Project on

Exit Opportunity under SEBI (SAST) Regulations, 2011

SUBMITTED TO:

Mr. V. Surya Narayana Raju

Faculty, Corporate Law

SUBMITTED BY:

Taruna Shandilya
Roll no. 180
SECTION B
SEMESTER IX, B.A. LL.B (HONS.)

SUBMITTED ON:
October 14, 2019

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Uparwara Post, Abhanpur, New Raipur – 492001 (C.G.)

 DECLARATION

I, Taruna Shandilya, Hereby declare that, the project work titled “Exit Opportunity Under
SEBI (SAST) Regulations, 2011” submitted to H.N.L.U., Raipur is record of an original work
done by me under the able guidance of Dr. Y. Paparao, Assistant Professor, H.N.L.U., Raipur.

- Taruna Shandilya
Semester – IX
B.A. LL.B. (Hons.)
Roll no. – 180

2|Page
 ACKNOWLEDGEMENTS

First and foremost I would like to thank Mr. V. Surya Raju, faculty Corporate Law,
Hidayatullah National Law University Raipur, for creating opportunities to undertake such a
valuable project. He helped me in preparing the project through his aura and granting his
precious time for consultation, discussion and giving suggestions over this project. He had also
helped me in improving the perception regarding the study of topic in its vast resources and in
broader way. He had cleared all doubts and uncertainty towards this project. Therefore, I want to
thank him, for all his efforts and cooperation which he conferred to me.

I thank, almighty God, who bestowed and showers his blessings upon me and provided
with the gift of intellect to work on such topic with full dedication and intelligence.

I also owe my gratitude towards University Administration for providing me all kinds of
required facilities with good Library and IT lab. This helps me in making the project and
completing it. My special thank to Library Staff and IT staff for equipping me with the necessary
data and websites from the internet.

Taruna Shandilya
Roll no: 180
Semester IX
Sec. - ‘B’

3|Page
 TABLE OF CONTENTS

PAGE
S. NO. PARTICULARS
NO.

1. Acknowledgements 2

Introduction
5
Objective
6
2. Source of Data
6
Mode of citation
6
Scope and limitation

3. Voluntary Offer 7

4. Mandatory Offer 9

5. Conclusion 13

6. Bibliography 14

INTRODUCTION

4|Page
The Securities and Exchange Board of India (“SEBI”) introduced the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 ("Takeover Code, 1997") to regulate the
acquisition of shares and voting rights in public listed companies in India. The Securities and
Exchange Board of India ("SEBI") had been considering reviewing and amending the Takeover
Code, 1997 for quite some time now. A Takeover Regulations Advisory Committee was
constituted under the chairmanship of Mr. C. Achuthan ("Achuthan Committee") in September,
2009 to review the Takeover Code, 1997 and give suggestions. The Achuthan Committee
provided its suggestions in its report, which was submitted to the SEBI in July, 2010. After
taking into account the suggestions of the Achuthan Committee and feedback from the interest
groups and general public on such suggestions, the SEBI finally notified the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code, 2011") on 23
September 2011. The Takeover Code, 2011 will be effective from 22 October 2011. SEBI has,
however, clarified that any open offer, for which a public announcement has already been made,
would be governed by the Takeover Code, 1997. The Takeover Code, 2011 adheres to the
framework and principles of the Takeover Code, 1997 but the changes that it brings about are
significant. This edition of the I-Witness Update provides an overview of the Takeover Code,
2011 and discusses some of the most important amendments that have been brought about.

Objective

 To discuss the concept of ‘Mandatory offer, Voluntary offer and Competing Offer under
the Companies Act with the help of the various provisions.

5|Page
  To analyse the various requirements and obligation for the aforesaid offers under the
takeover code.

Source of data

In order to accomplish the objective stated above the methodology followed is of descriptive
nature based on secondary sources, i.e., books and electronic sources (internet). Secondary and
electronic resources have been used extensively to gather data about the topic. Books and other
reference as guided by the concerned faculty have been primarily helpful in structuring the
project. Websites, dictionaries and articles have also been referred to. Footnotes have been
provided wherever needed to acknowledge the sources.

Mode of Citation

The project follows the uniform citation of Bluebook Standard form of Citation 19th edition.

