SAT Orders SEBI to Reconsider Material Adverse Effect-Based Open Offer Withdrawal

Material Adverse Events and Open Offer Withdrawal: Reassessing Regulation 23(1) (c) After Marwadi Chandarana Intermediaries Brokers Ltd. v. SEBI Judgement

Summary: When an acquisition agreement contains a Material Adverse Effect (“MAE”) clause, the parties usually agree in advance on what events will allow the acquirer to terminate the transaction. For example, the agreement may provide that a significant fall in the target company’s net worth will amount to an MAE.

The difficulty arises when the acquisition also triggers a mandatory open offer to the public shareholders of a listed company. In such a case, terminating the acquisition agreement does not automatically mean that the acquirer can withdraw the open offer.

The Securities Appellate Tribunal (“SAT”) recently considered this issue in Marwadi Chandarana Intermediaries Brokers Ltd. v. Securities and Exchange Board of India. However, the SAT did not decide whether an MAE clause allows an acquirer to withdraw an open offer. Instead, it held that SEBI had to properly consider the acquirer’s request and give a reasoned decision. The matter was therefore sent back to SEBI for fresh consideration.

The main legal question therefore remains unanswered: Can an MAE clause satisfy Regulation 23(1)(c) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) and permit an open offer to be withdrawn?

This question is important because earlier Supreme Court decisions, particularly Nirma Industries Ltd. v. SEBI and SEBI v. Akshya Infrastructure Pvt. Ltd., applied a strict “impossibility” standard to withdrawal of open offers. However, those cases dealt with the earlier Takeover Regulations and, subsequently, the residuary withdrawal provision under Regulation 23(1)(d) of the 2011 Regulations. Regulation 23(1)(c) is worded differently and specifically deals with contractual conditions that are not fulfilled for reasons outside the acquirer’s reasonable control.

The issue is further complicated where the transaction involves a preferential acquisition, because Regulation 23(1)(c) contains a specific restriction concerning such transactions.

1. Introduction: When an MAE Meets an Open Offer

An MAE clause is commonly used in M&A transactions to protect an acquirer against a serious deterioration in the target company’s business between signing and closing.

For example, an SPA may provide that the acquirer can terminate the agreement if the target’s net worth falls by a specified percentage. The purpose is straightforward: the acquirer should not be forced to complete a transaction after the target has suffered a significant and contractually defined deterioration.

However, the position becomes more complicated when the target is a listed company.

If the acquisition triggers an open offer under the SAST Regulations, there are now two separate legal questions:

i. Can the acquirer terminate the acquisition agreement under the MAE clause?

ii. Can the acquirer also withdraw the open offer that was triggered by that acquisition?

These questions are related, but they are not the same.

A contractual right to terminate an SPA does not automatically cancel a statutory obligation to make an open offer. The first question is mainly governed by the contract between the parties. The second is governed by the SAST Regulations.

This distinction is at the heart of the SAT’s decision in Marwadi Chandarana.

2. The Marwadi Chandarana Transaction

Marwadi Chandarana Intermediaries Brokers Private Limited (“MCG”), part of the Marwadi Chandarana Group, proposed to acquire control of TruCap Finance Limited, a listed non-banking financial company.

On 26 May 2025, MCG entered into a Share Purchase Agreement (“SPA”) and a Securities Subscription Agreement (“SSA”) in connection with the proposed acquisition.

Under the SPA, MCG proposed to acquire 3,68,00,220 equity shares, representing 15.26% of the emerging share capital.

Under the SSA, MCG proposed to acquire 11,56,80,000 shares through a preferential issue, representing 47.98% of the emerging share capital.

Together, the proposed acquisition represented 63.25% of the emerging share capital and 73.53% on a fully diluted basis.

Because the transaction involved the acquisition of control and a substantial number of shares, it triggered an open-offer obligation under the SAST Regulations.

A public announcement was made on 26 May 2025, followed by a detailed public statement on 2 June 2025 and the filing of a draft letter of offer with SEBI on 9 June 2025.

The SPA and SSA contained an MAE clause. One of the agreed triggers was a 20% or greater reduction in the target company’s consolidated net worth, compared with its net worth on the Accounts Date.

MCG later took the position that the target’s net worth had fallen by more than 20%. On that basis, it terminated the SPA and SSA on 22 September 2025 and requested SEBI’s permission to withdraw the open offer.

SEBI initially communicated on 27 October 2025 that the open offer could not be withdrawn and subsequently issued another communication dated 30 January 2026.

3. What Did the SAT Actually Decide?

MCG challenged SEBI’s 30 January 2026 communication before the SAT in Appeal No. 37 of 2026.

The main complaint was that SEBI had not properly considered MCG’s submissions concerning:

• the MAE clause;
• the termination of the SPA and SSA; and
• the request to withdraw the open offer.

SEBI, on the other hand, took the position that the open offer could not be withdrawn because the relevant MAE condition had not been disclosed in the Detailed Public Statement.

The SAT agreed that SEBI needed to give a proper and reasoned decision.

The Tribunal found that SEBI’s communications did not adequately explain why the request was being rejected or properly address the material submissions made by MCG. It therefore set aside the communications dated 27 October 2025 and 30 January 2026 and sent the matter back to SEBI for a fresh decision.

The most important part of the judgement is the SAT’s express clarification:

“We make it clear that we have not examined the merits of the case.”

Therefore, Marwadi Chandarana does not establish that an MAE clause permits withdrawal of an open offer.

The decision is mainly about SEBI’s obligation to give reasons, while the substantive question under Regulation 23(1)(c) remains open.

