Decoding Takeover

Code

Presented by Pavan Kumar Vijay

 How Takeover Code evolved?
In year 1992 - Announcement of Policy of
Globalisation in India

In year 1992 - Change in India’s Capital

Market Scenario

SEBI enacted SEBI (SAST) Regulations,

1994 initially

Then, SEBI enacted SEBI (SAST)

Regulations, 1997
Later, Takeover Regulations Advisory
Committee (“TRAC”) was formed under
the chairmanship of Late C. Achuthan
SEBI notified SEBI (SAST) Regulations,
2011
What is Takeover

Takeover is acquisition of substantial shares and control over the Target

Company to expand or to diversify the business in an inorganic manner.
Applicability of Takeover Code?

Applicability
Listed Company

Any person controlling the Listed Company

Any person holding substantial stake in the

Listed Company
Who can be the Acquirer?

Any person who directly or indirectly acquires or agrees to acquire shares or voting rights or control over the
Target Company.

Critical issue – Acquirer also includes a person who intends to acquire shares or voting rights or control over
the Company, irrespective of the fact whether actual acquisition is effected or not.

Q: Merely entering into a Share Purchase Agreement to acquire substantial shares in the Company would
determine that person as an Acquirer or not?
Who can be Person Acting in Concert?

Persons who for a common objective or purpose to acquire shares or voting rights or control over the
Target Company are known as PACs to each other.

Critical Issue – Generally, the term PAC is checked only for the purpose of acquisition and not for sale.

Q: Merely being the part of promoter group would be considered as being PACs to each other?

Q: Whether a deemed Persons acting in concert with Seller are eligible to participate in open offer?
Shares?

Equity Share;

Critical Issue – No voting rights due to certain temporarily embargo

Q: Partly paid up shares would be excluded for determining total shares?

Q: Shares allotted to ESOP trust on which trustee cannot exercise voting rights would be excluded
for determining total shares?

Q: Shares frozen pursuant to any order of any regulatory authority would be excluded for
determining total shares?
Shares?

 Preference Shares carrying voting rights;

 Any securities which entitles the holder to exercise voting rights; and

 All depository receipts carrying entitlement to exercise voting rights

Q: Due to default of dividend payment, voting rights arose on preference shares would be covered
under the definition of Shares or not?
In the matter of Capital Trust Limited

SEBI vide its informal guidance dated December 22, 2016, held:

 Shares proposed to be held by ESOP trust formed under ESOP scheme will not be taken into account for
calculating the percentage of voting rights under Takeover Code;

 ESOP shares shall not be considered under the definition of Shares,

Critical Issue:

SEBI’s above-said interpretation have effect of squeezing the capital base of the Company due to which
shareholding of promoter(s)/other shareholders would increase proportionately and in many companies the
requirement of Regulation 3(2) of Takeover Code would be triggered. Thus, open offer obligations will
follow.
In the matter of Capital Trust Limited

While interpreting provisions of Reg 3(5) SEBI ought to have considered:

• That governing law w.r.t ‘shares’ and ‘voting rights’ is Companies Act, as per which every share
carries voting right. This has also been held by SAT in ‘Shri Sharad Doshi Vs. The Adjudicating Officer
and Ors’ .
• That SBEB Regulations being sub-ordinate legislation cannot override the provisions of Companies
Act.
• That Reg 3(5) of SBEB Regulations only put a temporary restriction on trustee of ESOP trust and did
not exclude the shares from total share capital. Nor the SBEB Regulations ever intended so. There
was no such inter-play between SBEB and SAST Regulations.
• That such an interpretation would lead to far-reaching absurdities.
Purpose of To ensure Fair

Takeover
Play in Exit
Opportunity;
and
To ensure Fair
Disclosure about the
To ensure Fair Exit
change in
Opportunity for shareholding &
the shareholders; control in the
Company.
Fair Exit Opportunity

Fair exit opportunity to the shareholders is the Primary Objective of Takeover Code;

Q: It is mandatory to direct to make an open offer for violation in each of the case even if the
violation is erroneously done by Acquirer?

