SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011: A Study

Submitted by
Abhinav Dutt
Division A, Roll Number 08, Batch 2011-2016
Symbiosis Law School, NOIDA
Symbiosis International University, Pune.
In
October, 2014
Under the guidance of
Dr. Amit Bagga
Faculty, Mergers and Acquisitions Law
Symbiosis Law School, NOIDA

CERTIFICATE

The project entitled SEBI (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011: A Study, submitted to Symbiosis Law
School, NOIDA for Mergers and Acquisitions Law as part of Internal
Assessment is based on my original work carried out under the guidance of
Dr. Amit Bagga from July, 2014 to October, 2014. The Research work has not
been submitted elsewhere for award of any degree. The material borrowed
from

other

sources

and

incorporated

in

the

thesis

has

been

duly

acknowledged.
I understand that I myself could be held responsible and accountable for
plagiarism, if any, detected later on.

Signature of the Candidate

Date:

Acknowledgement
I would sincerely like to thank Dr. Amit Bagga, Professor-in-charge, Mergers
and Acquisitions Law, Symbiosis Law School, NOIDA for helping me
throughout in the college campus in all my endeavors. I would also
especially like to thank my class mates who have helped and guided me
continuously to finish this piece of work. In the end,I would like to thank
each and everybody who has helped us directly and indirectly to complete
my project.

INDEX
List of Contents:
S. No.
1.
2.
3.
4.
5.

Description
Introduction
Takeover Code: Conceptual Skeleton
Some Cases Discussed
Conclusion
Bibliography

Page No.
5
6
26
29
30

INTRODUCTION

The Indian regulatory landscape has witnessed dramatic changes over the
past few years with significant modifications proposed to the direct and
indirect tax regimes as well as several corporate and securities laws. One of
these important changes has been introduced by SEBI- the overhaul of the
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997
('The Takeover Code'). The takeover of a substantial number of shares,
voting rights or control in a listed Indian company attracts the provisions of
the Takeover Code. The Takeover Code regulates the process of acquisition
of additional shares by an acquirer, once the acquirer has ownership of a
designated level of shareholding or voting rights in a listed company. The
Takeover Code has been amended by the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011, in operation from October 22,
2011 ('the New Regulations'), which form the primary focus of this paper.
The new amendments introduced by SEBI have largely been made on the
basis of the July, 2010 report submitted by the Takeover Regulations
Advisory Committee, under the chairmanship of Mr. C. Achuthan ('the
Committee').

The

Committee

was

constituted

by

SEBI

to

suggest

improvements in the Takeover Code. The Committee's report has been

prepared taking into account a plethora of important factors having a strong
bearing on the performance of the Indian capital markets, which have
witnessed changes since the Takeover Code was enacted in 1997. These
include the rapidly increasing level of merger and acquisition activity, 2 the
increasing sophistication of the takeovers market, SEBI's decade-long
regulatory

experience

of

capital

markets,

and

various

judicial

pronouncements pertaining to the Takeover Code. On the basis of its market

research and prevailing best practices in other jurisdictions, the Committee
has suggested numerous improvements to the Takeover Code. The effect of
these changes has been to bring the amended code substantially in line with
international takeover regulations in some respects.
5

The New Regulations have made, inter alia, three fundamental modifications
to the Takeover Code, which experts believe will substantially affect merger
and acquisition activity in the Indian market. The first change has been to
increase the initial open offer threshold, which triggers the application of the
Takeover Regulations, from 15% to 25% of the shareholding or voting rights
in a company. The second change has been to prohibit the payment of
separate non-compete fees to the controlling promoters in the acquired
company. The third change has been to increase the minimum offer size
provided by the acquirer to public shareholders of the target company from
20% to 26%. While most of the Committee's recommendations have been
approved by SEBI in their entirety, a few have been modified to
accommodate the views of Indian chambers of commerce, such as FICCI,
ASSOCHAM and CII and of industry experts and professionals on the
Committee's report. Two notable proposals of the Committee which were
rejected were the proposal of 100% minimum offer size and the proposal of
automatic delisting of shares on a particular level of shareholding being
reached by the acquirer.

