Acquisition of Shares and Takeovers – Concepts

As per regulation 2(1)(h) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the enterprise value means the value calculated as market capitalization of a company plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

The enterprise value can be determined as under:

Enterprise value = Market capitalization + Debt + Minority Interest + Preferred Shares – Total Cash and Cash equivalents.

= ₹ 325 crore + ₹ 125 crore + ₹ 175 crore + ₹ 275 crore + ₹250 crore – ₹ 75 crore

= ₹ 1,150 crore – ₹ 75 crore

= ₹ 1,075 crore

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(ii) (Syllabus 2022).

Enterprise Value

Regulation 2(1)(h) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 defines the term Enterprise Value which means the value calculated as market capitalization of a company plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

Enterprise Value= Market capitalization+ Debt+ Minority Interest + Preferred Shares - Total Cash and Cash Equivalents

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 6A(iv) (Syllabus 2022).

Enterprise value means the value calculated as market capitalization of a company plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

Enterprise value = Market capitalization + Debt + Minority interest + preferred shares − total cash and cash equivalent

Calculation of Enterprise value of XYZ Ltd. is as under:

Market capitalization = ₹ 840 lakh/ ₹ 2 x ₹ 93 per share = ₹ 39,060 lakh

Enterprise value = Market capitalization + Debt + Minority interest + preferred stock − total cash and cash equivalent

Enterprise value = ₹ 39,060 + ₹ 2280 + ₹200+ ₹ 110 - ₹ 96 = ₹ 41,554 lakh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 3(b) (Syllabus 2017).

Disinvestment means the direct or indirect sale by the Central Government or any State Government or by a government company, as the case may be, of shares or voting rights in, or control over, a target company, which is a public sector undertaking. As per the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, pursuant to disinvestment the public announcement has to be made on the same day as the date of executing the agreement for acquisition of shares or voting rights in or control over the target company. Regulations 8 and 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, contain exemptions in relation to disinvestment. Regulation 8 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, states that: 1. the requirements of calculation of offer price determined as per clause 8 (2) (d) in case of direct acquisition of shares or voting rights shall not apply in the case of disinvestment of a public sector undertaking by the Central Government or a State Government, as the case may be and that this shall apply only in case of a change in control in the public sector undertaking.

2.the requirements of calculation of offer price determined as per clause 8 (3)(e) in case of indirect acquisition of shares or voting rights shall not apply in the case of disinvestment of a public sector undertaking by the Central Government or a State Government, as the case may be and that this shall apply only in case of a change in control in the public sector undertaking.

Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, states that acquisitions at subsequent stages, by an acquirer who has made a public announcement of an open offer for acquiring shares pursuant to an agreement of disinvestment, as contemplated in such agreement be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to the following conditions:

1.both the acquirer and the seller are the same at all the stages of acquisition; and

2.full disclosures of all the subsequent stages of acquisition, if any, have been made in the public announcement of the open offer and in the letter of offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(d) (Syllabus 2017).

Enterprise value

As per SEBI Takeover Regulations, Enterprise value means the value calculated as market capitalization of a company plus debt, minority interest and preferred shares, minus total cash and cash equivalents.

Calculation of Enterprise value of KRS Ltd.

Enterprise Value = Market capitalization+ Debt+ Minority Interest + Preferred Shares- Total Cash and Cash Equivalents

Number of equity shares= ₹1600 lakh / ₹2 i.e. 800 lakh

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 3(b) (Syllabus 2017).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(ii) (Syllabus 2017).

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides certain trigger events wherein the Acquirer is required to give Open Offer to the shareholders of the Target Company to provide them exit opportunity. However, it also allows the Acquirer to make voluntary offer as well. Voluntary Offer means the Open Offer given by the acquirer voluntarily without triggering the mandatory Open Offer obligations as envisaged under these regulations. The distinction between the voluntary and compulsory open offer are as under:

Eligibility:

In compulsory open offer, the eligibility can be triggered through both direct and indirect acquisition. Whereas, in voluntary offer, the eligibility can be triggered by acquirer holding more than 25% or more. Further in this case, the acquirer or person acting in concert should not have acquired shares of target company without the obligation to make compulsory offer during the preceding 52 weeks.