Q: What can be the parameters of taking a contrary view and not directing offer?
Types of Acquisition

Direct Indirect
Acquisition Acquisition
Types of Takeover

Hostile Friendly
Types of Offer

Mandatory Voluntary
Offer Offer
Direct Acquisition

Direct
Acquisition

Initial Creeping Change in

Threshold Acquisition Control
Initial Threshold
Regulation 3(1)
Initial Trigger – 25% or more of the voting rights

Initial Trigger is at the acquisition of 25% or more of the voting rights of the Target Company.

Critical Issue I – The threshold limit is to be checked individually for Acquirer as well as collectively for
the Acquirer + PACs.

Critical Issue II – Shares already held by the Acquirer shall also be considered for calculation of 25%
limit.

Critical Issue III – Shareholding of Acquirer as well as PAC is to be considered for the purpose of
calculating the limit of 25% of the voting rights.
Initial Trigger – Individually

When Regulation 3(1) triggers?

Acquires additional
Mr. A holds 10% of
15% or more of the Triggers Regulation
the voting rights in
voting rights in the 3(1)
the Company
Company
Initial Trigger – Individually

When Regulation 3(1) triggers?

Acquires 25% or
Mr. A doesn’t hold
more of the voting Triggers Regulation
any shares in the
rights in the 3(1)
Company
Company
Initial Trigger – Collectively with PACs

When Regulation 3(1) triggers?

Mr. A holds 10% of the
voting rights in the
Mr. A acquires additional
Company and spouse of
5% of the voting rights in Triggers Regulation 3(1)
Mr. A i.e. Mrs. B holds
the Company
10% of the voting rights
in the Company
Initial Trigger – Individually

When Regulation 3(1) triggers?

Mr. A along with person
acting in concert holds Mr. A acquires additional
30% of the voting rights. 2% of the voting rights in Triggers Regulation 3(1)
Mr. A holds 24% and rest the Company
6% is held by PACs
Case Law – ‘Stone India Limited’

 Promoter group was holding 44.87%;

 ISG Traders Limited i.e. a promoter exercised his right to convert warrants into Equity Shares;

 Aggregate promoters shareholding increased by 4.84%;

 ISG Traders Limited shareholding increased from 24.57% to 30.66%;

 Regulation 3(1) read with Regulation 3(3) of Takeover Code triggered. Hence, requirement to make
open offer followed.

 As the open offer was not made, SEBI imposed a penalty of Rs. 10 Lacs on ISG Traders Limited.
 Creeping
Acquisition
Regulation 3(2)
Creeping Acquisition – 5% of the Voting Rights

 Acquirer along with PAC already holds 25% or more of the voting rights but holds less than 75% of
the voting rights;

+
 Any acquisition of additional 5% or more of the voting rights in any financial year.

Critical Issue - Creeping Acquisition can be done only upto the limit of 75% of the voting rights of the
Company
Creeping Acquisition – Collectively with PACs

When Regulation 3(2) triggers?

Mr. A along with person
acting in concert
Mr. A along with person
acquires additional 5% Triggered Regulation
acting in concert holds
of the voting rights in 3(2)
30% of the voting rights
the Company in one
financial year
Creeping Acquisition – Collectively with PACs

When Regulation 3(2) triggers?

Mr. A along with person As per the proviso of
acting in concert enters Regulation 3(2), it is
Mr. A along with person into an agreement to stated that any Acquirer
acting in concert holds acquire additional 5% of shall not acquire or
74% of the voting rights the voting rights in the agree to acquire shares
Company in one or voting rights which
financial year exceeds the limit of 75%
Creeping Acquisition

How to calculate 5% or more of the voting rights?

 Gross Acquisition alone shall be taken into consideration regardless of any intermittent fall in the
shareholding or voting rights whether owning to disposal or dilution of voting rights owning to fresh
issue of shares by the Target Company;

 In the case of acquisition of shares by way of issue of new shares by the Target Company or where
the Target Company has made an issue of new shares in any given financial year, the difference
between the pre-allotment and the post-allotment percentage voting rights shall be regarded as
the quantum of additional acquisition.
Creeping Acquisition

Date Particulars Shareholding (%)

01.04.2017 Shareholding of Acquirer 30.00
30.04.2017 On Market Acquisition 2.50
01.07.2017 On Market Sale 1.50
07.07.2017 Increase in shareholding pursuant to preferential issue 4.00

Whether Regulation 3(2) triggered?

