• START: Public Announcement of Acquisition Offer
• Acquirer must offer at least 26% of Target Company’s Shares.
• Is there a change in the number of total shares after the announcement?
• if Yes ⟶ Proportionally increase the offer size, If No ⟶ Proceed with the original offer
size.
• Does the Acquirer wish to make a Voluntary Offer under Regulation 6?
• If Yes ⟶ Offer at least an additional 10% voting rights, subject to non-public
shareholding limits, If No ⟶ Continue with the acquisition process.
• Competing Offer Made?
• If Yes ⟶ Acquirer may increase the offer size within 15 days, If No ⟶ Proceed with the
original offer size.
• Did the Acquirer exceed the Maximum Permissible Non-Public Shareholding?
• If Yes ⟶ Acquirer must reduce shareholding to comply with regulatory limits., If No ⟶
Acquisition completed with no further action.
• All Shareholders Except Acquirer and Specified Parties May Tender Shares.
• Completion of Open Offer Process.
• Reg 10- General exemptions-
1. Exemptions from obligation to make an open offer under Regulation 3
and 4- The following acquisitions are exempt from the obligation to make an open
offer under regulation 3 and regulation 4, subject to certain conditions:
a) Inter se transfer of shares amongst qualifying persons
(i) Immediate relatives.
(ii) Persons named as promoters in the shareholding pattern filed by the target
company for not less than three years prior to the proposed acquisition.
(iii) A company, its subsidiaries, holding company, other subsidiaries of such
holding company, persons holding not less than 50% of the equity shares of such
company, and their subsidiaries where control is exclusively held by the same
persons.
• Explanation: The company includes a body corporate, whether Indian or foreign.
(iv) Persons acting in concert for not less than three years prior to the proposed
acquisition and disclosed as such pursuant to filings.
(v) Shareholders of a target company who have been persons acting in concert for
at least three years prior to the acquisition and disclosed as such in filings, and a
company where all equity shares are owned by such shareholders in the same
proportion as in the target company, with no differential voting rights.
 • Provided that:
(i) If the shares are frequently traded, the acquisition price shall not be more than 25% higher than the volume-
weighted average market price for the preceding 60 trading days, or, if infrequently traded, not higher than 25%
above the price determined under regulation 8(2)(e).
(ii) The transferor and transferee must comply with disclosure requirements set out in Chapter V.

b) Acquisition in the ordinary course of business

(i) An underwriter registered with SEBI by way of allotment pursuant to an underwriting
agreement in terms of the SEBI (Issue of Capital and Disclosure Requirements) Regulations,
2009.
(ii) A stock broker registered with SEBI exercising lien over shares purchased on behalf of a
client under the stock exchange bye-laws.
(iii) A merchant banker registered with SEBI or a nominated investor during market making or
subscription to an unsubscribed portion of an issue under Chapter XB of SEBI (ICDR)
Regulations, 2009.
(iv) Acquisition pursuant to a safety net scheme under Regulation 44 of SEBI (ICDR)
Regulations, 2009.
(v) A merchant banker registered with SEBI acting as a stabilising agent or by the promoter or
pre-issue shareholder under Regulation 45 of SEBI (ICDR) Regulations, 2009.
(vi) A registered market-maker during the course of market making.
(vii) A Scheduled Commercial Bank acting as an escrow agent.
(viii) Invocation of pledge by Scheduled Commercial Banks or Public Financial Institutions as
pledgee.
c) Acquisition by the same acquirer at all stages of acquisition
(i) The acquirer and seller must remain the same at all stages of acquisition.
(ii) Full disclosures of subsequent acquisition stages must be made in the public announcement of the open
offer and the letter of offer.
d) Acquisition pursuant to a scheme
(i) A scheme made under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, or any
re-enactment.
(ii) A scheme of arrangement involving the target company as a transferor or transferee, or its
reconstruction through a court or tribunal order.