Takeover Code: Conceptual Skeleton

Lately,

the

Indian

M&A

regulatory

skeleton

has

witness

emotional

progressions with noteworthy changes proposed to the direct and indirect

tax administrations and a few corporate and securities laws. One of these
paramount progressions has been presented by SEBI with the presentation
of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
(the "Takeover Code"). Before the warning of the Takeover Code, SEBI has
constituted a master committee, Takeover Regulations Advisory Committee
(the "Committee") to survey the SEBI Takeover Regulations, 1997. The
Committee discharged its cover July 19, 2010 with a draft of New SEBI
6

Takeover Regulations. After much pondering, on September 23, 2011, SEBI

at last informed SEBI Takeover Regulations, 2011 tolerant the majority of
the recommendations of the committee.
Basic Rationale behind the Takeover Code
Before diving into the fundamental ideas of the Takeover Code, it is
appropriate for us to quickly overview the basis behind the Takeover Code at
this stage. It is somewhat an exceptionally mainstream understanding that
the motivation behind the Takeover Code is to ensure the organization from
takeovers, or to guarantee that the organization is kept educated about
prospective acquisition of its shares. While the above answers may be
decisive enough to be portrayed as the primary goals of the Takeover Code,
it is to be comprehended that the aforementioned reasons are negligible
auxiliary to the principle objective. The fundamental reason behind the
Takeover Code is to guarantee that when substantial number of shares are
exchanged, i.e., one gathering offers a controlling square of shares to an
alternate, the minority shareholders additionally get the chance to offer their
shares at the arranged value and make a solid passageway from the
Company. A contention can simply be made that the minority shareholders
dependably have a choice to offer their shares in the open business. By and
by, such protection is regarded vital for the minority or the common
shareholders of the organization for the reason that: to start with, at the
time of substantial acquisition of shares in an organization, the value paid is
generally much higher than the predominating business quality; and second,
post-acquisition there is a change of control in the organization and these
shareholders may be unwilling to proceed with their venture.
Important Concepts

(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;

(b).

acquisition means, directly or indirectly, acquiring or agreeing to acquire

shares or voting rights in, or control over, a target company;

(c).

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;

(d).

Persons acting in concert (PACs)are the 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 [Link] other
words, PACs are those persons who are collaborating with the acquirer in
acquiring control. Note that when takeovers happen in practice, it may not
just be one person or corporate house, but several persons or more than one
corporate house may collaborate and act together in acquiring the shares of
a company. That is why the definition of PACs had to be brought in. Shares
acquired by the PACs are counted along with those acquired by the Acquirer,
to see if such acquisition is substantial and hits the Code. Certain persons
are deemed to be PACs (Deemed PACs) that is, in that case, it is not
necessary to establish collaboration or togetherness in an acquisition if
shares have been acquired by the Deemed PACs, then they are clubbed with
the shares acquired by the Acquirer;
8

(e).

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;
1. Triggering of the Open Offer Requirements
1.1.

Initial Threshold Limit for Triggering of an Open Offer

Under the Takeover Code, 1997, an acquirer was allowed to make an

open offer if he or through PAC, were acquiring 15% or a greater
amount of voting right in the Target Company. The Committee while
examining this threshold point of confinement watched that this limit
was altered at a time when the shareholding pattern in the Indian
companies was such that it was conceivable to control listed
companies with holdings as low as 15%. In this way, the threshold was
thought to be a substantial voting force around then. There had, on
the other hand, been an amendment in the general shareholding levels
in a company, with late patterns demonstrating a substantial change in
shareholder patterns in listed companies. The share of promoters in
listed companies is currently seen to be much higher. According to the
Committee's

exploration,

the

mean

and

average

of

promoter

shareholdings in listed companies were discovered to be 49.5% and

50.5% separately of the aggregate value capital of the company.
Besides, short of what 8.4% of listed companies had promoter
shareholding of short of what 15%.
With the recognition of these changes, a need for an upward revision
of the trigger point for open offers was felt by the Committee, which
would give potential acquirers, particularly private equity funds and
institutional investors, more leeway to acquire a stake in a company
9