Yes, Regulation 3(2) triggered, as gross acquisition of shares alone shall be taken into
consideration irrespective of any intermittent fall in the shareholding pursuant to disposal of
shares. Accordingly, gross acquisition is 6.50% in the above case.
Creeping Acquisition

Date Particulars Shareholding (%)

01.04.2017 Shareholding of Acquirer 30.00
30.04.2017 On Market Acquisition 2.00
01.07.2017 Dilution in the shareholding pursuant to the increase in capital 1.00
07.07.2017 Increase in shareholding pursuant to preferential allotment 4.00

Whether Regulation 3(2) triggered?

Yes, Regulation 3(2) triggered, as gross acquisition of shares alone shall be taken into
consideration irrespective of any intermittent fall in the shareholding pursuant to dilution of
voting rights. Accordingly, gross acquisition is 6% in the above case.
Creeping Acquisition

Particulars Shares Percentage

Pre-Preferential shareholding 10,000 10% of pre-preferential share capital i.e. 1,00,000 Equity Shares
Preferential allotment 5,000 -
Post-Preferential shareholding 15,000 14.29% of post preferential shareholding i.e. 1,05,000 Equity Shares
Change 4.29%

Whether Regulation 3(2) triggered?

No, Regulation 3(2) didn’t triggered, the difference between the pre-allotment and the post-allotment
percentage voting rights shall be regarded as the quantum of additional acquisition, which is 4.29% in the above
case.

Note: In above illustration it has been presumed that Acquirer + PACs held more than 25% but > 75% voting
rights in the Target Company.
 Control
Regulation 4
Acquisition of ‘Control’ – it Includes:

Right to appoint majority of the directors; or

Right to control the management; or

Right to control policy decisions, directly or indirectly by virtue of

shareholding or management rights or agreements and etc.

Q: Whether a Director or Officer shall be considered in control merely by virtue

of holding such position?
‘Control’– In matter of ‘Subhkam Ventures (I) Pvt. Ltd.
 SEBI observed that rights conferred upon the Acquirer, through the agreements, amounted to

'control’;

 Rejecting SEBI’s Hon'ble SAT observed that none of the clauses of the agreements, individually or

collectively, demonstrated ‘control’ in the hands of Acquirer.

 Hon’ble SAT had observed that “Control, according to the definition, is a proactive and not a

reactive power.

 Hon’ble Supreme Court of India held that “Keeping in view the above changed circumstances, it is in

the interest of justice to dispose of the present appeal by keeping the question of law open and it is

also clarified that the impugned order passed by the SAT will not be treated as a precedent”
‘Control’ – In matter of ‘Kamat Hotels (India) Ltd’
 Clearwater Capital Partners (Cyprus) Limited and Clearwater Capital Partners Singapore Fund III
Private Limited (“Noticees”) subscribed to Foreign Currency Convertible Bonds (“FCCB”) issued by the
Company and subsequently entered into an agreement with certain shareholders of KHIL in 2010;

 SEBI considering the terms of Agreement observed that there were certain protective rights in the
Agreement and Noticees were in ‘control’ of the Target Company;

 Whole Time Member of SEBI held that “It is apparent that the scope of the covenants in general is to
enable the Noticees to exercise certain checks and controls on the existing management for the
purpose of protecting their interest as investors rather than formulating policies to run the Target
Company”.
Indirect Acquisition
Acquisition of voting rights or control over other entity that enable the Acquirer to
exercise of such percentage of voting or control over Target Company.