(iii) A scheme of arrangement not directly involving the target company, subject to:
(A) Cash and equivalents being less than 25% of the consideration.
(B) Persons holding at least 33% of voting rights in the combined entity are the same as those holding entire voting rights
before implementation.
(da) Acquisition under a resolution plan approved under section 31 of the Insolvency and
Bankruptcy Code, 2016.
e) Acquisition pursuant to the SARFAESI Act, 2002
f) Acquisition pursuant to the Delisting Regulations
g) Acquisition by way of transmission, succession, or inheritance
h) Acquisition of voting rights or preference shares carrying voting rights under section 47(2) of
the Companies Act, 2013
i) Acquisition by lenders under debt restructuring: Lenders can acquire shares through debt
conversion, complying with SEBI regulations.
j) Increase in voting rights due to section 106 of the Companies Act, 2013 or forfeiture of shares
2. Exemption for increase in voting rights beyond the
threshold limit
• (2A) Voting rights increase due to conversion of equity shares
with superior voting rights into ordinary shares will be exempt
from making an open offer.
• (2B) Acquisition of shares through preferential issue in
compliance with SEBI (ICDR) Regulations, 2018 is exempt
from an open offer.
3. Exemption for voting rights increase due to buy-back
• Votingrights increase beyond the threshold due to buy-back
is exempt, provided the shareholder reduces their holding
below the threshold within 90 days of closure of the buy-back
offer.
4. Exemptions from open offer under sub-regulation (2) of regulation 3
a) Acquisition through a rights issue by shareholders up to their
entitlement
b) Acquisition beyond entitlement in a rights issue, subject to:
• The acquirer not renouncing any entitlements.
• The rights issue price not being higher than the ex-rights price.
c) Voting rights increase due to buy-back, subject to:
• The shareholder did not vote in favor of the buy-back resolution.
• The increase does not result in acquiring control.
d) Acquisition through an open offer exchange of shares.
e) Acquisition from state-level financial institutions by promoters under an
agreement.
f) Acquisition from a venture capital fund or category I Alternative
Investment Fund by promoters.
5. Intimation to stock exchanges- For acquisitions under sub-regulation
(1)(a), (4)(e), and (4)(f), acquirers must inform stock exchanges at least four
working days before acquisition, and stock exchanges shall disseminate this
information.
6. Acquisition made pursuant to exemption provided for in this regulation.
Acquirers must file a report with stock exchanges within four working days
of acquisition, and the stock exchange must disseminate the information.
7. Voting rights increase exemption pursuant to certain clauses- If
the acquisition involves an increase in voting rights due to factors like a
buyback or corporate actions, acquirer shall, within twenty-one working
days of the date of acquisition, submit a report in such form as may be
specified along with supporting documents to the Board giving all details in
respect of acquisitions, along with a non-refundable fee of rupees one lakh
fifty thousand by way of direct credit into the bank account through
NEFT/RTGS/IMPS or online payment using the SEBI Payment Gateway or any
other mode as may be specified by the Board from time to time.
• Reg 13- Timings
1. Public Announcement for Acquisition under Regulation 3 and
Regulation 4- Whenever an acquirer agrees to acquire shares, voting
rights, or control over a target company, as specified in Regulation 3 and
Regulation 4, a public announcement (PA) must be made in accordance
with Regulation 14 and Regulation 15.
The timing of the PA is determined by various scenarios and modes of
acquisition. These are the key circumstances for making a PA:
2. Different Scenarios for Public Announcement
• (a) Market Purchases: If the acquirer intends to buy shares that would
take their voting rights entitlement beyond the thresholds mentioned in
Regulation 3 (i.e., 25%, 5% in a financial year, or more than 5% in
creeping acquisition), they must make a public announcement prior to
placing the purchase order with the stockbroker.
(b) Conversion of Convertible Securities Without a Fixed Date of
Conversion or Conversion of Depository Receipts:- In cases where an
acquirer exercises the option to convert convertible securities (without a fixed
date) or depository receipts into equity shares of the target company, the PA
must be made on the same day as the date of conversion.
