An Analysis of SEBI Takeover

Code

SNAPSHOT OF LEGAL PROVISIONS

Key Regulations

Regulation 2

Definitions

Regulation 3(3)
Regulation 3(4)
Regulation 3(5)
Regulation 6

Disclosures & Compliances

Regulation 7
Regulation 8
Regulation 10, 11 & 12
Regulation 20(4) & 20(5)

Open Offer Provisions

Pricing Provisions

Clause 40A of Listing Agreement

Regulation 3 (1)
Regulation 4

Minimum Public Shareholding

Exemptions under Takeover Code

Takeover Panel Exemptions

Key Regulations- Contd

Determination of Offer Price:
In case of Direct Acquisition
In case of Indirect Acquisition

Escrow Account
Competitive Bid

Regulation 20

Regulation 28
Regulation 25

Relaxation from the strict provisions of

Chapter III

Regulation 29A

Definitions-Acquirer

Acquirer" means any person who, directly or indirectly, acquires or

agrees to acquire shares or voting rights in the target company, or
acquires or agrees to acquire control over the target company, either
by himself or with any person acting in concert with the acquirer.

Query
Whether a person agreeing to acquire shares is an acquirer under SEBI
Takeover Regulations?

Yes

The scope of SEBI Takeover Regulations takes in its ambit not only a
person directly or indirectly acquiring the shares or voting rights in the
target company or acquiring control over the target company, but one
agreeing to acquire shares/voting rights or control is also an acquirer
and it is not necessary that one should actually acquire shares/voting
rights or control to consider him as an acquirer.

B.P. Amoco Plc & Castrol Limited Vs. SEBI

Definition-Shares

Shares" means shares in the share capital of a company carrying

voting rights and includes any security which would entitle the holder to
receive shares with voting rights but shall not include preference shares.

Query
Whether partly paid-up shares which do not carry any voting rights shall
be covered in the definition of shares?

If the partly paid up shares are excluded from voting, then they will not
be covered in Takeover Code. However, in case of absence of any such
condition, the partly paid up shares will be covered under the definition
of shares as voting rights are embedded in such type of shares.

Shri Ch.Kiron Margadarsi Financiers Vs SEBI

Query
Whether SEBI Takeover Regulations are applicable on preference shares
where voting rights have been arise on them due to the non payment
of dividend?

No.
Since vide amendment dated Sep 09, 2002, Preference Shares have been
excluded from purview of SEBI Takeover Regulations, therefore, when
voting rights have been arise on the preference shares due to the non
payment of dividend, SEBI Takeover Regulations will not be applicable.

Weizmann Ltd. and PACs Vs Adjudicating Officer

Definition- Person Acting In Concert

Persons who, for a common objective or purpose of substantial

acquisition of shares or voting rights or gaining control over the
target company, pursuant to an agreement or understanding
(formal or informal),directly or indirectly co-operate by acquiring
or agreeing to acquire shares or voting rights in the target
company or control over the target company.

Query
Whether shares held by all persons acting in concert with acquirer have
to be taken into account for determining whether regulation 7 gets
triggered?

Yes
The shares held by all the persons, who act in concert with him, are to
be taken into account for determining whether regulation 7 gets
triggered.

Radheshyam Tulsian SAT

Query
Where a promoter who is interested in selling off his shareholding, can
he be treated as person acting in concert with another co-promoter
who is interested in acquiring shares?

No.
Where a promoter does not share common objective or purpose of
acquirers in as much as it is not interested in acquiring further shares
but, on the contrary, is interested in selling off its shareholding in
Target Company with a view to meet its financial obligations, it must
be held that such promoter was not acting in concert with
acquirers.