• Enters in an agreement to acquire

Acquirer 100% of Body Corporate

• Already holds 74% of the Acquirer indirectly triggers

ABC A/C voting rights
an Open Offer for A Limited

A • Listed entity in
Limited India
Voluntary Open Offer

ELIGIBILITY CONDITIONS RESTRICTIONS

• Prior holding of at least • maximum permissible • Post offer no further
25% or more shares; non-public shareholding acquisition for a period of
not to be exceeded six months; except by way
• No acquisition during the of voluntary open offer or
preceding 52 weeks competing offer.
without attracting open
offer requirements.
Delisting through Takeovers

 Regulation 5A of Takeover Code governs Delisting Offer through Takeover;

 Provision was introduced on March 24, 2015 in Takeover Code;

 Acquirer has intent to delist the Target Company;

 Such intent to disclose shall be disclosed in Detailed Public Statement;

 Process of Delisting Regulations shall be followed and not of Takeover Regulations;

Delisting through Takeovers

Delisting process Delisting Offer

initiated successful

No compliance required to be done under Takeover Code

Delisting through Takeovers

Delisting process Delisting Offer

initiated failure

Certain compliance required to be done under Takeover Code

Announcement within 2 File draft letter of offer

Acquirer shall comply
working days in the with SEBI within 5
with the provisions of
newspaper where DPS working days from the
Takeover Code;
was published; date of announcement;
Conditional Offer

Covenant to be added
in offer triggering
agreement that if min
level not achieved then
Acquirer will not
acquire any share;
What is Competing Offer?

Public Announcement made by any person within

15 working days from the date of DPS published
under first open offer is competing offer.
Completion of Acquisition

If Offer is triggered If Offer is triggered If Offer is a Delisting

through Agreement through Pref allotment Offer in terms of
Regulation 5A
After 21 working days Within 15 days from the After making public
from DPS, subject to date of passing announcement for the
deposit of 100% of Offer shareholders’ approval success of delisting offer
Consideration in Escrow
account
Open Offer Process
Opening Bank Making Detailed
Public
account & Public Statement
Triggering Event Announcement
depositing funds (DPS)
(as per Reg 13)
(Within 2 W. Days) (Within 5 W. Days)

Expiry of Competing
Dispatching Letter Receipt of SEBI Filing Draft Letter of
offer Period
of offer to Comments on draft Offer with SEBI
shareholders letter of offer (Within 15 W. Days
(Within 5 W. days)
from date of DPS)

Opening of Closure of Tendering Payment to Post Offer

Tendering period period shareholders Compliances
Escrow Account
Opening • at least 2 working days prior to DPS;

Objective • To ensure performance of obligations by Acquirer;

• Cash
• Bank Guarantee
Form/Types of Escrow:
• Frequently Traded & Free transferable equity shares or other
freely transferable securities with appropriate margin

In case of Bank Guarantee / Deposit • Acquirer shall deposit CASH equal to at least 1% of total
of Securities consideration.

In case of shortfall in value of • Manager to the open offer shall be liable to make good such
securities shortfall.
Quantum of Escrow
CONSIDERATION PAYABLE UNDER THE
ESCROW AMOUNT
OPEN OFFER
On First ₹500 Crore 25% of the amount of consideration

₹ 125 Cr.
+
Balance Consideration
10% of the consideration above ₹ 500 Cr.

100% of the Minimum Level of Acceptance

OR
In case of Conditional Offer
50% of the Consideration Payable
(Whichever is Higher)
Release of Escrow

Not before expiry of thirty days from payment to all shareholders;

Fair Play in Exit Opportunity
Acquirer shall ensure fair play while providing Exit Opportunity to the shareholders

Fair Play

Fair Offer Fair Offer Fair Offer

Size Price Process
Offer Size
What should be the Offer Size

7(1) at least 26% 7(2) At least 10%

of the total of the total
shares of shares of
Target Co. Target Co.

Mandatory Voluntary
Offer Offer
What should be the Offer Size

For the purpose of calculation of Offer Size,

total shares as on 10th Working day from the
closure of tendering period shall be taken into
consideration;
What should be the Offer Size

Offer Size = Total Shares as on

10th Working day from the
closure of tendering period.
Offer Size shall:

Proportionately increase in
Include all potential
case of an increase in total
increases in the number of
number of shares which is
outstanding shares as on
not contemplated on the
the date of PA;
date of the PA
Offer Price
Offer Price

For the purpose of calculation of Offer Price, firstly Acquirer needs to check
whether the Shares of the Company are frequently traded or infrequently
traded in terms of Takeover Regulations.
Frequently Traded Shares