Explanation: Since conversion into shares can affect voting rights, timely disclosure is
essential.
(c) Conversion of Convertible Securities with a Fixed Date of
Conversion: For securities with a pre-determined conversion date, the
acquirer must make a PA on the second working day preceding the
scheduled conversion date.
Explanation: This gives the market advance notice of a likely increase in voting rights.
(d) Acquisition through Disinvestment: In a disinvestment scenario (i.e.,
sale of government or public sector holdings), the PA must be made on the
same day as the date of executing the agreement to acquire shares, voting
rights, or control over the target company
(e) Indirect Acquisition – Non-Qualifying Case:
• If an indirect acquisition does not meet the parameters under Regulation 5(2)
(for significant indirect acquisitions), the PA can be made within four working
days from the earlier of:
• The date on which the primary acquisition agreement was contracted, or
• The date when the intention or decision to make the acquisition is publicly announced.
Explanation: Indirect acquisitions refer to acquiring a company that holds shares in the
target company. If the acquisition is small or does not lead to control, a more flexible timeline
for the announcement is allowed.
(f) Indirect Acquisition – Qualifying Case:
• If the indirect acquisition does meet the parameters under Regulation 5(2),
the PA must be made on the earlier of:
• The date on which the primary acquisition is contracted, or
• The date the intention or decision to acquire is announced publicly.
Explanation: If the indirect acquisition is significant enough to influence control or voting
rights in the target company, the PA must be made as early as possible.
(g) Preferential Issue: In the case of acquiring shares or control through
a preferential issue, the PA must be made on the same day that the
board of directors of the target company authorizes such an issue.
• Rationale: Preferential issues involve direct placement of shares, and the market
must be informed immediately when the board approves the issue.
(h) Increase in Voting Rights due to Buy-back: When an increase in
voting rights happens as a result of a buy-back that does not qualify for
exemption under Regulation 10, the PA must be made no later than the
90th day after the closure of the buy-back offer by the target company.
(i) Acquisition Where the Specific Date is Beyond Control: If the
exact date on which the acquirer gains title to shares, voting rights, or
control is beyond their control (e.g., through legal processes or
inheritance), the PA must be made no later than two working days
after receiving intimation of having acquired the title.
2A. Special Provisions for Public Announcement in Case of
Multiple Modes of Acquisition- When an acquisition involves a
combination of:
(i) Agreement and one or more modes of acquisition listed under
Regulation 13(2), or
(ii) Any mode of acquisition listed in Regulation 13(2) (such as
market purchase, rights issue, etc.),
The PA must be made on the date of the first acquisition.
3. Public Announcement for Voluntary Open Offer
(Regulation 6)- For voluntary open offers (where an acquirer
voluntarily seeks to make a public offer for shares), the PA must
be made on the same day as the decision to make the open offer.
4. Detailed Public Statement Following Public Announcement
• Aftermaking the PA a Detailed Public Statement (DPS) must be
published within five working days. The DPS must be made through
the manager to the open offer and must adhere to the specifications
of Regulations 14 and 15.
• Exception: For PAs under clause (e) of sub-regulation (2) (non-
qualifying indirect acquisition), the DPS must be made within five
working days after completing the primary acquisition of shares or
voting rights.
• Explanation Regarding Failure to Acquire Control If the acquirer
fails to acquire control or voting rights in the target company after
announcing the acquisition, there is no obligation to issue the DPS or
proceed with the open offer. This avoids unnecessary offers if the
acquisition attempt does not materialize.
• Reg 14- Publication-
(1) 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.
(2) A copy of the public announcement shall be sent to the Board and to the
target company at its registered office within one working day of the date of
the public announcement.
(3) The detailed public statement pursuant to the public announcement
referred to in regulation 13 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.