Applicability:

In case of compulsory open offer, applicability is on crossing the threshold or the creeping acquisition or by way of control. Whereas, in Voluntary open offer, no such applicability is required.

Minimum Size of Open Offer:

In compulsory open offer, the acquirer must give an open offer to the shareholders for acquisition of at least 26% of the total shares of the Target Company. Whereas in voluntary open offer the minimum size shall be 10% of the voting rights in the target company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 2(b) (Syllabus 2017).

Regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 prescribed that no acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.

Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 inter alia provides for automatic exemptions from the applicability of making Open Offer to the shareholders of the Target Company in respect of acquisition pursuant to inter se transfer of shares amongst 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.

It may be noted that exemption provided under Regulation 10 applies only in case of obligation to make open offer as provided under Regulations 3 and 4 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, subject to fulfillment of conditions as mentioned therein. In the given problem matter, an inter-se transfer of 2% shares among promoter group being proposed. The current promoters’ holding in Miraj Ltd. is 45%. Thus, Regulation 3(2) would be triggered only in case of acquisition of more than 5% shares within the financial year. However, in the given case of Miraj Ltd., the proposed transaction is for 2% shares, which is within the limit of 5% shares in the financial year. Thus, the proposed transaction would not trigger the requirement of making open offer as provided under Regulations 3 and 4 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 and therefore question of applicability of exemption as provided under Regulation 10 would not arise.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(c) (Syllabus 2022).

Under Regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, no acquirer, who together with persons acting in concert with him, has acquired and holds shares or voting rights in a target company entitling them to exercise twenty-five per cent or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations.

(i)and (ii): By virtue of conversion of warrants into shares, the promoter shareholding in the company has already enhanced by 3.95%. A further transfer of shares(gift) constituting 2 % of the equity share capital of the company to an immediate relative in the same financial year would increase the gross acquisition of shares by the promoter group in excess of 5 % threshold under regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Therefore, the requirement to make an open offer is triggered in the given case unless promoters fulfil the conditions for exemption under Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. In other words, the transactions including the proposed transfer would be considered for the purpose of calculating the creeping acquisition limit of 5 %.

(iii)Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011provides that he acquisitions shall be exempt from the obligation to make an open offer under regulation 3 on acquisition pursuant to inter se transfer of shares amongst qualifying immediate relatives or among persons named as promoters in the shareholding pattern filed by the target company for not less than 3 years prior to the proposed acquisition. In the given situation, the transfer would qualify as inter-se transfer between immediate relatives under the Regulation 10 and so it is exempt from the requirement of making an open offer provided that acquirer shall, within twenty-one working days of the date of acquisition, submit a report in such form as may be specified along with supporting documents to the SEBI.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(c) (Syllabus 2017).

As per regulation 3(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, no acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him and by persons acting in concert with him in such target company, entitles them to exercise 25% or more of the voting rights in 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.

Further, in accordance with regulation 3(2), no acquirer, who together with persons acting in concert with him, has acquired and holds shares or voting rights in a target company entitling them to exercise 25% or more of the voting rights in the target company but less than the maximum permissible non-public shareholding, shall acquire within any financial year additional shares or voting rights in such target company entitling them to exercise more than 5% of the voting rights, unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company.

As per Regulation 3(3), acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceed the stipulated threshold, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of where there is a change the aggregate shareholding with persons action in concert.

In view of the above-mentioned provisions, though together they hold 26% and can avail 5% ceiling but M on individual basis crossing the threshold of 25% or more since presently he holds 23% and further contemplates to acquire 3% more. Therefore, M will be required to make an open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 2(b) (Syllabus 2017).