Scope & Limitation

The project studies the ‘Exit Opportunity under SEBI (SAST) Regulations, 2011’ only in the
context of Corporate Law and covers only the Indian society as its area of research.

TYPES OF OFFER

SEBI (SAST) Regulations, 2011 is the most significant law which regulates M&As deals
involving Indian Listed Companies. It endeavors to protect the interest of the investors of a listed

6|Page
company and make sure that an exit opportunity is given to the public shareholders at a highest
possible price where there is a substantial acquisition of shares or voting rights or control over a
listed company, consolidation of holdings by existing shareholders. The new Takeover
Regulations sought to better ensure that the takeover markets operate in a fair, equitable and
transparent manner. The exit opportunity is given to the shareholders in following situation:

I. Voluntary Open Offer

"Voluntary Open Offer" means Open Offer given by the acquirer voluntarily without
triggering the mandatory Open Offer obligations as envisaged under SEBI (SAST) Regulations,
2011. Generally, the purpose of giving Voluntary Open Offer is to consolidate the shareholding.

Regulation 6 of SEBI (SAST) Regulations, 2011 deals with the concept of Voluntary Open Offer
and provides the eligibility, conditions and restrictions with respect to the same that are detailed
below:

Eligibility for making Voluntary Open Offer

Acquirer along with PACs should be holding at least 25% or more shares in the Target
Company prior to making voluntary Open Offer.

The Acquirer or PACs have not acquired any shares of the Target Company in the preceding 52
weeks without attracting the Open Offer obligation.

Conditions for making Voluntary Open Offer

The aggregate shareholding after completion of the Voluntary Open Offer should not exceed
beyond the maximum permissible non-public shareholding.

No acquisition during the offer period except under the Voluntary Open Offer.

Restrictions

7|Page
The acquirer becomes ineligible to acquire further shares for a period of six months after the
completion of Open Offer except by way of:

Another Voluntary Open Offer;

Acquisitions by making a competing offer.

Size of the Voluntary Open Offer

Particlulars By a person holding 25% or By a person holding less than

more shares and making 25%
voluntary Open Offer u/r 6

Minimum Offer Size 10% 26%

Maximum Offer Size Maximum permissible non Maximum can be for entire
public shareholding permitted share capital of the target
under Securities Contracts company.
(Regulations) Rules 1957

II. Mandatory/Triggered Open Offer

8|Page
SEBI (SAST) Regulations, 2011 provides the triggering events on which the acquirer is required
to give an open offer to the shareholders of the Target Company. The triggering event may be
signing of Share Purchase Agreement or actual acquisition of shares from the market or passing
of special resolution for preferential basis and so on. Thus as soon as the intention of the acquirer
to acquire the shares of Target Company beyond the threshold limits mentioned in the
regulations, is expressed undeniably, the acquirer is required to give an open offer to the
shareholders of the Target Company except where the acquisition is exempted under regulation
10 of these regulations. One of the triggering events is contemplated under regulation 3 of SEBI
(SAST) Regulations, 2011.

Regulation 3 of SEBI (SAST) Regulations, 2011

Regulation 3 contains provisions regarding substantial acquisition of shares or voting rights of

the Target Company. It provides specific limits beyond which the acquirer(s) is required to come
out with an open offer in accordance with these Regulations.1

The major thresholds limit as per SEBI (SAST) Regulations, 2011

1. Initial Threshold Limit

1
http://www.mondaq.com/india/x/204822/Shareholders/Exit+Opportunity+Under+SEBI+SAST+Regulations+2011

9|Page
Regulation 3(1) provides that when an acquirer together with PACs intends to acquire shares or
voting rights which along with the existing shareholding would entitle him to exercise 25% or
more of the voting rights in the target company, in such a case the acquirer is required to
make public announcement to acquire at least additional 26% of the voting capital of
Target Company from the shareholders through an open offer.2

2. Creeping Acquisition Limit

This regulation is meant for allowable acquisitions (both direct & indirect) only for those who
already hold more than 25% shares or voting rights but less than 75% shares or voting rights in
the Target Company. Regulation 3(2) allows the persons either by themselves or through PAC
with them who are holding more than 25% but less than 75% shares or voting rights in the
Target Company to acquire further upto 5% shares or voting rights in the financial year
ending 31st March. The allowable acquisition of 5% is popularly known as 'Creeping
Acquisition'. Thus, the acquirer is permitted to acquire additional shares and consolidate his
holdings within the aforesaid limits.