(4) Simultaneously with publication of such detailed public
statement in the newspapers, a copy of the same shall be sent
to,—
(i) the Board through the manager to the open offer,
(ii) 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,
(iii) the target company at its registered office, and the target
company shall forthwith circulate it to the members of its
board.
• Reg 15- Content-
(1) The public announcement shall contain such information as may be specified,
including the following,—
(a) name and identity of the acquirer and persons acting in concert with him;
(b) name and identity of the sellers, if any;
(c) nature of the proposed acquisition such as purchase of shares or allotment of
shares, or any other means of acquisition of shares or voting rights in, or control
over the target company;
(d) the consideration for the proposed acquisition that attracted the obligation to
make an open offer for acquiring shares, and the price per share, if any;
(e) the offer price, and mode of payment of consideration;
(f) offer size, and conditions as to minimum level of acceptances,
(g) intention of the acquirer to either delist the target company or retain the listing
of the target company.
In case of proposed delisting under regulation 5A, the proposed open offer price
and indicative price as required under regulation 5A shall be disclosed along with
an explanation setting out the rationale and basis for justifying the indicative price.
(2) The detailed public statement pursuant to the public
announcement shall contain such information as may be
specified in order to enable shareholders to make an informed
decision with reference to the open offer.
(3) The public announcement of the open offer, the detailed
public statement, and any other statement, advertisement,
circular, brochure, publicity material or letter of offer issued in
relation to the acquisition of shares under these regulations
shall not omit any relevant information, or contain any
misleading information.
 • Reg 17- Provision of escrow-
(1) Not later than two working days prior to the date of the
detailed public statement of the open offer for acquiring shares,
the acquirer shall create an escrow account towards security for
performance of his obligations under these regulations, and
deposit in escrow account such aggregate amount as per the
following scale:
S. No. Consideration payable Escrow Amount
under the Open Offer
a. On the first five hundred an amount equal to twenty-
crore rupees five per cent of the
consideration
b. On the balance an additional amount equal
consideration to ten per cent of the
balance consideration
• Conditional Offers: If the open offer is conditional on a minimum
level of acceptance: Either 100% of the consideration for the
minimum acceptance level, or 50% of the total offer
consideration, whichever is higher, must be deposited in cash.
• Indirect Acquisitions: For public announcements in case of
indirect acquisitions under Regulation 13(2)(e), 100% of the open
offer consideration must be deposited in the escrow account.
(2) Revisions to Escrow Amount- The consideration payable under the
open offer shall be computed as provided in regulation 16 and in the
event of an upward revision of the offer price or of the offer size, 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
(3) The escrow account may be in the form of,—
(a) cash deposited with any scheduled commercial bank;
(b) bank guarantee issued in favour of the manager to the open offer by any
scheduled commercial bank; or
(c) deposit of frequently traded and freely transferable equity shares or other
freely transferable securities with appropriate margin:
• Provided that securities sought to be provided towards escrow account shall
be required to conform to the requirements set out in regulation 9.
• Provided further that the deposit of securities shall not be permitted in
respect of indirect acquisitions where public announcement has been made in
terms of clause (e) of sub-regulation (2) of regulation 13 of these regulations
• Interest on Cash Escrow: The cash component in the escrow account may
be kept in an interest-bearing account, provided the funds are available when
needed to pay shareholders.
4. Minimum Cash Requirement - In the event of the escrow account being created
by way of a bank guarantee or by deposit of securities,, the acquirer must also deposit
at least 1% of the total consideration in cash with a scheduled commercial bank.
5. Authority of Manager to Open Offer- If the escrow account is in cash, the
acquirer must authorize the manager to the open offer to instruct the bank to
release the funds when required.
6. Bank Guarantee- A bank guarantee used for the escrow must be valid throughout
the offer period and for an additional 30 days after the completion of payments to
shareholders.
7. Securities in Escrow- If securities are used in the escrow account, the manager
to the open offer has the right to sell or realize the value of the securities if necessary .
If the value of the securities falls short of the required amount, the manager is
responsible for making up the shortfall.