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SAST Regulations’) set out the events that trigger an obligation to make an open offer on the acquirer (along with persons acting in concert). Trigger points for making an open offer by an acquirer are as follows:

•An acquirer, along with Persons acting in concert (PAC), if any, who intends to acquire shares which along with his existing shareholding would entitle him to exercise 25% or more voting rights, can acquire such additional shares only after making a Public Announcement (PA) to acquire minimum twenty six percent shares of the Target Company from the shareholders through an Open Offer. [Regulation 3(1)]

•An acquirer who holds 25% or more but less than maximum permissible non-public shareholding of the Target company, can acquire such additional shares as would entitle him to exercise more than 5% of the voting rights in any financial year only after making a public announcement to acquire minimum twenty six percent shares of Target company from the shareholders through an Open Offer. [Regulation 3(2)]

(i)Since Namita already holds 29% shares in the Target Company MX Limited, which is above the 25% limit specified in Regulation 3(2) of the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, and by virtue of conversion of warrants, has acquired an additional 8% of the paid up share capital of the MX Limited, which is above the 5% limit specified in Regulation 3(2) of the said Regulations, she is required to make a public announcement of an open offer under Regulation 3(2) of the SAST Regulations.

(ii)Explanation to Regulation 3(2) of the SAST Regulations states that-

For the purpose of determining the quantum of acquisition of additional voting rights, the gross acquisitions alone shall be taken into account regardless of any intermittent fall in shareholding or voting rights whether owing to disposal of shares held or dilution of voting rights owing to fresh issue of shares by the target company.

Further Regulation 3(3) of the SAST Regulations provides that acquisition of shares by any person, such that the individual shareholding of such person acquiring shares exceed the stipulated thresholds, shall also be attracting the obligation to make an open offer for acquiring shares of the target company irrespective of where there is a change in the aggregate shareholding with persons action in concert.

Hence, in view of the above provisions requiring gross acquisition and individual shareholding to consider for the purpose of the SAST Regulations, even though the conversion of warrants by Namita does not cause the aggregate promoter shareholding to breach the stipulated thresholds i.e. 5% under Regulation 3(2), Namita, in his individual capacity would be required to make an open offer under Regulation 3(2) of the SAST Regulations.

(iii)Namita will be required to make a disclosure of change in shareholding under Regulation 29(2) of the SAST Regulations. According to Regulation 29(2), any person together with persons acting in concert with him, holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five per cent, if there has been change in such holdings from the last disclosure made and such change exceeds two per cent of total shareholding or voting rights in the target company.

The disclosures shall be made within two working days of the receipt of intimation of allotment of shares, or the acquisition or the disposal 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.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 4(a) (Syllabus 2017).

SEBI Takeover Regulations, 2011 provides a threshold for mandatory Open Offer. The regulations provides that whenever an acquirer acquires the shares in excess of the threshold as prescribed under regulation 3 and 4 of SEBI Takeover Regulations, 2011, then the acquirer is required to make a public announcement of offer to the shareholders of the Target Company.

Incremental voting rights in case of fresh issue

In case of acquisition of shares by way of issue of new shares by the target company, the difference between pre-allotment and the post allotment percentage voting rights shall be regarded as the quantum of additional acquisition. [Regulation 3(2)]

The Individual acquirer shareholding shall also be considered for determining the Open Offer Trigger Point apart from consolidated shareholding of Acquirer and Persons Acting in Concert. Nothing contained in this regulation shall apply to acquisition of shares or voting rights of a company by the promoters or shareholders in control, in terms of the provisions of Chapter VI-A of SEBI (ICDR) Regulations, 2009. [Regulation 3(4)]

Regulation 4 of the SEBI Takeover 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. [Regulation 4]

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(d) (Old syllabus).

(i)In terms of Regulation 3(2) and 3(3) or the SEBI (SAST) Regulations, 2011, an obligation to make an open offer would arise if the acquirer (along with persons acting in concert) is already entitled to exercise 25% or more of the voting rights in an Indian listed company, and acquires additional shares or voting rights entitling it to exercise more than 5% voting rights in an Indian listed company, in a financial year. By virtue of conversion of warrants into shares, the promoter shareholding in the Company has already increased by 4.10%. Therefore. a further transfer (by way of gift) of shares constituting 1.2% of the equity share capital of the Company to an immediate relative in the same financial year would increase the gross acquisition of shares by the promoter group in excess of the 5% threshold under Regulation 3(2) of SEBI (SAST) Regulations, 2011, hence triggering the requirement to make an open offer.

