Background
The SEBI (SAST) Regulations, 2011 were introduced to regulate the acquisition of shares, voting rights, and control in listed companies in India. They aim to ensure transparency and fairness in takeover and acquisition activities. The regulations protect the interests of minority shareholders by mandating open offers on substantial acquisitions. They also provide a clear framework for disclosures and obligations of acquirers and target companies. Overall, the regulations promote orderly development and integrity of the securities market.
Applicability
These regulations apply to the acquisition of shares, voting rights, or control in listed companies in India. They are applicable to any acquirer, including persons acting in concert, who acquires shares or voting rights beyond the prescribed thresholds. The regulations cover direct and indirect acquisitions, whether through market purchases, agreements, or corporate actions. They are also applicable to preferential allotments, conversions of securities, and changes in control. Certain exemptions are provided for specified transactions, subject to conditions laid down by SEBI.
Compliance Requirements under the Regulation
No acquirer shall acquire shares/voting rights in a target company which taken together with shares/voting rights, if any, held by him & by PAC in such company, entitles them to exercise 25% or more of voting rights unless acquirer makes a public announcement of an open offer for such acquisition
It is to be noted that:
No acquirer, along with PACs with them, who holds 25% or more but less than maximum permissible non-public shareholding in a target company, may acquire more than 5% of the voting rights in company within any F.Y. unless they make a public announcement of an open offer as per SAST regulations.
a) PACs means Persons acting in concert
b) Such acquisition shall not make his aggregate holding pursuant to acquisition above the maximum permissible non-public shareholding
c) Acquisition pursuant to a Resolution Plan approved U/s 31 of IBC, 2016 shall be exempt from this requirement
It is to be noted that:
a) This regulation shall not apply to acquisition of shares/voting rights by the promoters/shareholders in control in terms of Chapter VI-A of ICDR
b) Any reference to 25% shall be read as 49% for listed entity that has listed its specified securities on Innovators Growth Platform
2) Acquisitions which are exempt from the obligation to make an open offer under Reg 3/4 are provided in Regulation 10 of SAST Regulations
3) SEBI may also grant exemption from the obligation to make an open offer as stipulated in Reg 11 of SAST Reg
No acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.
It is to be noted that:
a) This regulation is irrespective of acquisition or holding of shares or voting rights in a target company
b) “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
c) Acquisitions which are exempt from the obligation to make an open offer under Reg 3 and 4 are provided in Regulation 10 of SAST Regulations
d) SEBI may also grant exemption from the obligation to make an open offer as stipulated in Reg 11 of SAST Reg
4. Indirect acquisition of shares or control (Regulation 5)
Acquisition of shares/voting rights(VR) /control over any entity that would enable any person/PAC to exercise/direct the exercise of such VR/control over a target company, acquisition of which would otherwise attract public announcement of open offer shall be considered as indirect acquisition
In the case of an indirect acquisition, if any of the following exceed 80% based on the most recent audited financial statements:
(a) the target company’s net asset value as a percentage of the consolidated net asset value of the acquired entity/business;
(b) the target company’s sales turnover as a percentage of the consolidated sales turnover of the acquired entity/business; or
(c) the target company’s market capitalisation as a percentage of the enterprise value of the acquired entity/business, the indirect acquisition will be treated as a direct acquisition of the target company for all purposes of these regulations, including obligations related to timing, pricing, and compliance for the open offer.
The acquirer at the time of making a Public Announcement of an open offer for acquisition of shares or voting rights or control of a target company as per Regulation 3(1)/4/5 may seek delisting of the target company by making a delisting offer as specified in Regulation 5A
The acquirer shall have declared his intention to so delist the target company at the time of making such public announcement of an open offer as well as at the time of making the detailed public statement.
If the open offer is for an indirect acquisition that is not a deemed direct acquisition under Regulation 5(2), the declaration of the intent to so delist shall be made initially only in the detailed public statement.
Acquirer shall not in the target company during past 2 years from date of Public Announcement be a promoter/ / promoter group / person(s) in control or directly / indirectly associated with the promoter or any person(s) in control, or a person(s) holding more than twenty-five percent shares or voting rights
The acquirer shall not acquire joint control along with an existing promoter / person in control of the company.