8. Escrow Release Timing - The manager to the open offer cannot release the
escrow account until 30 days after the completion of payments to shareholders,
except for funds transferred to a special escrow account as required under Regulation
21.
9. Escrow Forfeiture- If the acquirer fails to meet their obligations under the
regulations, the Securities and Exchange Board of India (SEBI) can
instruct the manager to the open offer to forfeit the escrow amount, either in
full or in part.
10. Escrow Release Conditions- The cash deposited in the escrow account
can be released in the following ways:
• Upon withdrawal of the offer: If the offer is withdrawn (under Regulation 23), the
entire escrow amount can be released to the acquirer upon certification by the manager
to the open offer.
• Partial release: Up to 90% of the escrow amount can be transferred to the special
escrow account for shareholder payments (under Regulation 21).
• After payment to shareholders: The balance of the escrow account can be released to
the acquirer 30 days after completing payments to shareholders who accepted the offer.
• In case of share exchange: If the open offer is an exchange of shares or secured
instruments, the entire amount can be released after 30 days from the payment date.
• Forfeiture: If SEBI directs forfeiture for non-compliance, the entire escrow amount will be
distributed in the following manner:
• One-third to the target company.
• One-third to the Investor Protection and Education Fund (IPEF).
• One-third to shareholders who accepted the open offer, distributed pro-rata.
• Reg 20- Competing Offer-
1. Right to Make Competing Offers- After the first public
announcement of an open offer by an acquirer to acquire shares of
a target company, any other person (other than the first
acquirer) is entitled to make a competing public announcement of
an open offer within 15 working days from the date of the
detailed public statement of the first offer.
2. Minimum Shareholding Requirement- The competing
acquirer (the one making the second offer) must make an open
offer for at least the same number of shares as the first
acquirer. This means that the competing acquirer’s offer, when
combined with shares already held by them and their persons
acting in concert (PAC), must be equal to or more than the holding
of the first acquirer.
3. Competing Offers Are Not Voluntary- A competing offer made within the
specified 15-working-day period is not treated as a voluntary open offer
under Regulation 6. This ensures that all rules that apply to mandatory offers
(including pricing, disclosures, and obligations) also apply to competing offers.
4. Designation of Competing Offers- Both the first open offer and any
subsequent offers made within the 15-day period will be regarded as competing
offers. This gives both the first and subsequent offers the same legal standing.
5. No New Offers After 15 Days- No person can make a public announcement
of an open offer or undertake any transaction that would trigger a new open offer
after the 15-working-day period from the first public announcement until the
end of the offer period.
6. Conditional Open Offers- If the first open offer is conditional on a
minimum level of acceptance, a competing offer cannot be conditional.
This ensures that the second acquirer cannot place further conditions that might
reduce the attractiveness of their offer in comparison to the first.
7. Exemptions to Making a Competing Offer- In some specific cases, competing offers
cannot be made:
• When the open offer is triggered by disinvestment of a public sector undertaking.
• When the offer is subject to a relaxation by the Securities and Exchange Board of India (SEBI) under
certain regulations.
• These exemptions are designed to maintain fairness in specific circumstances, such as government
disinvestment.
8. Identical Timelines- All competing offers will follow the same schedule for activities
and tendering periods, meaning that the timelines for submitting and accepting competing
offers must align. The last date for tendering shares will be revised to match the latest
offer made.
9. Revising Terms of Open Offers- After the announcement of a competing offer, any
acquirer who had made a previous open offer can revise their offer terms, but only if the
revised terms are more favorable to shareholders. This encourages acquirers to
compete by improving their offers.
Acquirers making competing offers can revise their offer price upward at any time up to
one working day prior to the start of the tendering period.
10. Application of All Other Regulations- All other provisions of the regulations
governing open offers will continue to apply to competing offers, except for variations
explicitly provided under this regulation (such as scheduling adjustments or revised
pricing).