without attracting takeover regulations. In addition, this was also a

conscious effort to bring Indian regulations in line with international
best practices with trigger point being 30% in U.K. and 30-35% in
other jurisdictions such as Singapore, Hong Kong, etc. Thus, the
threshold of 15% was increased to 25% under the Takeover Code,
2011 on the basis of the Committees recommendations.
Interestingly, this trigger point has been set at such a level so as to
provide an acquirer with de facto control over the target company.
Such level of shareholding allows an acquirer to get a majority of the
votes cast in its favour in a general meeting of shareholders on one
hand and provides the acquirer with a veto right to block a special
resolution under the provisions of the Companies Act, 1956. In
essence, the acquirer will get a greater say on important corporate
decisions of the company including alteration of the provisions of the
memorandum, change in objects and name of the company, reduction
of share capital, etc.
There have been concerns in the industry that this increase of the
takeover limit will facilitate hostile takeovers in the Indian market. In
particular, this has been a point of concern for the promoters of listed
companies who have low shareholding (below 25%) and does not have
access to funds to increase their shareholding. It was felt that it is
possible now for private investors to discreetly acquire 25% of a
companys

shareholding

through

multiple

secondary

market

transactions, and then make a minimum offer bid of 26% to acquire de

facto control over the company. However, it is to be understood that in
the event an Acquirer along with PAC increases its shareholding to
more than that of the promoters, it would be considered to be a
10

change of control and such Acquirer will need to make an open offer.
The promoters, irrespective of their level of shareholding, will
undoubtedly be concerned about any Acquirer misutilising the new
provisions to assume greater control in decision making within the
Target Company. However, at the same time, this will help listed
companies to get in more investments without triggering the open
offer requirement as early as 15%, therefore making the process more
attractive and cost effective, which is projected to lead to an increase
in M&A activity in the Indian economy.
1.2.

Creeping Acquisition

The Takeover Code, 1997 recognized creeping acquisition at two levels

from 15% to 55% and from 55% to the maximum permissible limit
of non-public shareholding, i.e., 75% (and 90% for some specific
companies). Acquirers holding from 15% to 55% shares were allowed
to purchase additional shares or voting rights of up to 5% in each
financial year without making a public announcement of an open offer
(more particularly known as creeping acquisition). Acquirers holding
from 55% to 75% (or 90%) shares were required to make such public
announcement for any additional purchase of shares. However, in the
latter case, up to 5% additional shares could be purchased without
making a public announcement if the Acquisition was made through
open market purchase on stock exchanges or due to buyback of shares
by the Target Company. The rationale behind the principle of creeping
acquisition is that the shareholders are given an opportunity to exit
every time a major shareholder increases his shareholding in the
company by a material percentage (the SEBI considered 5% as the
material percentage).

11

The Takeover Code, 2011 makes the position simpler. Now, any
Acquirer, holding 25% or more but less than the maximum permissible
limit for non-public shareholding can purchase additional shares or
voting rights of up to 5% every financial year, without any requirement
of making a public announcement for open offer. The Takeover Code,
2011 also lays down the manner of determination of the quantum of
acquisition of such additional voting rights.
This would be beneficial for the investors as well as the promoters, and
more so for the latter, who can increase their shareholding in the
company without necessarily purchasing shares from the stock market.
Also, the Takeover Code, 2011 mandates that calculation of the 5%
shares would be on the basis of gross acquisition and would not take
into consideration any parallel dilution of shareholding. Earlier it could
for instance have been argued that if someone acquires 10% and sells
5% shares in parallel transactions, the net increase in shareholding
would be taken into consideration.
1.3.

Indirect Acquisition

The Takeover Code, 2011 clearly lays down a structure to deal with
indirect acquisitions, an issue which was not adequately dealt with in
the earlier Takeover Code, 1997. Simplistically put, it states that any
acquisition of shares or control over a company, business or entity that
would enable a person and persons acting in concert with him to
exercise such percentage of voting rights or control over the Target
Company, which if directly acquired in the Target Company would have
otherwise necessitated a public announcement for open offer, shall be
considered an indirect acquisition of voting rights or control of the
Target Company.