(ii)In terms of the explanation to Regulation 3(2) of the SAST Regulations, while calculating the limit of 5% of shares, the gross acquisition alone is to be taken into account regardless of an intermittent fall in shareholding or voting rights. Therefore, the proposed Transfer would be considered for the purpose of calculating the creeping acquisition limit of 5% under Regulation 3(2) of the SAST Regulations.

(iii)The Transfer would qualify as an inter-se transfer between immediate relatives under Regulation 10(1)(a)(i) of the SAST Regulation subject to fulfillment of pre conditions specified therein and hence exempted from the requirement to make an open offer under the SAST Regulations. In addition the disclosure requirements have been complied with.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(a) (Syllabus 2017).

As per Regulation 3 (2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, an acquirer who holds 25% or more but less than maximum permissible non-public shareholding of the Target Company, can acquire such additional shares as would entitle him to exercise more than 5% of the voting rights in any financial year ending March 31 only after making a Public Announcement to acquire minimum twenty six percent shares of Target Company from the shareholders through an Open Offer.

—An acquirer can, who has reached at a level of 25% or more and made detailed public statement to acquire = 26% shares, received in this process.

—Then acquirer in any financial year cannot take > 5% share.

—If acquirer wants to acquire > 5% share in one FY, again public offer shall be made to receive 26% (or) more shares subject to delisting level.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(c) (Syllabus 2017).

(i)Regulations 3, 4 and 5 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 set out the events that trigger an obligation to make an open offer on the acquirer (along with persons acting in concert). The said triggers points are as follows:

•Acquisition (directly or indirectly) of such shares or voting rights in an Indian listed company whereby the acquirer becomes entitled to exercise 25% or more of the voting rights in such Indian listed company;

•Where an acquirer (along with persons acting in concert with him) is already entitled to exercise 25% or more of the voting rights in an Indian listed company, and acquires (directly or indirectly) additional shares or voting rights entitling an acquirer to exercise more than 5% voting rights in an Indian listed company, in a financial year; and

•Acquisition (directly or indirectly) of control.

Since the Acquirer, in the above facts, does not attract any of the triggers set out above, the transfer of shares will not impose any obligation on the Acquirer to make an open offer under the SEBI (SAST) Regulations.

(ii)The Acquirer and promoter group companies will be required to make a disclosure of change in shareholding under Regulation 29(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. According to Regulation 29(3) of the said regulations, the disclosure should be made within 2 working days of such acquisition or the disposal to the target company at its registered office and to the stock exchanges where the shares of the target company are listed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 3(b) (Syllabus 2017).

Mandatory Open Offer

SEBI Takeover Regulations. 2011 provides for a threshold for mandatory Open Offer. The regulation provides that whenever an acquirer acquires the shares in excess of the threshold as prescribed under regulation 3 and 4 of SEB1 Takeover Regulations. 2011, then the acquirer is required to make a public announcement of offer to the shareholders of the Target Company.

Regulation 3 of the SEBI Takeover Regulations, 2011 provides that the Acquirer to give an open offer to the shareholders of Target Company on the acquisition of shares or voting rights enlisting the Acquirer along with the persons acting in concert with him to exercise 25% or more voting rights in the Target Company.

Further any Acquirer who holds shares between 25 %-75 %, together with PACs can acquire further 5% shares as creeping acquisition without giving an Open Otter to the shareholders of the Target Company upto a maximum of 75%.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 6A(ii) (Old syllabus).

Public announcement

A public announcement is an announcement made in the newspapers by the acquirer primarily disclosing his intention to acquire shares of the target company from existing shareholders by means of an open offer.

SEBI (SAST) Regulation, 2011 provides that whenever acquirer acquires the shares or voting rights of the target company in excess of the limits prescribed under Regulation 3 and 4, the Acquirer is required to give a Public Announcement of an Open Offer to the shareholder of the Target Company. During Public Announcement of an Open Offer, the Acquirer is required to give Public Announcement and publish detailed Public Statement. The regulations have prescribed the separate timeline for Public Announcement as well as the Detailed Public Statement.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(i) (Old syllabus).