• Reg 23- Withdrawal of Open Offer-
1. General Rule: No Withdrawal- Once an open offer is made, it generally
cannot be withdrawn. However, there are certain exceptions to this rule,
which are listed below. These exceptions are critical to ensure that the open
offer process remains reliable, while also providing flexibility in certain
situations.
2. Permissible Circumstances for Withdrawal- The regulation allows the
withdrawal of an open offer only under specific conditions:
• (a) Refusal of Statutory Approvals- If the statutory approvals required
for the open offer or for completing the acquisition that triggered the open
offer are finally refused by the relevant authorities, the acquirer may
withdraw the offer.
• However, this is only applicable if the requirement for such approvals was
clearly disclosed in the detailed public statement and the letter of
offer.
(b) Death of the Acquirer (Natural Person)- If the acquirer is a natural
person (i.e., an individual) and he or she dies, the open offer may be withdrawn.
• This clause is straightforward, recognizing that death is a circumstance beyond
control, and it would not be reasonable to expect the continuation of the offer in
such cases.
(c) Failure of a Condition in the Acquisition Agreement- If any condition
stipulated in the acquisition agreement (the agreement that triggered the
obligation to make the open offer) is not met due to reasons outside the
reasonable control of the acquirer, the acquirer may withdraw the open offer.
• However, this is allowed only if the conditions were specifically disclosed in
the detailed public statement and the letter of offer.
• For example, if a condition requiring the approval of shareholders or regulatory
bodies is not met, and this was outside the acquirer’s control, the offer may be
withdrawn.
• Proviso: If the public announcement for the open offer was made under
clause (g) of sub-regulation (2) of regulation 13 (i.e., if the open offer was
triggered by a preferential issue), the acquirer cannot withdraw the open
offer even if the preferential issue is not successful.
d) SEBI’s Discretion to Allow Withdrawal- The Securities and Exchange Board of
India (SEBI) may allow the withdrawal of an open offer under special circumstances
that it considers justifiable.
• SEBI must issue a reasoned order explaining why the withdrawal is permitted.
• This order will be made publicly available on SEBI’s official website, ensuring
transparency.
3. Explanation of Clause (d)- For any withdrawal under this discretionary provision,
SEBI will evaluate the circumstances and provide a detailed explanation for its decision.
This clause offers flexibility for unique or unforeseen situations where withdrawal may be
warranted, but not explicitly covered by the other clauses.
4. Procedure for Withdrawal- If an open offer is withdrawn under any of the
permissible circumstances, the acquirer must follow a specific procedure to inform the
public and relevant authorities:
(a) Announcement in Newspapers- Within two working days of deciding to
withdraw the offer, the acquirer, through the manager to the open offer, must publish
an announcement in the same newspapers where the original public announcement of
the open offer was made.
• This announcement must include the grounds and reasons for the withdrawal of the
offer.
(b) Simultaneous Notifications- The acquirer must also inform
the following parties in writing, at the same time the newspaper
announcement is made:
(i) SEBI- A written notification must be sent to SEBI, informing the
regulatory authority about the withdrawal and the reasons behind it.
(ii) Stock Exchanges- All the stock exchanges where the shares of
the target company are listed must be informed.
The stock exchanges must then disseminate this information to
the public immediately, ensuring that all market participants are
aware of the withdrawal.
(iii) Target Company- The target company must also be informed
at its registered office about the withdrawal of the open offer.
• Reg 29- Disclosure of acquisition and disposal- outlines
specific obligations for acquirers and persons acting in concert with
them when they acquire or dispose of shares or voting rights in a
target company
• Disclosure of Acquisition When Aggregating 5% or More- Any
acquirer, together with persons acting in concert (PAC) with
them, who acquire shares or voting rights in a target company that
amount to 5% or more of the shares or voting rights, must
disclose their aggregate shareholding and voting rights in the
company.
• This disclosure must be made in a prescribed form specified by
the regulatory authority.