K.K. Modi-Supreme Court

Disclosures Requirements

Transitional Disclosure
Regul ati on 6

Event based disclosure on acquisition of Shares

Regulation 7

Continual Disclosures
Regul ati on 8
Disclosure of Pledged Shares
Regul ati on 8A

Thresholds Defined

Person holding more than 5% shares and

Promoter or any person having control over
the company.(Transitional Provisions)
[Regulation 6]
Acquisition of more than 5%, 10%, 14%, 54%
& 74% [Regulation 7 (1)]
Persons, who are holding between 15% - 55%,
acquisition/ sale aggregating 2% or more
share capital/ voting rights [Regulation 7(1A)]

Compliance Chart Regulation 6

Regulation No.

By whom

To whom

Time limit (from date

of notification)

6(1)

Any person holding

Target Company

within 2 months

All Stock

within 3 months

More than 5% shares

or voting rights
6(2)

Target Company

Exchanges where
shares are listed

6(3)

Promoter or any

Target Company

within 2 months

All Stock

within 3 months

person having control

over the company
6(4)

Target Company

Exchanges where

shares are listed

Compliance Chart Regulation 7

Regulation No.

By whom

To whom

Time limit

7(1)

Any person who

Target Company &

Within 2 Days

acquires more than

Stock Exchanges

of Acquisition

5%, 10%, 14%, 54%,

where shares are listed

74%
7 (1A)

Any person who holds

Target Company &

Within 2 Days of

15%-55% shares and

Stock Exchanges

purchase/sale

purchases/sells 2% or

where shares are listed

more of shares
7 (3)

Target Company

All Stock Exchanges

Within 7 Days of

where shares are listed

receipt of
information

Thresholds Defined

Disclosure by Person holding more than 15%

shares [Regulation 8(1)]

Disclosures by Promoters or Person having

control over a company [Regulation 8 (2)]

Disclosures by Target Company [Regulation 8 (3)]

Compliance Chart Regulation 8

Regulation

By whom

To whom

When

Time limit

Any person who

Company

As on 31st March

21 Days

Company

As on 31st March

21 Days

No.
8(1)

holds more
than 15% shares
8 (2)

Promoters or
person having

Record Date

control over a
company
8 (3)

8 (4)

Target

Stock

As on 31st March

Company

Exchange

Record Date

Maintenance of Register of Holdings

30 Days

Query
Whether an unlisted Company is also required to make disclosure under
regulation 6, 7 & 8?
Yes
If an unlisted Company acquirers or holds shares/voting rights of a Listed
Company beyond the limits specified under regulation 6, 7 & 8, then
it is also required to make disclosures as any other acquirer.

DALP Tradepool Pvt. Ltd Informal Guidance

Query

Whether dispatch of disclosures is sufficient to ensure

compliance?
No
The proof of dispatch is not sufficient to prove compliance. The
obligation is to ensure delivery to the stock exchange. Therefore,
proof of delivery should be produced.
Sudeep Chitlangia vs. AO

Thresholds Defined

Disclosure by Promoters or Person forming

part of promoter group about the shares
pledged before notification [Regulation
8A(1)]
Disclosures by Promoters or Person forming
part of promoter group on pledge of
share.[Regulation 8A (2)]
Disclosures by Promoters or Person forming
part of promoter group on invocation of
pledge .[Regulation 8A (3)]
Disclosures by Company when shares
pledged exceeds 25000 or 1% of share
capital .[Regulation 8A (4)]

Compliance Chart Regulation 8A

Regulation

By whom

To whom

No.
8A(1)

Time limit

(Event)
Promoter or person
forming part of the

Company Details of shares Within 7 working

Days of
pledged before notification

promoter group

8A (2)

When

Promoter or person

notification

Company

forming part of the

On pledge of
single shares

Within 7 working
days of pledge

promoter group
8A(3)

Promoter or person
forming part of the
promoter group

Company

On invocation
of pledge

Within 7 working
days of
invocation of
pledge

Compliance Chart Regulation 8A, Contd

Regulation

By whom

To whom

When

Time limit

No.
8A (4)