12

It also states that wherever:

(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; or
(b)

the proportionate sales turnover of the Target Company as

a percentage of the consolidated sales turnover of the entity or

business being acquired; or
(c)the proportionate market capitalization of the Target Company as
a percentage of the enterprise value for the entity or business
being acquired;
is more than 80% on the basis of the latest audited annual financial
statements, such indirect acquisition shall be regarded as a direct
acquisition of the Target Company and all the obligations relating to
timing, pricing and other compliance requirements for the open offer
would be same as that of a direct acquisition (Deemed Direct
Acquisition).
1.4.

Triggering Thresholds Individually or Jointly with PAC

Under the Takeover Code, 2011, an obligation to make an open offer

would be triggered in case of acquisition of shares by any Acquirer
such that the individual shareholding of such Acquirer acquiring shares
exceeds stipulated thresholds irrespective of whether there is a change
in the aggregate shareholding with the PAC.
1.5.

Change of Control

13

As per the Takeover Code, 2011, irrespective of whether there is an

acquisition of shares or not, an acquirer who wishes to acquire the
control over a listed company can do so only by making an open offer
to the shareholders of such Company. Unlike the Takeover Code, 1997,
the Takeover Code, 2011 does not exempt change in control, pursuant
to special resolution of shareholders of the target company, from open
offer obligation.
1.6.

Voluntary Offer

A concept of voluntary offer has been introduced in the Takeover Code,

2011, by which an Acquirer who holds more than 25% but less than
the maximum permissible limit for non-public shareholding, shall be
entitled to voluntarily make a public announcement of an open offer
for acquiring additional shares subject to the aggregate shareholding
of such Acquirer along with PAC, after completion of the open offer, not
exceeding the maximum permissible non-public shareholding.
Such voluntary offer would be for acquisition of a number of shares as
would entitle the Acquirer to exercise a minimum additional 10% of
the total shares of the Target Company. This would facilitate the
substantial

shareholders

and

promoters

to

consolidate

their

shareholding in a Target Company. Since no shareholder will be given

preferential treatment, a lower offer size of 10% has been mentioned.
A voluntary offer cannot be made where an Acquirer or PAC has
acquired shares of the Target Company in the preceding 52 weeks
without attracting the obligation to make an open offer. Further, during
the voluntary offer period such Acquirer shall not be entitled to acquire
any shares otherwise than under the open offer. The Acquirer is
restricted from acquiring any further shares in the Target Company for
14

a period of six months after completion of the open offer by way of

voluntary open offer or competing offer.
2. The Open Offer
2.1.

Offer Size

The Takeover Code, 1997 required an acquirer, obligated to make an

open offer, to offer for a minimum of 20% of the voting capital of the
Target Company as on expiration of 15 days after the closure of the
public offer. The Takeover Code, 2011 now mandates an acquirer to
place an offer for at least 26% of the total shares of the Target
Company, as on the 10thworking day from the closure of the tendering
period. The total shares accounted for this purpose shall include all
potential increases in the number of outstanding shares during the
offer period contemplated as on the date of the public announcement
(as discussed below).
The increase in the size of the open offer from 20% to 26%, along
with increase in the initial threshold from 15% to 25%, creates a
unique situation under the Takeover Code, 2011. An acquirer with 15%
shareholding and increasing it by another 20% through an open offer
would have only got a 35% shareholding in the Target Company under
the Takeover Code of 1997. However, now an acquirer with a 25%
shareholding and increasing it by another 26% through the open offer
under the Takeover Code, 2011 can accrue 51% shareholding and
thereby attain simple majority in the target company.
These well thought out figures clearly shows the intention of the
regulator to incentivize investors acquiring stakes in a Target Company
by giving them an opportunity of attaining simple majority in a Target
15

Company. Those promoters holding between 25% and 50% would be

able to acquire 5% a year under the creeping acquisition limit and
would, thus, face substantially less threat of a competing hostile
acquisition, closer they get to the 50% mark.
Given that under the Companies Act, 1956, the largest shareholder or
a 50% shareholder controls not 50% of the board of directors, but the
entire board of directors - assuming supporting independent directors this clearly is a suitable number. The promoters holding between 50%
and 75% are already secure against a hostile bid, which would be
futile except having nuisance value, as an outsider with 25% could
block special resolutions floated by the promoters. Such promoters
may not seek an increased number of shares except in extreme cases
or where they deliberately seek to consolidate their holdings.