Creeping Acquisition Limit

According to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, an acquirer who holds 25% or more but less than maximum permissible non-public share of the target company, can acquire such additional shares as would entitle him to exercise more than 5% of the voting rights in any financial year, ending March 31, only after making a public announcement to acquire minimum 26% shares of target company from the shareholders through an Open Offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 6A(v) (Old syllabus).

Wilful defaulter means any person who is categorized as a wilful defaulter by any bank or financial institution or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the Reserve Bank of India and includes any person whose director, promoter or partner is categorized as such.

As per Regulation 6A of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, 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 the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Hence, Zubin cannot make open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

However, this regulation shall not prohibit the wilful defaulter from making a competing offer in accordance with regulation 20 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 upon any other person making an open offer for acquiring shares of the target company.

Therefore, the route available with Zubin, who is declared wilful defaulter, is to make competing offer if the threshold of 25% or more in terms of regulation 3 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 is triggered.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(b) (Syllabus 2022).

Voluntary Open Offer

Voluntary Open Offer means the Open Offer given by the Acquirer voluntarily without triggering the mandatory Open Offer obligations. Voluntary Offers are an important means for substantial shareholders to consolidate their stake and therefore recognized the need to introduce a specific framework for such Open Offers.

Regulation 6 of the SEBI (SAST) Regulations, 2011 provides the threshold and conditions for making the Voluntary Open Offer which are detailed below:

(a)Eligibility : Prior holding of at least 25%shares

(b)Shareholding of the acquirer and Person Acting in Concern (PACs) post completion of open offer : post completion of the open offer the shareholding of the acquirer along with PACs shall not exceed the maximum permissible non public shareholding.

(c)Acquisition of shares prior to the voluntary open offer : Acquirer shall become ineligible to make a voluntary open offer if during the preceding 52 weeks, the acquirer or PACs with him has acquired shares of the target company without attraction the obligation to make a public announcement of an open offer.

(d)Prohibition on the acquisition of shares during the offer period : SEBI takeover regulation 2011 prohibits the acquirer who has made a voluntary open offer from further acquiring the shares during the offer period otherwise than under the open offer.

(e)Restriction of the acquisition of shares post completion of voluntary open offer: An acquire and PACs who have made a voluntary open offer shall not be entitled to further acquire shares for a period of 6 month after completion of the open offer except:

a.Pursuant to another voluntary open offer

b.Pursuant to completing open offer to the open offer made by any other person for acquiring shares of the target company

(f)Offer size : The Voluntary Open Offer shall be made for the acquisition of at least ten per cent (10%) of the voting rights in the Target Company and shall not exceed such number of shares as would result in the post-acquisition holding of the acquirer and PACs with him exceeding the maximum permissible non-public shareholding applicable to such Target Company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6A(v) (Old syllabus).

As per regulation 9 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the offer price may be paid, —

(a)in cash;

(b)by issue, exchange or transfer of listed shares in the equity share capital of the acquirer or of any person acting in concert;

(c)by issue, exchange or transfer of listed secured debt instruments issued by the acquirer or any person acting in concert with a rating not inferior to investment grade as rated by a credit rating agency registered with the SEBI;

(d)by issue, exchange or transfer of convertible debt securities entitling the holder thereof to acquire listed shares in the equity share capital of the acquirer or of any person acting in concert; or

(e)a combination of the mode of payment of consideration stated in clause (a), clause (b), clause (c) and clause (d).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(b) (Syllabus 2017).