The delisting offer obligations as stated in Regulation 5A(2) to be fulfilled
Where a Delisting Offer is unsuccessful on account of non–receipt of the prior approval of shareholders as per Reg 11 of Delisting Regulations or non-receipt of in-principle approval of S.E.as per Reg.12 of Delisting Reg. or the threshold as specified under Regulation 21 of the Delisting Regulations is not achieved, the acquirer shall within two working days in respect of such failure, make an announcement in all the newspapers in which the detailed public statement was made and comply with all the applicable provisions of these regulations in relation to completing of the open offer.
Where a competing offer is made in terms of sub-regulation (1) of regulation 20 of these regulations:
(a) the acquirer shall not be entitled to delist the target company;
(b) the acquirer shall not be liable to pay interest to the shareholders on account of delay due to the competing offer; and
(c) the acquirer shall comply with all the applicable provisions of these regulations and make an announcement in this regard, within two working days from the date of public announcement made in terms of sub-regulation (1) of regulation 20, in all the newspapers where the detailed public statement was made
The shareholders who have tendered shares in acceptance of the Delisting offer made under Regulation 5A(1) shall be entitled to withdraw such shares tendered, within five working days from the date of the announcement made for delisting offer being unsuccessful under sub-Regulation 5A(3)
If company fails to get delisted -Reg 5A(1) which results in shareholding of acquirer exceeding max permissible non-public shareholding threshold (MPNPST), acquirer may re-attempt to delist during 12 months from date of completion of open offer, subject to acquirer continuing to exceed MPNPST
Such further delisting attempt shall be successful subject to following conditions:
(i)delisting threshold as provided under regulation 21 of the Delisting Regulations is met; and ii)50% of residual public shareholding is acquired
Upon failure of further delisting attempt, acquirer shall ensure compliance of minimum public shareholding requirement of target company under the Securities Contract (Regulation) Rules, 1957 within a period of 12 months from end of the period of twelve months from date of completion of open offer
Floor price shall be higher of following:
a) indicative price offered under first delisting attempt;
b) floor price determined under Delisting Reg as on relevant date of subsequent attempt &
c) book value of company as computed based on method stated in expl. to clause (a) under Regulation 5A(2)
In case of delisting, provisions of Delisting Regulation shall mutatis-mutandis be applicable, save as otherwise provided
An acquirer, along with PACs, holding 25% or more but less than the maximum permissible non-public shareholding (MPNPS) in a target company, can voluntarily announce an open offer, provided their post-offer shareholding does not exceed the MPNPS limit.
a) An acquirer/PAC who has acquired shares in the target company in the past 52 weeks without triggering an open offer obligation cannot voluntarily announce an open offer under this regulation. This provision was relaxed until 31.03.21
b) During offer period such acquirer shall not be entitled to acquire any shares otherwise than under open offer.
c) Acquirer and PAC who have made a Public Announcement to acquire the shares shall not acquire any shares of target company for 6 months after completion of open offer except due to another voluntary open offer. He can still make a competing offer upon any other person making an open offer for acquiring shares of target company
d) Shares acquired through bonus issue/stock splits shall not be considered for purposes of dis-entitlement
e) Reference to 25% shall be read as 49% in case of an entity which has listed specified securities on Innovators Growth Platform
11. Wilful defaulter shall not make a public announcement of open offer (Regulation 6A)
No person who is a wilful defaulter shall make a public announcement of an open offer for acquiring shares or enter into any transaction that would attract the obligation to make a public announcement of an open offer for acquiring shares under these regulations
This provision shall not prohibit the wilful defaulter from making a competing offer in accordance with regulation 20 of these regulations upon any other person making an open offer for acquiring shares of the target company
No person who is a fugitive/economic offender shall make a public announcement of an open offer or make a competing offer for acquiring shares or enter into any transaction, either directly or indirectly, for acquiring any shares or voting rights or control of a target company
The open offer for acquiring shares to be made by the acquirer and persons acting in concert with him under regulation 3 and regulation 4 shall be for at least twenty-six per cent of total shares of the target company, as of tenth working day from the closure of the tendering period
a) Open offer made under Reg 6 shall be for acquisition of at least such number of shares as would entitle holder thereof to exercise an addl. 10% voting rights in target company & shall not exceed such number of shares as would result in post-acquisition holding of acquirer + PACs exceeding max permissible non-public shareholding
b) In case a competing offer is made, acquirer who has voluntarily made a public announcement of an open offer under Ref 6 shall be entitled to increase number of shares for which open offer has been made to such number of shares as he deems fit. Such increase in offer size shall have to be made within a period of 15 working days from public announcement of a competing offer, failing which acquirer shall not be entitled to increase offer size.