However, it is to be noted that the creeping acquisition limit is subject to the condition that the
post acquisition shareholding of the acquirer does not exceed beyond the maximum permissible
non-public shareholding.3

Further, where the acquirer who along with the PACs holds equal to or more than 25% but less
than 75% shares and desires to acquire more than 5% shares in any financial year, can do so by
making an open offer to the shareholders of the Target Company.

Determination of the quantum of acquisition of additional voting rights

 No Netting off Allowed

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

2
https://pxvlaw.files.wordpress.com/2011/10/pxv-i-witness-takeover-code-2011-19-october-2011.pdf
3
https://blog.ipleaders.in/triggering-open-offer-beyond-threshold-limit-sebi-sast-regulations/

10 | P a g e
For example: where an acquirer holding 56% shares have acquired further 4% shares in the
company during the financial year 2012-13 and sold of 2% shares in the same financial year,
then he can further acquired only 1% shares without making the Public Announcement
regardless of the fact that he has sold of 2% shares in the financial year 2012-13.4

 Acquisition of shares by way of issue of new shares

The difference between the pre-allotment and the post-allotment percentage voting rights shall be
regarded as the quantum of additional acquisition.

In the present case, the incremental increase in voting right is 5%, although the fresh allotment
constitutes 11.99% of the expanded capital of the Company.

Accordingly, the incremental increase in voting rights is within the creeping acquisition
limit

3. Individual shareholding of Acquirer to be considered

The most important point to be noted here is that now the Individual Acquirer Shareholding shall
also be considered for determining the Open Offer Trigger Points apart from consolidated
shareholding of Acquirer and Persons Acting in Concert.

For Instance:

Promoter Pre Holding Creeping Post Holding Applicability of

Acquisition SEBI (SAST)
Regulations, 2011

A 23% 3% 26% Open Offer

Obligations

4
http://www.indialaw.in/blog/blog/commercialcorporate/sebi-exit-offer-dissenting-shareholders/

11 | P a g e
B 7% 2% 9% -

Total 30% 5% 35% -

4. Change in Control

Regulation 4 of the SEBI (SAST) Regulations, 2011 specifies that if any acquirer including
person acting in concert acquires control over the Target Company irrespective of the fact
whether there has been any acquisition of shares or not, then he has to give public announcement
to acquire shares from shareholders of the Target Company.

Offer Size

In mandatory open offer, the acquirer has to give open offer to the shareholders for acquisition of
atleast 26% of the total shares of the Target Company. Till now, 61 Mandatory Offers have been
made under SEBI (SAST) Regulations, 2011.

12 | P a g e
 CONCLUSION

To sum up it can be said that the increase in threshold limit to 25% is a welcome move and
would be beneficial for the India Inc. as it would attract more Private Equity investors and would
be in line with the Global M&A practices. Apart from this, the increase in offer size to 26% is in
interest of the public shareholders.

13 | P a g e
 BIBLIOGRAPHY

REFRRENCES BOOKS

1. Dhirajlal, Ratanlal. The Law of Evidence. Gurgaon: Lexis-Nexis, 2011

2. Monir, M. Law of Evidence. Delhi: Universal Law Publishing, 2006
3. Krishnamachari, V.Law of Evidence. Hyderabad: S.Georgia & Company, 2012
4. Lal, Batuk. The Law of Evidence. Allahabad: Central Law Agency, 2007
5. Myneni, S.R. The Law of Evidence. Asian Law House, 2008

Websites Referred
 http://www.mondaq.com/india/x/204822/Shareholders/Exit+Opportunity+Under+SEBI+
SAST+Regulations+2011
 http://www.indialaw.in/blog/blog/commercialcorporate/sebi-exit-offer-dissenting-
shareholders/
 https://blog.ipleaders.in/triggering-open-offer-beyond-threshold-limit-sebi-sast-
regulations/
 https://pxvlaw.files.wordpress.com/2011/10/pxv-i-witness-takeover-code-2011-19-
october-2011.pdf

14 | P a g e