As per Regulation 10 of SEBI (SAST) Regulations, 2011, certain acquisitions are exempt from the obligation to make an open offer. Increase in voting rights in a target company by any shareholder pursuant to buy-back is exempted from the obligation to make an open offer subject to the following conditions:

•Such shareholder has not voted in favour of the resolution authorising the buy-back of securities under section 68 of the Companies Act 2013;

•In the case of shareholder resolution, voting is by way of postal ballot;

•Where a resolution of shareholders is not required for the buy-back, such shareholder in his capacity as a director, or any other interested director has not voted in favour of the resolution of the board of directors of the target company authorising the buyback of securities under section 68 of the Companies Act 2013; and

•the increase in voting rights does not result in an acquisition of control by such shareholder over the target company. However, where the aforesaid conditions are not met, in the event such shareholder reduces his shareholding such that his voting rights fall below the level at which the obligation to make an open offer would be attracted within 90 days from the date of closure of the buy-back offer by the target company, the shareholder shall be exempt from the obligation to make an Open offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iii) (Syllabus 2017).

(i)Regulation 10(1)(d)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the acquisition of shares of the Target company pursuant to a scheme of arrangement sanctioned by the National Company Law Tribunal provides an exemption to an acquirer from making an open offer subject to the following conditions:

a.The consideration paid in terms of cash and cash equivalents is less than 25% of the consideration paid under the scheme; and

b.Post implementation of the scheme, the persons holding at least 33% of voting rights in the combined entity are the same as the persons who held the entire voting rights before the implementation of the scheme.

(ii)Star is eligible to avail this exemption under Regulation 10(1)(d)(iii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 since:

(i)The acquisition of shares of the Target Company is being made pursuant to a scheme of arrangement sanctioned by the NCLT.

(ii)The entire consideration is being discharged by Star by issue of its shares, there is no portion of the consideration being paid in terms of cash and cash equivalents.

(iii)Post-merger, since Star will issue its shares to the shareholders of Moon, such shareholders will hold more than 33% stake in Star.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(c) (Syllabus 2017).

As per Regulation 10(a)(ii) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 of the of SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 subject to fulfillment of the conditions stipulated .

(a)acquisition pursuant to inter se transfer of shares amongst qualifying persons, being, persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(b) (Syllabus 2017).

Exemptions by SEBI under Regulation 11 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides that on an application being made by the acquirer in writing giving the details of the proposed acquisition and grounds on which the exemption is sought, SEBI may grant exemption to the acquirer from the Open Offer obligations subject to the compliance with such conditions as it deems fits.

For instance, in case where the exemption is sought from the Open Offer obligations which has been triggered pursuant to the issue of shares by way preferential allotment, SEBI may require that the approval of shareholders should be obtained by way of postal ballot. Further, along with the application, the acquirer is also required to pay a non-refundable fee of Rs.5,00,000/, by way of direct credit in the bank account.

However, it is to be noted that the Acquirer is not exempted from making other compliances related to the disclosure requirements as provided under regulation 29, 30 and 31 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6(c) (Syllabus 2022).

(a)The acquirer shall create an escrow account towards security for performance of his obligations under SEBI (SAST) Regulations, 2011, not later than 2 working days prior to the date of the detailed public statement of the open offer for acquiring shares.

In the given case the escrow account should be created on or before December 12, 2018. The deposit in escrow account shall be calculated as below based on consideration payable under the Open offer:

i.On the first ₹500 crores -an amount equal to 25% of the consideration

ii.On the balance consideration - An additional amount equal to 10% of the balance consideration

Consideration payable in given case = 13 crore equity shares x ₹500 = ₹6500 crore Amount to be deposited in Escrow Account:

(₹500 crore x 25%) + (₹6000 crore x 10%) = 125 + 600 = ₹725 Crore.

(b)The escrow account may be in the form of:

(a)Cash deposited with any scheduled commercial bank;

(b)Bank guarantee issued in favour of the manager to the open offer by any scheduled commercial bank; or

(c)Deposit of frequently traded and freely transferable equity shares or other freely transferable securities with appropriate margin.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 1(d) (Syllabus 2017).

Escrow Account : Not later than two working days prior to the date of the detailed public statement of the open offer for acquiring shares, the acquirer shall create an escrow account towards security for performance of his obligations and deposit such amount as may be prescribed in the Takeover Regulations.

The following are the conditions of releasing amount from ESCROW account:

1.In case of withdrawal of offer, the entire amount can be released only after certification by the manager to the open offer.

