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:

2

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

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List of Contents:

S. No. Description Page No.

1. Introduction 5

2. Takeover Code: Conceptual Skeleton 6

3. Some Cases Discussed 26

4. Conclusion 29

5. Bibliography 30

INTRODUCTION

The Indian regulatory landscape has witnessed dramatic changes over the

past few years with significant modifications proposed to the direct and

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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.

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

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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

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

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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;

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(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 company.In 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;

(e). “target company” means a company and includes a body

corporate or corporation established under a Central legislation,

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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

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

conscious effort to bring Indian regulations in line with international

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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 Committee’s 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

company’s 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

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

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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).

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,

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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.

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

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(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

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.

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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

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

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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

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

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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

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

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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

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.

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S.

No.

Event Triggering Obligation to

Make a Public Announcement

Time of Making Public

Announcement

1. Acquisition of shares through market

purchases.

Prior to placement of purchase

order with the stock broker to

acquire shares.

2. Acquiring shares or voting rights or

control upon conversion of convertible

securities (without fixed date of

conversion) or upon conversion of

depository receipts for the underlying

shares

On the date of exercise of the

option to convert such securities

3. Acquiring shares or voting rights or

control upon conversion of convertible

securities (with a fixed date of

conversion)

On the 2nd working day

preceding the scheduled date of

conversion of such securities.

4. Acquisition pursuant to disinvestment. On the date of executing the

agreement for acquisition

5. In case of an indirect acquisition which

is not a Deemed Direct Acquisition.

Any time within 4 working days

from the earlier of: (a) the date

on which primary acquisition is

contracted, or (b) date on which

intention or decision to make

primary acquisition is made

public.

6. In case of Deemed Direct Acquisition Earlier of: (a) the date on which

primary acquisition is

contracted, or (b) date on which

intention or decision to make

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primary acquisition is made

public.

7. Acquisition under preferential issue. On the date of passing special

resolution under section 81 (1A)

of Companies Act, 1956.

8. Increase in voting rights pursuant to

buy back not qualifying for an

exemption.

Not later than 90th day from the

date of increase in voting right

beyond the stipulated threshold.

9. Acquisition wherein the specific date of

acquisition of title of shares, voting

right or control is beyond the control of

the Acquirer.

Not later than 2 working days

from the date of receipt of

intimation of having acquired

such title.

3.2. Opening of an Escrow Account

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

amount to secure performance of the Acquirer’s obligations, in an

escrow account in the form of cash deposited with a scheduled

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

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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 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

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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

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

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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

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

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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:

(a) every stock exchange where the shares of the Target Company

are listed; and

(b) 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.

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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:

(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 as“Appellants”) 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.

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Being aggrieved by the direction of SEBI, the Appellants have filed the

appeal before Hon’ble 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?

Decision:

After taking into considerations the facts and circumstances of the case,

the Hon’ble 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

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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 Hon’ble 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.

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 Hon’ble 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

26

letter of offer. One of the observation made by the Board is that prima-

facie 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

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:

Hon’ble 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.

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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.

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, Bharat’s, 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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Web Links:

http://www.moneycontrol.com/master_your_money/

stocks_news_consumption.php?autono=699522

http://www.mondaq.com/india/x/244878/M+A+Private%20equity/

SEBI+Plugs+Loopholes+In+Takeover+Code

http://www.deloitte.com/assets/Dcom-India/Local%20Assets/

Documents/SEBI_Takeover_Regulation_2011.pdf

http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research

%20Papers/Public%20M%26As%20in%20India%20%20Takeover

%20Code%20Dissected.pdf

https://www.pwc.in/assets/pdfs/indian-services/m-a-takeover-book-

final-lowres.pdf

http://student.rdias.ac.in/Uploads/amandeep.kaur/2-5.pdf

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