2.2.

Offer Period

The Takeover Code, 2011 provides that the offer period starts on the
date of entering into an agreement to acquire shares, voting rights in,
or control over a Target Company requiring a public announcement, or
the date of the public announcement, whichever is earlier and ends on
the date on which the payment of consideration to shareholders who
have accepted the open offer is made. Thus, unlike in the case of the
Takeover Code, 1997 this definition of offer period under the Takeover
Code, 2011 is now more descriptive with the addition of an explanation
of the events when the period will start and expire. The definition in
the Takeover Code, 1997 was comparatively vague as it stated the
offer period starts when the memorandum of understanding is signed
16

or the public announcement is made and ends on the date of

completion of all the formalities under the Takeover Code, 1997.
2.3.

Offerees

Any open offer is required to be made to all shareholders of the Target

Company, other than the Acquirer, PAC and the parties to any
underlying agreement including persons deemed to be PAC with such
parties, for the sale of shares of the Target Company.
2.4.

Appointment of Merchant Banker

The Acquirer is required to appoint a Merchant Banker as the manager

of the open offer (the Manager) prior to making the public
announcement in relation to same.
2.5.

Minimum Open Offer Price

The Takeover Code, 2011 provides a different methodology for the

computation of offer price as compared to the Takeover Code, 1997. A
key deviation in this regard from the Takeover Code, 1997, is that the
Takeover Code, 2011 provides that instead of the higher of the
average of weekly high and low of closing prices for 26 weeks and
average of daily high and low of last two weeks; the average market
price of 60 trading days prior to the date of the public announcement
will be taken. This is expected to make the market price more realistic.
3. The Open Offer Process
3.1.

Public Announcement
17

The

date

of

public

announcement

depends

on

the

nature

of

Acquisition. The following table summarizes the respective dates on

which the public announcements are required to be made for different
types of Acquisitions. Such public announcement shall be made to all
such stock exchanges on which the shares of the Target Company are
listed so that these stock exchanges disseminate the information to
the public. Within one day of the public announcement, a copy of the
same shall be sent to SEBI and to the Target Company.
The table below shows the events which trigger an obligation to make
a public announcement and their corresponding limitation periods for
making such an announcement.

S.
No.
1.

Event Triggering Obligation to

Time of Making Public

Make a Public Announcement

Announcement
Acquisition of shares through market Prior to placement of purchase
purchases.

2.

order with the stock broker to

acquire shares.
Acquiring shares or voting rights or On the date of exercise of the
control upon conversion of convertible option to convert such securities
securities
conversion)

(without
or

upon

fixed

date

of

conversion

of

depository receipts for the underlying

3.

shares
Acquiring shares or voting rights or On

the

2nd

working

day

control upon conversion of convertible preceding the scheduled date of

securities
4.

(with

fixed

date

of conversion of such securities.

conversion)
Acquisition pursuant to disinvestment.

On the date of executing the

18

5.

agreement for acquisition

In case of an indirect acquisition which Any time within 4 working days
is not a Deemed Direct Acquisition.

from the earlier of: (a) the date

on which primary acquisition is
contracted, or (b) date on which
intention or decision to make
primary

6.

In case of Deemed Direct Acquisition

acquisition

is

made

public.
Earlier of: (a) the date on which
primary

acquisition

is

contracted, or (b) date on which

intention or decision to make
primary
7.

Acquisition under preferential issue.

acquisition

is

made

public.
On the date of passing special
resolution under section 81 (1A)

8.

of Companies Act, 1956.

Increase in voting rights pursuant to Not later than 90th day from
buy

back

not

qualifying

for

exemption.
9.

an the date of increase in voting

right

beyond

the

stipulated

threshold.
Acquisition wherein the specific date of Not later than 2 working days
acquisition of title of shares, voting from the date of receipt of
right or control is beyond the control of intimation of having acquired
the Acquirer.

3.2.

such title.

Opening of an Escrow Account

Under the Takeover Code, 2011, the Acquirer is required to deposit an

amount to secure performance of the Acquirers obligations, in an
escrow account in the form of cash deposited with a scheduled
19

commercial bank or bank guarantee in favour of the Manager or

deposit of acceptable securities with appropriate margin with the
Manager. The escrow amount is required to be placed in escrow no
later than two days prior to the detailed public statement (described
below).
3.3.