• For companies listed on the Innovators Growth Platform
(IGP): For entities listed on the IGP (typically for small or innovative
firms), the threshold is higher, requiring disclosure when
shareholding reaches 10% or more instead of 5%.
2. Disclosure of Changes in Shareholding or Voting Rights
• If a person or persons acting in concert already hold 5% or more of the shares
or voting rights, they must disclose any changes in their holdings.
• This applies even if the change results in the shareholding falling below 5%.
• However, a disclosure is required only if the change exceeds 2% of the total
shareholding or voting rights in the target company.
• For companies listed on the Innovators Growth Platform: In this case, the
reference to 5% is increased to 10%, and any reference to a 2% change is
adjusted to 5%.
3. Timeline for Making Disclosures
• The disclosure required under sub-regulations (1) and (2) must be made within
two working days of:
• Receipt of intimation of allotment of shares, or
• Acquisition or disposal of shares or voting rights in the target company.

• The disclosure must be made to:

• Every stock exchange where the shares of the target company are listed, and
• The registered office of the target company.
4. Encumbrances as Acquisition or Disposal
• Encumbrances (pledging of shares) are treated as either an acquisition or
disposal of shares, and the regulation requires disclosure accordingly.
• If shares are encumbered (pledged), they are treated as an acquisition.
• If shares are released from encumbrance, they are treated as a disposal.

• Disclosures must be made in a specified form, ensuring that all changes,

whether due to acquisition, disposal, or encumbrance, are transparent.
• Exemption for Certain Entities:
• The requirement to treat encumbrances as acquisitions or disposals does not
apply to certain institutions, including:
• Scheduled commercial banks,
• Public financial institutions,
• Housing finance companies,
• Systemically important non-banking financial companies (NBFCs).

• These entities, acting as pledgees, are exempt from disclosure obligations if

they take or release shares as part of securing indebtedness in the ordinary
course of business.
• Reg 31- Disclosure of encumbered shares- outlines the
obligations of promoters of target companies to disclose any
encumbrance (e.g., pledging) of shares they hold or control, along
with any changes related to such encumbrance. Here's a detailed
breakdown of each provision:
1. Disclosure of Encumbered Shares by Promoters
• The promoter of a target company must disclose details of any
encumbrance (e.g., pledge or lien) of shares they hold in the
company. This obligation extends to:
• Persons acting in concert (PAC) with the promoter.

• The disclosure must be made in a specified form provided by the

regulatory authorities.
• Exemption: If the encumbrance is undertaken in a depository, this
disclosure requirement does not apply. A depository typically refers
to the electronic system where shares are held in dematerialized form.
2. Disclosure of Invocation or Release of Encumbrance- The
promoter must also disclose any invocation (i.e., enforcement) of the
encumbrance or release of such encumbrance. This means that when the
shares are either taken over by a lender (due to default) or freed from
encumbrance, these events must be reported.
• Exemption: Similar to the first point, if the encumbrance (or its
invocation/release) is undertaken in a depository, the disclosure
requirement does not apply.
3. Timeline for Making Disclosures
• The disclosures required under sub-regulations (1) and (2) (i.e., for
creation, invocation, or release of encumbrance) must be made within
seven working days from the occurrence of the event (creation,
invocation, or release).
• The disclosure must be made to:
• Every stock exchange where the shares of the target company are listed, and
• The target company at its registered office.
4. Yearly Declaration by Promoters on Encumbered Shares-
Promoters are required to declare annually that they, along with
persons acting in concert, have not made any encumbrance on their
shares, other than those already disclosed during the financial year.
5. Timeline for Yearly Declaration
• The annual declaration must be made within seven working days
from the end of the financial year.
• The declaration must be submitted to:
• Every stock exchange where the shares of the target company are listed, and
• The audit committee of the target company.

• By involving the audit committee, the regulation ensures that the

company’s internal oversight body is informed about the promoter’s
activities related to share encumbrances.
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