Frequently Traded shares means shares of a target company, in which the

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

The traded turnover on any stock exchange during the twelve calendar
months preceding the calendar month in which the public announcement is
made, is less than ten per cent of the total number of shares of such class of
the target company, then the shares of the Target Company are infrequently
traded.
Offer Price – If Frequently traded

Highest price of the following:

Highest Negotiated Price paid per share under the

Agreement

Volume-weighted average price for acquisition made during

52 weeks preceding date of PA

Highest price paid for acquisition made during 26 weeks

preceding date of PA

Volume-weighted average market price for 60 trading days

preceding date of PA
Offer Price – If Frequently traded

Volume Weighted Average Price for the acquisition made during 52 weeks preceding the PA
Date of acquisition Price per share (1) No. of shares acquired Consideration (3=1*2)
(2)

10.06.2016 100.33 200 20065.18

22.08.2016 94.55 124 11723.71
06.01.2017 104.70 400 41880.43
05.02.2017 103.09 200 20618.14
16.03.2017 88.50 100 8850
Total 56972 5087440.57
Volume-Weighted Average Price 89.30
(Total of 3/Total of 2)
Offer Price – If Frequently traded

Highest price paid for acquisition made during 26 weeks preceding date of PA

Date of Acquisition Price per share No. of shares acquired

11.11.2016 94.55 124

20.12.2017 104.70 400

14.02.2017 103.09 200

19.03.2017 88.50 100

Highest Price Paid 104.70

Offer Price – If Frequently traded

Volume-weighted average market price for 60 trading days preceding date of PA

Date WAP No. of shares VWAP
Traded
04.06.2017 119.87 23,694 2,840,138
05.06.2017 120.09 21,742 2,611,064
06.06.2017 119.47 9,670 1,155,270
07.06.2017 119.64 1,730 206,975
Total of WAP 236,352 24,734,057
Volume-weighted average market 104.65
price (VWAP/60)
Offer Price – If Frequently traded

Minimum Offer Price shall be highest of Price

Highest Price paid per share under the Agreement Rs. 110

Volume-weighted average price for acquisition made during 52

Rs. 89.30
weeks preceding date of PA
Highest price paid for acquisition made during 26 weeks preceding
Rs. 104.70
date of PA

Volume-weighted average market price for 60 trading days

Rs. 104.65
preceding date of PA
MINIMUM OFFER PRICE RS. 110
Offer Price – If Frequently traded

Highest price of the following:

Highest Negotiated Price paid per share under the

Agreement

Volume-weighted average price for acquisition made during

52 weeks preceding date of PA

Highest price paid for acquisition made during 26 weeks

preceding date of PA

Other Valuation Parameters - Book Value, Comparable

trading multiples, Earning per share and other parameters
Fair Disclosure

 Chapter V of Takeover Code deal with disclosure of Shareholding & Control. The
Significance of provisions under Chapter V have been best explained by Hon’ble

SAT in ‘Milan Mahendra Securities Pvt. Ltd. Vs SEBI (Appeal No. 66 of

2003) decided on 15.04.2005’ as follows -

“the purpose of these disclosures is to bring about transparency in the
transactions and assist the Regulator to effectively monitor the transactions in
the market.”
 Disclosure
Requirements
Disclosures
Disclosure

Disclosure

Event
Continual
Based
Event Based
Disclosure
Event Based Disclosures

Change in
Initial Limit
shareholding

Regulation 29(1) Regulation 29(2)

Holding >5% & change by

On acquiring 5% or more more than 2% even if due
of the voting rights to such change holding
falls below 5%
Event Based Disclosures

 Disclosure shall be made within two working days of the receipt of intimation of allotment of
shares or the acquisition of shares or voting rights of the triggering of threshold
requirement:

To every stock exchange were the shares of the Company are listed;

To the Target Company

Q: In what time the disclosure for sale in shares or more than 2% of the voting rights shall be
filed?
Event Based Disclosures
Hon’ble SAT in ‘Mr. Ravi Mohan & Ors. vs SEBI (Appeal No. 97 of 2014
decided on 16.12.2015’, has observed that:
“disclosure obligation under regulation 7(1A) (now Reg 29(2)) has to be discharged in accordance with
regulation 7(1A) i.e. Reg 29(2) read with regulation 7(2) (now Reg 29(3)) and since regulation 7(2) i.e.
Reg 29(3) does not contemplate for disclosure relating to sale of shares in excess of the limits set out
under regulation 7(1A) i.e. Reg 29(2) no penalty can be imposed on the ground that there is failure to
comply with regulation 7(1A) i.e. Reg 29(2) within the time stipulated under regulation 7(1A) read with
regulation 7(2) in respect of sale of shares effected in excess of the limits prescribed under regulation
7(1A) i.e. Reg 29(2).”
Disclosure Requirements