Publication of Public Statement

The Acquirer shall publish a detailed public statement within 5 working

days of the public announcement through the Manager of the open
offer in all editions of at least one each of an English national daily,
Hindi national daily and a regional daily with wide circulation, at the
place where the registered office of the Target Company is situated
and one regional daily where the stock exchange where the maximum
volume of trading in the shares of the Target Company are recorded
during

the

60

days

preceding

the

public

announcement.

Simultaneously, a copy of the said public statement shall be:

(a)

submitted to the SEBI through the Manager;

(b)

sent to all the stock exchanges on, which the shares of the

company are listed for being notified to the general public ; and
(c)sent to the Target Company at its registered office for being
placed before the Board of Directors of such company.
3.4.

Draft Letter of Offer

Within 5 days of the publication of the detailed public statement, the

Manager shall also furnish to SEBI a due diligence certificate along
20

with the draft letter of offer. Simultaneously with the filing of the draft
letter of offer with SEBI, the Acquirer shall send a draft letter of offer
to the Target Company. Within 15 days of the submission of the draft
letter of offer to SEBI, in the event SEBI does not give comments, it
shall be assumed that SEBI does not have any comments to offer.
3.5.

Letter of Offer

The letter of offer is required to be sent to all the shareholders of the

Target Company whose names appear on the register of members of
Target on the Identified Date so as to reach them within 7 working
days from the receipt of comments from SEBI. The purpose of
Identified Date is to determine the names of the shareholders to whom
the letter of offer would be sent and an exit opportunity would be
provided. The Identified Date has been fixed as the date falling on the
10th business day prior to the commencement of the tendering period.
Simultaneously, the Acquirer is also required to send the letter of offer
to the custodian of shares underlying depository receipts. A copy of
the letter of offer is required to be sent to warrant holders, whose
period of exercise of option or conversion falls within the offer period.
The public announcement, letter of offer, circular, brochure or any
other advertising or publicity material issued to the shareholders of the
Target Company in connection with the public offer must not contain
any misleading information and must state that the directors of
Acquirer accept responsibility for the information contained therein.
3.6.

Tendering Period

21

The tendering period shall start within 12 working days from the date
of receipt of comments from SEBI and shall remain open for 10
working days. The Acquirer shall within 10 working days from the last
date of the tendering period complete all requirements under the
Takeover Code, 2011.
3.7.

Post Offer Advertisement

The Acquirer is required to issue a post offer advertisement within 5

working days after the offer period, giving details including aggregate
number of shares tendered, accepted and date of payment of
consideration.
3.8.

Withdrawal of shares tendered in Open Offer

The Takeover Code, 2011 has withdrawn the option of withdrawing

shares tendered in an open offer, which was earlier available to
shareholders under the Takeover Code, 1997. This has been done with
the rationale that shareholders are provided with all the necessary
particulars for them to make an informed decision about the shares
tendered and hence they should not be permitted to withdraw the
shares, once they are tendered.
3.9.

Completion of the Acquisition

The Takeover Code, 2011 provides that an Acquirer is allowed to

complete an Acquisition under any agreement (for instance share
purchase agreement) which has resulted in the triggering the Open
Offer obligations after a period of 21 days from the date of public
22

announcement. The same was allowed under the Takeover Code, 1997
but only after the completion of all the offer formalities. The
completion of the Acquisition will be subject to the Acquirer depositing
100% of the consideration payable under the open offer in an escrow
account. The Takeover Code, 2011 further provides that in cases
where the Acquisition is not completed before the expiry of the offer
period, the Acquirer is allowed to do so after the expiry of the offer
period but not later than 26 weeks from the expiry of such period. This
provision will allow the Acquirer to have a representation in the Target
Company and exercise control over it even before the completion of
the open offer.
4. Disclosure Requirements under the Takeover Code
4.1.