2.The amount deposited in ESCROW account is transferred to special bank account opened with the bankers to an issue, however the amount so transferred shall not exceed 90% of the cash deposit;

3.The balance 10% is released to the acquirer on the expiry of thirty days from the completion of all obligations under the offer;

4.The entire amount to the acquirer on the expiry of thirty days from the completion of all obligations under the offer where the open offer is for exchange of shares or other secured instruements;

5.In the event of forfeiture of amount, the entire amount is distributed in the following manner:

-One third of the amount to target company

-One third of the ESCROW account to the Investor Protection and Education Fund established under SEBI (Investor Protection and Education Fund) Regulations, 2009.

-Residual one-third is to be distributed to the shareholders who have tendered their shares in the offer.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6(b) (Old syllabus).

Regulation 20(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 provides that upon a public announcement of an open offer for acquiring shares of a target company being made, any person, other than the acquirer who has made such public announcement, shall be entitled to make a public announcement of an open offer within fifteen working days of the date of the detailed public statement made by the acquirer who has made the first public announcement.

However, the open offer made under this sub-regulation (1) shall be for such number of shares which, when taken together with shares held by such acquirer along with persons acting in concert with him, shall be at least equal to the holding of the acquirer who has made the first public announcement, including the number of share proposed to be acquired by him under the offer and any underlying agreement for the sale of shares of the target company pursuant to which the open offer is made.

Every open offer made under sub-regulation (1) and the open offer first made shall be regarded as competing offers for purposes of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

Timeliness in case of competing offer

The schedule of activities and the tendering period for all competing offers shall be carried out with identical timelines and the last date for tendering shares in acceptance of the every competing offer shall stand revised to the last date for tendering shares in acceptance of the competing offer last made.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2A(v) (Syllabus 2017).

The given statement is not correct. As per the SEBI (Substantial Acquisition of Shares & Takeover) Regulations, 2011, an open offer for acquiring shares once made can be withdrawn under any of the following circumstances: -

a)Statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer under these regulations having been finally refused, subject to such requirements for approval having been specifically disclosed in the detailed public statement and the letter of offer;

b)The acquirer, being a natural person, has died;

c)Any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, then it should be disclosed in the detailed public statement and the letter of offer;

However, an acquirer shall not withdraw an open offer pursuant to a public announcement, even if the proposed acquisition through the preferential issue is not successful.

d)Such circumstances as in the opinion of the SEBI, merit withdrawal.

SEBI shall pass a reasoned order permitting withdrawal and such order shall be listed by SEBI on its official website.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 1(d) (Syllabus 2017).

Obligations of the Acquirer under SEBI Takeover Code

i.Prior to making the public announcement of an open offer for acquiring shares under the regulations, the acquirer shall ensure that firm financial arrangements have been made for fulfilling the payment obligations under the open offer and that the acquirer is able to implement the open offer, subject to any statutory approvals for the open offer that may be necessary.

ii.In the event the acquirer has not declared an intention in the detailed public statement and the letter of offer to alienate any material assets of the target company or of any of its subsidiaries whether by way of sale, lease, encumbrance or otherwise outside the ordinary course of business, the acquirer, where he has acquired control over the target company, shall be debarred from causing such alienation for a period of two years after the offer period.

iii.The acquirer shall ensure that the contents of the public announcement, the detailed public statement, the letter of offer and post offer advertisement are true, fair and adequate in all material aspects and not misleading in any material particular, and are based on reliable sources, and state the source wherever necessary.

iv.The acquirer and persons acting in concert with him shall not sell shares of the target company held by them, during the offer period.

v.The acquirer and persons acting in concert with him shall be jointly and severally responsible for fulfilment of applicable obligations under these regulations.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 6A(ii) (Old syllabus).

Obligations of the Komal Enterprises Ltd. (Acquirer)

(1)Prior to making the public announcement of an open offer for acquiring shares under SEBI (SAST) Regulations, 2011, Komal Enterprises Ltd., hereby acquirer, shall ensure that firm financial arrangements have been made for fulfilling the payment obligations under the open offer and that the acquirer is able to implement the open offer, subject to any statutory approvals for the open offer that may be necessary.