For the purpose of calculating the trigger points for disclosure under Chapter
V of Takeover Code - Acquisition and holding of any convertible security shall
also be regarded as shares.
Disclosure Requirements
AB Limited is a BSE Listed Company having paid up share capital of 100 shares of Rs. 10 each and Mr.
Shivam holds 10 shares representing 10% in the Company
Case Pre Shareholding Allotment Post Shareholding Section Disclosure
Triggered Required
No. of % No. of % Yes/No
shares shares
1. 10 10.00% Preferential issue of 3 13 12.62% 29(2) Yes
Equity Shares
2. 10 10.00% 3 Warrant issue 13 12.62% 29 (2) Yes

3. 10 10.00% Conversion 3 warrants 13 12.62% 29 (2) Yes

issued into equity shares
Event Based Disclosure in case of Encumbered Shares

Promoter Promoter
& PAC & PAC

Regulation Regulation
31(1) 31(2)

On Creation
Invocation
of
and Release
Encumbrance

Disclosure shall be made within 7 W. Days to the Target Company and Stock Exchange where shares
of the Target Company are listed.
Disclosure Requirements

Q: Whether 5% shares taken by way of pledge by broker would attract the

disclosure requirement?

Q: Whether 5% shares taken by way of pledge by State Bank of India

(‘Schedule Commercial Bank’) would attract the disclosure requirement?
Disclosure Requirements
“Shares taken by way of encumbrance shall be treated as an acquisition, shares given
upon release of encumbrance shall be treated as a disposal, and disclosures shall be
made by such person accordingly in such form as may be specified:

Provided that such requirement shall not apply to a scheduled commercial bank or
public financial institution as pledgee in connection with a pledge of shares for securing
indebtedness in the ordinary course of business.”
Continual
Disclosure
Continual Disclosure

Person Shareholding as on March 31st Disclosure

Every person along with person 25% or more Disclosure shall be filed within 7 working
acting in concert days from the end of financial year
Promoter along with PAC Irrespective of shareholding Disclosure shall be filed within 7 working
days from the end of financial year

Disclosure shall be filed to the exchange where shares of the Company are
listed and to the Target Company.
Disclosure under
Insider Trading
Regulations
Disclosures under Insider Trading
Initial Disclosures:

 Every person on appointment as a KMP or as a Director or upon becoming a Promoter shall disclose his
shareholding as on the date of appointment or becoming a promoter, to the company within 7 days of such
appointment or becoming a promoter;

Continual Disclosures:

 Every Promoter, KMP and Director of a company shall disclose to the company the number of such securities
acquired or disposed of within 2 trading days of such transaction if the value of the securities traded, whether in
one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of 10
Lacs Rupees

 Every Company shall further disclose the details of acquisition or disposal to the exchange within two working days.
Exemptions under
Takeover
Exemptions under Takeover Code

Automatic Exemption
Regulation 10

Exemption on application
Regulation 11

Relaxation from Procedural

requirements of Open Offer
Exemptions under Open Offer

Inter-se transfer of shares

amongst the following

Promoters for
Person acting in
last 3 years as
Immediate Group concert for not Shareholders
per
relatives Companies less than 3 for last 3 years
Shareholding
years
pattern
 Conditions to claim Inter-se
Transfer

Transferor and Transferee shall have Inter-se transfer shall be maximum at

complied with the disclosure a price which is not more than 25% of
requirements under Chapter V for last the price calculated in terms of
three years Regulation 8 of Takeover Code
In the matter of RattanIndia Infrastructure Limited

Q: Whether the inter-se promoter transfers made prior to completion of 3 years of

listing of the Target Company would be eligible for exemption under Takeover Code?