Company

Stock

Exchange

On receipt of information Within 7 working

under regulation 8A (1), days of receipt of

(2) and (3) if the total information
number

of

pledged

during

shares
the

quarter exceeds 25000 or

1% of the total paid up
capital of the company

Thresholds Defined

Acquisition of 15% or more voting rights

[Regulation 10]
Persons, who are holding between 15% - 55%,
acquisition more than 5% or more voting rights
in a financial year.[Regulation 11(1)]
Persons, who are holding between 55% - 75%,
acquisition of any additional single share or
voting right [Regulation 11(2)]
Acquisition of Control or Change in Control with
or without acquisition of shares [Regulation 12]

Compliance Chart Regulation 10, 11& 12

Regulation

By whom

To whom

No.
10

Time limit

(Event)
Acquirer or by his
PAC

Shareholders
of Target
Company

11(1)

When

Acquirer or along

Shareholders

with PAC holding

of Target

Acquisition of Within 4 working

Days of entering in
15% or more to agreement for
voting rights acquisition of
share/voting rights
Acquisition of

15% but less than

Within 4 working
5% or more
Days of entering in
to agreement for
shares or
acquisition of
voting rights in share/voting rights

55% of shares/

Financial Year

equal or more than

voting rights

Company

Compliance Chart Regulation 10, 11& 12

Regulation

By whom

To whom

No.
11(2)

When
(Event)

Acquirer or along

Shareholders

Acquisition of

Within 4 working

with PAC holding

of Target

any additional

Days of entering

Company

single share or

in to agreement

voting right

for acquisition of

equal or more than

55% but less than
75% of shares/

share/voting

voting rights
12

Time limit

Acquirer or by his
PAC

rights
Shareholders

Acquisition of

of Target

control

Company

irrespective of
with or without
acquisition of
shares

Within 4 working
Days of occurring
the event

Regulation 12
Control must be taken to mean de facto control also and not de jure
control alone.
While determining control for the purpose of regulation 12, following
points must be remembered:
A pure assessment of numerical composition of Board by itself would
lead one too far to identify seat of control.
The fact that a company is professionally managed does not mean
that nobody is in control over Company.
Even majority holding of shares is not a decisive factor in determining
effective control.
On the other hands, sometimes a person not holding majority shares,
say even less than 15%, can be said to have control over the Company
if he has effective de facto control over the Company.
Ashwin K. Doshi -SAT

Query
Whether exemption from making public announcement under regulation
12 will also exempt the acquirer from making public announcement
under regulation 11(1)?
No
No, only because regulation 12 also speaks of public announcement,
same by itself would not exempt acquirer from making a public
announcement in terms of clause (1) of regulation 11. Moreover, merely
because in a case where acquisition of additional shares may result in
change of control over company, same by itself would not exempt
acquirer from complying with statutory requirement of making public
announcement under section 11.
Swedish Match AB-Supreme Court

Amendment in Regulation 11 (2)

w.e.f. October 31, 2008
Proviso to Regulation 11 (2)
Extra limit of 5% is allowed to persons holding 55%-75% shares

Routes Dis-allowed

Routes Allowed

Bulk Deal
Block Deal
Off-market
Preferential Allotment

Purchase through Open

market
Buy-back

Issues in Amendment

Whether the limit of 5% is allowed for one-time acquisition

or it is allowed for one financial year?

Whether a person holding 53% shares can acquire 5%

shares?

Clarification Circular August 06, 2009

Minimum 55% shareholding

It is allowed only to the acquirer who together with the PACs with him holds
55% or more shares in the Target Company

Not at par with regulation 11(1)

Creeping Acquisition is not allowed in each financial year.

One time acquisition

It is allowed once during the entire life time of the Target Company and can
be made in one or more trenches without any restriction on the time frame.

No netting off allowed

The limit of 5% shall be calculated by aggregating all the purchases without
netting the sales

Maximum 75% shareholding

Irrespective of the level of minimum public shareholding to be maintained in
terms of clause 40A of the listing agreement, the shareholding cannot
exceed 75%

Unanswered Questions

What is the applicability of the SEBI (SAST) Regulations, 1997 on the

acquirer who has acquired 5% shares before March 31, 2009 and

another 5% shares after March 31, 2009 in terms of the second proviso to
sub-regulation (2) of regulation 11 on the assumption that the creeping
acquisition as allowed under said regulation is for each financial year.