Disclosure of Acquisition or Disposal

An Acquirer making an Acquisition under the Takeover Code, 2011 in a

Target Company where the acquired shares and voting rights together
with any existing shares or voting rights of the Acquirer and PAC
amount to 5% or more of the shareholding of the Target Company,
shall make disclosures of their aggregate shareholding and voting
rights in such Target Company and every Acquisition or disposal of
shares of such Target Company representing 2% or more of the shares
or voting rights in such Target Company.
The disclosure required under the Takeover Code, 2011 shall be made
within 2 working days of the receipt of intimation of allotment of
shares, or the Acquisition of shares or voting rights in the Target
Company to:
23

(a)

every stock exchange where the shares of the Target Company are

(b)

listed; and
the Target Company at its registered office.
The Takeover Code, 2011 provides for more frequent and stringent
disclosures on the part of the Acquirer. There has been a significant
amendment in the previous Regulation 7 of the Takeover Code, 1997
which dealt with the Acquisition of 5% and more shares or voting
rights of a company. Erstwhile Regulation 7 stipulated that disclosures
of shareholding have to be made on the Acquisition of more than 5%
10%, 14%, 54% and 74% shares in the Target Company. The
Takeover Code, 2011 removes the disclosure in 5 stages. Regulation
28 of the Takeover Code, 2011 states that a disclosure will be made at
the time of the Acquisition of 5% of the shares or voting rights in the
company. Under the Takeover Code, 1997 disclosure was required
when there is a prior -holding by the Acquirer of shares / voting rights
between 15 to 55% in the Target Company.

4.2.

Continual Disclosures

The limit for continual disclosures has been increased in the Takeover
Code, 2011 from 15% to 25% wherein every person who holds shares
or voting rights entitling him to exercise more than 25% voting rights
will make disclosure of the aggregate shareholding of such Acquirer
and PAC every financial year as of 31 March. The promoter of every
Target Company together with PAC shall have the same obligation. In
both circumstances, the disclosure has to be made within 7 working
days from the end of each financial year to:

24

(a)

every stock exchange where the shares of the Target

Company are listed; and

(b)
the Target Company at its registered office.

SOME CASE-LAWS DISCUSSED

1. Vijay Jain, Urvashi Jain, Sunita Jain, Shivani Jain and Vijay Jain
(HUF) v SEBI (Appeal No. 63 of 2014, Decided on 13.08.2014)
Facts:
Mr. Vijay Jain, Ms. Urvashi Jain, Ms. Sunita Jain, Ms. Shivani Jain and
Vijay Jain (HUF) (hereinafter collectively referred asAppellants) had
delayed in making the disclosures as required under Regulation 30(2) and
30(3) of SEBI (SAST) Regulations, 2011 by 147 days. Accordingly SEBI
imposed a penalty of Rs. 3,00,000 for the aforesaid violations on the
Appellants. Being aggrieved by the direction of SEBI, the Appellants have
filed the appeal before Honble Tribunal and contended that:

Since

declaration

under

Regulation

8(2)

of

SEBI

(SAST)

Regulations, 1997 was made, failure to make disclosure under

Regulations 30(2) and 30(3) of SEBI (SAST) Regulations, 2011 was
only a technical irregularity for which imposition of penalty was

improper.
There was no trading in the shares of the company during such
period of default.

Issues:
Whether the penalty imposed by the SEBI is justified?
25

Decision:
After taking into considerations the facts and circumstances of the case,
the Honble Tribunal held that failure to make disclosure under each
regulation constitutes independent offence attracting independent penalty
irrespective of the fact that whether the trading in shares were done at
the particular time of default, in the present case, obligation to make
disclosures under regulation 30(2) and 30(3) of SEBI (SAST) Regulations,
2011 is of mandatory in nature irrespective of declaration under
Regulation 8(2) of SEBI (SAST) Regulations, 1997, Accordingly SAT
dismissed the appeal and found no order to the cost.
2. ViratSevantilal Shah, AlokVirat Shah and RajanSevantilal Shah
v

SEBI

(Misc.

Application

No.