 Hon’ble SAT held that the requirement of three years shareholding of promoter
group shown in the shareholding pattern is post to the listing of the Company,
accordingly, the inter-se transfer done amongst the promoters in year 2014 would
not qualify as exempted transaction in terms of Takeover Code;
Exemptions under Open Offer are available to acquisitions/
increase of voting rights:

under Ordinary pursuant to a pursuant to

Course of Business; scheme; Delisting;

Of voting rights
Pursuant to arising out of non Upon transmission,
Conversion of Debt payment of dividend succession or
into Equity under on preference inheritance;
SDR scheme; shares;

Of voting rights on
forfeiture of shares
In the matter of Emmsons International Limited

 Whether increase in the shareholding or voting rights pursuant to forfeiture of shares would
trigger the requirement to make open offer?

 Hon’ble Securities Appellant Tribunal while pronouncing its decision referred to the decision
given in case of Mr. Raghu Hari Dalmia & Ors. vs. SEBI (Appeal No. 134 of 2011 decided on
21.11.2011) wherein it was observed that the term ‘acquire’ and ‘acquisition’ denote some
positive/ active act of the Acquirer to obtain shares or voting rights. Hence, it was held that
passive acquisitions for e.g. buybacks, forfeiture of shares would not tantamount to
acquisition and thus requirements of open offer would not trigger.
 Regulatory Actions As a normal rule such direction comes in
majority of default cases, as direction to
make open offer has been called as
‘Mandate of SAST Regulations’ by
Hon’ble SAT in ‘Nirvana Holdings Private
Open Offer Limited vs. SEBI (Appeal no. 31/2011)’

To make open offer

(taking price of trigger
date ) along with
Delay : No Offer :
interest of 10% p.a.
Monetary Penalty by WTM’s directions u/s
AO u/s 15H 11 & 11B

To divest excess shares

Penalty ranges b/w Rs. 25 Lacs to Rs. 50 Lacs.

Recently on 20.07.2017 a penalty of Rs. 50 Such a direction came for the very first time
lacs has been imposed upon Acquirers + PACs In the matter of ‘Unique Organics Ltd’
in the matter of ‘Symphony Limited’
because offer price was lower than the
market price of the scrip.
Regulatory Actions

Disclosure

Default ceases to continue Default continues until

when disclosures are made Delay in disclosure: No Disclosure: disclosures are made
Monetary Penalty by AO Monetary Penalty by AO
u/s 15A / 15H (i) u/s 15A / 15H (i)

Generally, penalties range between Rs 2 Lacs to 10 Lacs. Some of the recent

cases on SAST disclosure violations are as follows:
• A penalty of Rs. 17.5 Lacs was imposed in the matter of ‘Hydro S & S
Industries Ltd, decided on 29.10.2015’;
• A penalty of Rs. 15 Lacs was imposed in the matter of ‘United Spirits Ltd
decided on 27.11.2015’.
Settlement Process

Settlement
Settlement can done only after making the default good

Delays in Disclosures Open offer Delay/Defaults

May be settled on application to SEBI. Cases of open offer delays can be settled
Settlement fee is to be calculated as per only if offer is given (with delay )
formula prescribed in Settlement Or
Regulations. Open offer becomes infructuous

Min Settlement Fee = Rs. 2 Lacs Min Settlement Fee = 25 Lacs or

0.25% of the offer size, higher of two.
Recent Developments:

SEBI Board Meeting decision dated 21/06/2017:

 To address the issue of bad loans, SEBI decided to ease the rules of acquisition of stressed assets;

 Under the current rules certain exemptions are allowed only to banks while acquiring stressed assets and
now has been extended to the investors as well;

 Acquisitions of shares in Stressed assets would be done as per valuation rules of RBI not of Takeover Code
or ICDR;

 These exemption will provide waiver from the requirement to make an open offer of a stressed asset;

 Pursuant to resolution plans approved by NCLT under the Insolvency and Bankruptcy Code, 2016 will be
exempted from open offer requirements under Takeover Regulations, 2011.
Thank You
Founder & Managing Director
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Pavan Kumar Vijay F: +91 1140622201 | T: +91 1140622200 |
E: pkvijay@indiacp.com | www.corporateprofessionals.com

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