(2)In the event the acquirer has not declared an intention in the detailed public statement and the letter of offer to alienate any material assets of the Roma Exims Ltd. hereby target company or of any of its subsidiaries whether by way of sale, lease, encumbrance or otherwise outside the ordinary course of business, the acquirer, where he has acquired control over the target company, shall be debarred from causing such alienation for a period of two years after the offer period.

However, in the event the target company or any of its subsidiaries is required to so alienate assets despite the intention to alienate not having been expressed by the acquirer, such alienation shall require a special resolution passed by shareholders of the target company, by way of a postal ballot and the notice for such postal ballot shall inter alia contain reasons as to why such alienation is necessary.

(3)The acquirer shall ensure that the contents of the public announcement, the detailed public statement, the letter of offer and the post-offer advertisement are true, fair and adequate in all material aspects and not misleading in any material particular, and are based on reliable sources, and state the source wherever necessary.

(4)The acquirer and persons acting in concert with him shall not sell shares of the target company held by them, during the offer period.

(5)The acquirer and persons acting in concert with him shall be jointly and severally responsible for fulfillment of applicable obligations under takeover regulations.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(c) (Old syllabus).

According to Regulation 29(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, any acquirer together with persons acting in concert (PAC) acquiring 5% or more of the shares or voting rights of the target company shall disclose to their aggregate shareholding and voting rights in such target company.

Further, according to Regulation 29(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, any person together with persons acting in concert (PAC), holds shares or voting rights entitling them to five per cent or more of the shares or voting rights in a target company, shall disclose the number of shares or voting rights held and change in shareholding or voting rights, even if such change results in shareholding falling below five percent, if there has been change in such holdings from the last disclosure made under sub-regulation (1) or under this sub-regulation; and such change exceeds two per cent of total shareholding or voting rights in the target company.

(i)Kunal already has 6% shares of Dream Real Estate Ltd. (listed company) and he intends to acquire 1.50% shares more, since the additional acquisition is less than 2%, Kunal is not required to disclose the changes arising due to this acquisition.

(ii)Kunal already has 6% shares of Dream Real Estate Ltd. (listed company) and he intends to acquire 3% shares more, since the additional acquisition is more than 2%, Kunal is required to disclose the changes arising due to this acquisition.

(iii)Kunal already has 3% shares of Dream Real Estate Ltd. (listed company) and he intends to acquire 1.50% shares more, since the total acquisition is less than 5% i.e. the below the threshold for initial disclosure, Kunal is not required to disclose the changes arising due to this acquisition.

According to Regulation 29(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the disclosure should be made within two working days of the receipt of intimation of allotment of shares, or the acquisition or the disposal of shares or voting rights in the target company, to every stock exchange where the shares of the target company are listed and the target company at its registered office.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(d) (Syllabus 2017).

Shri C. Achutan Committee had provided for following objectives of the then proposed SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011:

i)To provide a transparent legal framework for facilitating takeover activities,

ii)To protect the interests of investors in the securities market, taking into account that the acquirer, shareholders, and investors need a fair, equitable and transparent framework,

iii)To balance the various conflicting objectives and interests of all stakeholders in the context of substantial acquisition of shares and takeover in the listed companies,

iv)To provide each shareholder an opportunity to exit his investment in the target company when a substantial acquisition of shares, or takeover of a target company takes place, on terms that are not inferior to the terms on which substantial shareholders exit their investments,

v)To provide acquirers with a transparent legal framework to acquire shares or control of the target company and to make an open offer,

vi)To ensure that the affairs of the target company are conducted in the ordinary course when a target company is subject matter of an open offer,

vii)To ensure that fair and accurate disclosure of all the material information is made by the person responsible for making them to various stakeholders to enable them to take informed decisions,

viii)To regulate and provide for fair and effective competition among acquirers desirous of taking over the same target company, and

ix)To ensure that only those acquirers who are capable of actually fulfilling their obligations under the Takeover Regulations make open offers.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 4(b) (Syllabus 2022).