70

of

2014,

Decided

on

15.07.2014)
Facts:
Mr. ViratSevantilal Shah, Mr. AlokVirat shah and Mr. RajanSevantilal
Shah (Appellants/Noticee) had failed to make disclosures required
under Regulation 7(1) read with Regulation 7(2) of SEBI (SAST)
Regulations, 1997 and Regulation 29(2) and 29(3) of SEBI (SAST)
Regulations,2011. Accordingly SEBI imposed a composite penalty of
Rs.5,00,000 for the aforesaid violations on the Appellants. Being
aggrieved by the direction of SEBI, the Appellants had filed the appeal
before Honble Tribunal and contended that:

Delay in making disclosures is only of two days in one

transaction and 6 days delay in another transactionwhich was of
marginal nature and there were no malafide intentions behind

the delay.
Due to delay in making disclosures, neither the appellants have
made any unfair gain nor any loss caused to any investors due to
non-disclosure.
26

Shares of the company were suspended from trading during the

period from January 6, 1997 to February 16, 2012 in the Stock

Exchanges.
Issues:
Whether the penalty imposed by the SEBI is justified?
Decision:
After taking into considerations the facts and circumstances of the
case, the Honble Tribunal held that since default was repetitive in
nature and delay in respect of second transaction being more than the
delay in the first transaction it is evident that the appellants instead of
being more careful after the first default, they were more carefree .
Accordingly SAT dismissed the appeal filled by Appellants.
3. Bhavook Tripathi v SEBI (Appeal No. 172 of 2012, Decided on
07.09.2012)
Facts:

Bhavook Tripathi (Appellant/Acquirer) filled a draft letter of offer

(DLOO) with the SEBI (Board) for the acquisition of 30,45,242 shares
of R. Systems International Limited (Target Company) at a price of
Rs.150.05 per share. The Board conveyed its comments on the draft
letter of offer. One of the observation made by the Board is that primafacie there exist a pre-understanding/agreement between the seller
and the acquirer to sell the shares to the acquirer on the date of public
announcement and one of the investors namely Manmohan Passi had
given a declaration that he had a pre-understanding with the acquirer

for selling the shares to the appellant.

As per the Regulation 22(2) of SEBI (SAST) Regulations, 2011 the
acquirer is required to complete the acquisition of shares or voting
rights subject to the acquirer depositing 100% of the consideration
payable under the open offer in cash in the escrow account. However
the appellant have failed to deposit 100% cash in the escrow account.
Accordingly the Board has directed the Acquirer to ensure compliance
27

with the requirements of Regulation 22(2) of SEBI (SAST) Regulations,

2011.
The appellant has contended that the Board has given the direction to
comply the said Regulation on the basis of declaration made by Mr.
Manmohan Passi about which the appellant has no knowledge.
Moreover the Board has not sought any comments from the appellant
before giving such directions.

Issues:
Whether the Appellant is required to comply with the direction made by the
Board without having any knowledge of the declaration on the basis of which
the direction is given by the Board?
Decision:
Honble SAT disposed of the appeal with a direction to the Board to make
available a copy of the declaration and other material to the Appellant on the
basis of which the observation are made with in a period of two weeks. The
appellant may respond thereto within three weeks and the Board may issue
its comments/observations after considering the reply received from the
appellant.

CONCLUSION
The Takeover Code of 2011 is a timely and progressive regulation that would
facilitateinvestments and attract investors. Even though SEBI has not
implemented all the suggestions of the Achuthan Committee, it has still
taken into consideration some of the major issues that hadbeen plaguing the
industry till now. It has tried to maintain a balance between the concerns of
theinvestors as well as that of the promoters.

28

BIBLIOGRAPHY
Books:

Handbook on Mergers, Amalgamation and Takeovers, Law and

Practice,The Institute of Company Secrataries of India, 2012, Fifth

Edition
Chandratre, K.R., Corporate Restructuring, Bharats, Second Edition,
2010

Articles:

Sanyal, T., Chatterjee, S., Combination Control: Strengthening The

Regulatory Framework Of Competition Law In India?, NUJS Law

Review, Vol. 5(3), Kolkata, 2012, pp.425

Talwar, K., Saksena N., Anti-acquirer and Pro-shareholder? An
Analysis Of The Sebi (Substantial Acquisition Of Shares And Takeovers)

Regulations, 2011, NUJS Law Review, Vol. 5(1), 2012, pp. 129
Varottil, U., Investment Agreements In India: Is There An "Option"?,
National Law School of India Review, Vol. 4(4), pp. 467, 2011

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[Link]

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