Query
Whether the acquirer belonging to promoter group is required to make
open offer if the aggregate shareholding of promoter group exceeds
beyond the creeping acquisition limit pursuant to the acquisition of
shares by acquirer, irrespective of the fact that his individual
shareholding is within the limit?
Yes.
The term acquirer includes the acquirer and other persons acting in concert
with the acquirer. Since, the acquirer admittedly belongs to the promoter group
therefore can be treated as persons acting in concert for the purpose of
determining the triggering of the provisions of Regulation 11 (1) of Takeover
Regulations and would be required to give open offer if his shareholding
exceeded beyond the creeping acquisition.

Shingar Ltd-SEBI

Query
Whether for applying regulation 11 of the SEBI Takeover Regulations the
comparative percentage of holdings in the pre acquisition and post
acquisition equity share capital should be applied?

For the purpose of regulation 11, the incremental voting right acquired
by the acquirer would be considered.
Jain Irrigation Systems Ltd. Informal Guidance

Controversial Issues
Whether a person holding shares between 15%-55%, can acquire
further shares increasing his shareholding equal to or more than 55%
in terms of regulation 11(1).
Whether in terms of regulation 11(2), the acquirer can increase his
shareholding to 75%/90%.
In regulation 11(2), the acquirer is restricted from acquiring a single
shares without giving the public announcement whereas Takeover
Regulations are applicable only on the acquisition of voting rights.

Exemptions under Takeover Code

Regulation 3
Automatic Exemption
Regulation 4

Exemptions

Exemption by SEBI on a Case to

Case Basis

Key Exemptions
Allotment in Public Issue
Allotment in Right Issue
Allotment to the Underwriters
Inter-se Transfer
Acquisition of shares in exchange of shares received under Public
offer
Transfer of shares from State Level Financial Institutions
Acquisition through transmission on succession or inheritance
Acquisition by Government Company
Acquisition of shares pursuant to the scheme of Arrangement or BIFR

Exemptions

Whether exemption is available from SEBI Takeover Code?

No.
Exemption is available only from the provisions of Regulation 10,
11 & 12.
The provisions of regulation 7 are nevertheless required to be
complied.

Key Exemptions Inter-se Exemption

Amongst
Group

Acquirer &
PAC

Inter-se
Transfer

Amongst
Qualifying
Promoters
and Foreign
Collaborator

Amongst
Relatives

Compliance Chart under Inter Se Transfer

group

Inter se
transfer
among
relatives

the

Advance Intimation under

under

Pricing Norms i.e. Inter se

Particulars

Inter se transfer
among MRTP

Compliance

with

Inter se transfer Inter se transfer

among
between
Qualifying
Acquirer and
promoters
PACs

regulation 6, 7 and 8
regulation 3(3)
Report

to

SEBI

regulation 3(4)
transfer cannot be at a price
exceeding 25% of the price
determined under regulation
20(4) or 20(5).
Prior holding of three years

Query

How the limit of 5% is calculated under regulation 3 (3) in case of

acquisition of shares through fresh allotment?

In case of acquisition of shares by way of fresh allotment, such percentage

shall be calculating after taking the post-allotment capital as denominator

Query
If a person is already holding more than 15%, whether he is required to
file the report under Regulation 3(4)?
Yes.
The compliance under regulation 3(4) is not a one-time compliance.

Naagraj Ganeshmal Jain- SAT

Query

For claiming exemption on inter-se transfer, whether prior holding

of 3 years is required by all transferors and transferees?

No
The collective holding of transferor and transferee is required,
therefore if there are more than one transferors and transferees
and one of them does not hold shares for 3 years, the transfer
will be eligible for exemption.
Pudumjee Agro Industries Limited

SEBI Judgment
What is the relevant date for deciding the eligibility for availing exemption??