c) If the acquirer and PAC’s shareholding exceeds the maximum permissible non-public shareholding after the open offer, the acquirer must reduce it to the specified level within the time allowed under SCRR, 1957.
14. Offer price for open offer (Regulation 8)
The open offer for acquiring shares under regulation 3, regulation 4, regulation 5 or regulation 6 shall be made at a price not lower than the price determined in accordance with sub-regulation (2) or sub-regulation (3), as the case may be.
Further provisions as stipulated and required with reference to Offer Price are specified in Regulation 8 of SAST
The offer price can be paid in cash, through listed equity shares of the acquirer/PAC, listed secured debt instruments with an investment-grade rating, convertible debt securities, or a combination of these.
a) Offer price can be paid in:
i) cash
ii) Issue/exchange/transfer of listed shares in equity share capital of acquirer or of any PAC
iii) Issue/exchange/transfer of listed secured debt instruments issued by acquirer or PAC with not less than investment grade rating as rated by CRA regd with SEBI
iv) Issue/exchange/transfer of convertible debt sec.entitling holder to acquire listed shares in equity of acquirer or PAC
v) Combination of above
b) Mode of payment shall be read with all provisio and provisions as contained in Reg 9
16. Reporting of acquisition or increase in voting rights under Regulation 10(7) (Regulation 10)
The acquirer shall within 21 working days of acquisition of or increase in voting rights pursuant to exemption provided for in clause (a) of sub-regulation (1), sub-clause (iii) of clause (d) of sub-regulation (1), clause (h) of sub-regulation (1), sub-regulation (2), sub-regulation (3) and clause (c) of sub-regulation (4), clauses (a), (b) and (f) of sub-regulation (4) of Regulation 10, submit a report in such form as specified along with supporting documents to SEBI giving details in respect of these acquisitions, along with prescribed fee [Filing of Reports under Regulation 10(1)(a)(i) and Regulation 10(1)(a)(ii) shall be done through SI Portal and email from March 20 to May 14, 2025 & w.e.f. May 15, 2025, only through SI portal]
Any acquisition of or increase in voting rights pursuant to exemption provided for in Regulation 10(1)(a)(i) and Regulation 10(1)(a)(ii) shall be reported within 21 working days of the date of acquisition through SI portal w.e.f May 15, 2025
Regulation 10(1)(a)(i), (ii) deals with inter se transfer of shares amongst qualifying persons, being,—
(i) immediate relatives;
(ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing regulations or as the case may be, the listing agreement or these regulations for not less than three years prior to the proposed acquisition
Penalty & Punishments
Penalty under SEBI Act 1992 for contravention where no separate penalty has been provided. Section 15HB: Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be [liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees.
Section 15H: If any person, who is required under this Act or any rules or regulations made thereunder, fails to-
(i) disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or
(ii) make a public announcement to acquire shares at a minimum price; or
(iii) make a public offer by sending letter of offer to the shareholders of the concerned company; or
(iv) make payment of consideration to the shareholders who sold their shares pursuant to letter of offer, he shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher
Sec 15A of SEBI Act:
If any person, who is required under this Act or any rules or regulations made thereunder,—
(a) to furnish any document, return or report to the Board, fails to furnish the same or who furnishes or files false, incorrect or incomplete information, return, report, books or other documents, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees
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