Forum Views - June 2024
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FORUM VIEWS - JUNE 2024
i.e. Control Trigger (d) Acquisition of shares or voting rights
in, or control over any entity that would enable the acquirer
to exercise or direct the exercise of such percentage of
voting rights in, or control over the target company, would
attract the obligation to make an open offer requiring the
acquirer to make an open offer i.e. Indirect Acquisition (e) If
the indirectly acquired target company is a predominant
part of the business or entity being acquired, the
Regulations would treat such indirect acquisition as a direct
acquisition for all purposes and (f) Shareholders holding
shares entitling them to exercise 25 % or more of the voting
rights in the target company may, without breaching
minimum public shareholding requirements, shall be
entitled to voluntarily make an open offer to consolidate
their shareholding i.e. Voluntary open offer.
burden. The target company may wish to support, oppose
or remain neutral to, a transaction, often depending on who
the acquirer is. Therefore, it falls upon the regulator to
balance the interests of various stakeholders and to provide
for a fair, equitable and transparent regime that addresses
the concerns of all stakeholders.
The Hon’ble Securities Appellate Tribunal has also held that
the right to exit is an invaluable right and the shareholders
cannot be deprived of this right lightly. It is only when larger
interest of investor protection or that of the securities
market demands that this right could be taken away.
As discussed, the fundamental objective of the Regulations
is to provide each shareholder with an opportunity to exit
his investment in the target company when a substantial
acquisition of shares in, or takeover of a target company
takes place, on terms that are not inferior to the terms on
which substantial shareholders exit their investments. It
mandates the acquirer to make fair and accurate disclosure
of all material information to various stakeholders to enable
them to make informed decisions. Further, it ensures that
only those acquirers who are capable of actually fulfilling
their obligations under the Regulations make open offers.
As discussed above, the Regulations mandate an acquirer
to make an open offer on account of substantial acquisition
of shares or change in control in the Target Company. The
object behind this is to provide an exit opportunity to the
existing shareholders of the Target Company. However
there are certain situations and circumstances transactions
provided under the Regulations under which the obligation
to make an open offer is exempted which may lead to a
substantial acquisition of shares or change in control of a
company during the ordinary course of business. For
instance, a bank or financial institution may acquire
substantial shareholding of a company on account of
invoking a pledge against default of the loan. This may
otherwise trigger an open offer. However, the Regulations
provide for certain general exemptions to certain categories
of transactions from the requirements of making an open
offer subject to fulfilment of certain conditions.
The certain categories of transactions which are generally
exempted are as follows:
a. Acquisition pursuant to inter se transfer of shares
amongst immediate relatives, promoters, a company,
its subsidiaries, its holding company, other subsidiaries
of such holding company, persons holding not less than
50% of the equity shares of such company and also,
other companies in which these persons don’t hold 50%
3. What are the general exemptions for making an
open offer under the SEBI SAST Regulations? Does SEBI
have the power to grant exemptions from making an
Open Offer?
The fundamental objective of the
Regulations is to provide each
shareholder with an opportunity to
exit his investment in the target
company when a substantial
acquisition of shares in, or takeover of
a target company takes place, on terms
that are not inferior to the terms on
which substantial shareholders exit
their investments.
2. What is the objective of the SEBI (Substantial
Acquisition of Shares and Takeover) Regulations 2011?
The existence of an efficient and smooth-functioning
market for substantial acquisition of shares and takeovers
plays an important role in the economic development of a
country. Substantial acquisition of shares, or takeover of, a
listed company impacts a host of stakeholders, such as, the
acquirer, the target company, the management and the
public shareholders. It is critical that the legal framework
regulating such substantial acquisition of shares and
takeovers is precise, unambiguous and predictable, and
balances multiple, and at times, conflicting interests of
such stakeholders. For instance, the public shareholder of
the target company would be keen to get the highest
possible price for his shares, while the acquirer would want
to shoulder the least possible financial and regulatory
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