Regulation 3 comes into play only if a violation of the substantive clauses 10, 11
or 12 is first established. Therefore, the date of claiming exemption under
regulation 3 cannot be prior to the date when regulation 10, 11 or 12 is attracted.

Whether acquisition of shares pursuant to conversion of warrants is an

involuntary acquisition and hence eligible for exemption??

The acquisition of shares and consequent voting rights is out of a voluntary action
on the part of the Acquirers and it is not due to compulsion under or operation of
any law. Hence, such acquisition is not exempt.

Determination of Offer Price

In Case of Direct Acquisition

Frequently Traded Shares

Infrequently Traded Shares

Regulation 20(4)

Regulation 20 (5)

Determination of Offer Price

In Case of Indirect Acquisition

Frequently Traded Shares

Infrequently Traded Shares

Regulation 20(4)

Regulation 20 (5)

Date of public announcement for

parent Company
Date of Public announcement for
Target Company
Regulation 20(12)

Query
Whether the date on which share purchase agreement was executed for
acquisition of parent company can be taken as the relevant date where
no public announcement has been made for the parent company?
NO

Where no public announcement has been made for the acquisition of

shares of the parent company, the date when the share purchase
agreement was entered into for the acquisition of shares of parent
company cannot be taken as the date of its PA for the purpose of
regulation 20(12) of the SEBI Takeover Code.
Hamlet Holdings II ApS and Others-SAT

Payment of Non-Compete Consideration

Issue Involved

Cementrum IBV &

Heidelberg
Cement AG

Lanxess ABS
Limited

Issue involved

Vs.

What is necessary for payment of non-compete

consideration???

What SEBI held

It is not the obligation to compete but the competency

Cementrum which is relevant and where the sellers are not competent
to give effective competition, any payment under the grab
IBV &
of non-compete consideration cannot be called nonHeidelberg
compete consideration. Therefore, it is to be adjusted in
Cement AG offer price even if below 25% of offer price.

Lanxess ABS
Limited

Where the sellers are competent enough to give effective

competition to the target Company, payment of noncompete consideration is justified.

Competitive Bid

When an acquirer has made an offer to acquire a Company, and

subsequently, some other acquirer also makes an offer to acquire the
same Company, that subsequent offer by other person is called
Competitive Bid.

Competitive Offer

Competitive Offer to the shareholders of

Orissa Sponge Iron and Steel Limited

Competitive Offer

Competitive Offer to the shareholders of

Great Offshore Limited

Regulation 29A
Relaxation from the strict compliance of provisions of Chapter III in
certain cases

In the background of recent fiddles discovered in the corporate sector,

whereby the interest of investors has been bigoted to a great extent,
Securities and Exchange Board of India has come out with regulatory
changes to help the investors who are interested in reviving the victim
companies so that any further prejudice to the interest of investors could be
avoided.

Analysis of Regulation 29A

Where BODs of the Company has been removed by Central
Government or State Government or any other authority due to the
serious mismanagement of operations and other person has been
nominated to hold the office;
For the orderly conduct of the affairs of Target Company or to revive
its operations, such new directors have devised a plan;
There has been a competitive process;
Provisions relating to open offer cannot be complied with.

Issue

Why separate Regulation 29A has been inserted when

Bail Out Takeover is there?

Practical Issues

Applicability of SEBI Takeover Code on Warrants

Valuation of shares in case of swapping

Inter Se transfer of shares among MRTP Group: The Group

should be shown in the Balance Sheet of Target Company

Increase in shareholding pursuant to Corporate Actions such

Buyback or forfeiture

Calculation of acquisition limits when shares are acquired

through preferential allotment

Relationship between Promoter and Control

Actual Acquisition Vs Agree to Acquire

Netting off Vs Gross Acquisition

Practical Issues

Acquisition of shares but no increase in

voting rights in terms of Voting Rights

Thank You