4. What Does Regulation 23(1)(c) Say?

Regulation 23(1) of the SAST Regulations generally does not permit an open offer to be withdrawn once it has been made, except in specified circumstances.

One of those circumstances is Regulation 23(1)(c).

It permits withdrawal where:

“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, and such agreement is rescinded.”

The relevant condition must also have been specifically disclosed in the Detailed Public Statement and Letter of Offer.

The wording of this provision is important.

Regulation 23(1)(c) does not expressly use the word “impossibility.”

Instead, it focuses on:

• a contractual condition;
• failure of that condition;
• reasons outside the acquirer’s reasonable control;
• rescission of the acquisition agreement; and
• prior disclosure of the condition.

This raises the main legal question:

Does the strict “impossibility” test developed in earlier cases also apply to Regulation 23(1)(c), or should Regulation 23(1)(c) be interpreted according to its own wording?

There is another important issue where the transaction involves a preferential acquisition.

The proviso to Regulation 23(1)(c) places a specific restriction on withdrawal of an open offer arising from a public announcement under Regulation 13(2)(g), even where the proposed preferential acquisition is unsuccessful.

This is relevant in Marwadi Chandarana because MCG’s transaction involved both a direct acquisition and a preferential allotment.

Therefore, there are actually two questions:

i. Can an MAE-based contractual condition satisfy Regulation 23(1)(c)?

ii. Does the preferential-issue proviso independently restrict withdrawal?

The SAT did not decide either question on merits.

5. Nirma and the “Impossibility” Standard

The leading Supreme Court decision on withdrawal of an open offer under the earlier regulatory framework is Nirma Industries Ltd. & Anr. v. Securities and Exchange Board of India, (2013) 8 SCC 20.

The case concerned Regulation 27(1)(d) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. This was a residuary provision that allowed withdrawal in circumstances which, in SEBI’s opinion, justified withdrawal.

The Supreme Court took a strict approach.

It held that the residuary provision had to be read ejusdem generis with the other specified withdrawal grounds. In simple terms, the different withdrawal grounds had to share a common character.

The Court identified that common character as impossibility of carrying out the open offer.

Therefore, simply making less money from the transaction was not enough.

A transaction becoming commercially unattractive or resulting in a possible financial loss did not, by itself, make performance impossible.

However, an important point must be kept in mind:

Nirma interpreted the residuary withdrawal provision under the 1997 Regulations.

It did not interpret the present Regulation 23(1)(c) of the 2011 Regulations.

That distinction is central to the present debate.

6. Akshya Infrastructure: A Strict Approach Continues

The Supreme Court considered the withdrawal issue again in SEBI v. Akshya Infrastructure Pvt. Ltd., (2014) 11 SCC 112.

In that case, the acquirer argued that the open offer had become economically unattractive because of delays in the regulatory process.

The Supreme Court rejected this argument.

It reaffirmed the approach in Nirma and held that the relevant withdrawal provisions under Regulation 27(1)(b), (c) and (d) shared a common genus of impossibility.

The decision therefore reinforces two basic principles:

i. Withdrawal of an open offer is subject to a high threshold.

ii. A transaction becoming commercially unattractive is not, by itself, enough to justify withdrawal.

Again, however, Akshya dealt with the 1997 Regulations.

It did not decide how the differently worded Regulation 23(1)(c) of the 2011 Regulations should be interpreted.

7. Pramod Jain: Commercial Prejudice Is Not Enough

The Supreme Court later considered the issue in Pramod Jain & Ors. v. Securities and Exchange Board of India, (2016) 10 SCC 243.

The acquirers argued that SEBI’s delay and the conduct of the target’s promoters had caused serious prejudice and should justify withdrawal of the open offer.

The Supreme Court did not accept that argument as a basis for withdrawal.

The Court held that SEBI’s delay and the resulting commercial prejudice did not, by themselves, justify withdrawal. It reaffirmed that an open offer could be withdrawn only in accordance with the circumstances permitted by the applicable Takeover Regulations.

The case is therefore important because it shows that commercial prejudice alone is not enough.

The regulatory framework continues to control the question of withdrawal.

8. Jyoti Limited: The Nirma Approach Under Regulation 23(1)(d)

The position under the 2011 Regulations was later considered by SEBI in the matter of Open Offer of Jyoti Limited.

In its order dated 1 August 2016, SEBI considered an application for withdrawal under Regulation 23(1).

SEBI first considered Regulations 23(1)(a), (b) and (c) and found that they did not apply on the facts. It then considered Regulation 23(1)(d), which is the residuary provision.

SEBI relied on Nirma and Akshya and applied the same reasoning to Regulation 23(1)(d).

In other words, SEBI treated the residuary provision under the 2011 Regulations as being subject to the same basic impossibility approach that had developed under the earlier Regulations.

But this distinction is important:

Jyoti Limited applied the Nirma/Akshya approach to Regulation 23(1)(d), not to Regulation 23(1)(c).

Therefore, Jyoti Limited does not conclusively answer whether the same test applies to an MAE-based withdrawal under Regulation 23(1)(c).

9. Does Regulation 23(1)(c) Create a Different Test?

This is the central unresolved issue.

Regulation 23(1)(c) is different from the residuary provision considered in Nirma, Akshya and Jyoti Limited.

It specifically deals with a condition in the acquisition agreement that is not fulfilled for reasons outside the acquirer’s reasonable control.

The provision therefore focuses on five things:

• what the contract says;
• whether the contractual condition was fulfilled;
• why the condition was not fulfilled;
• whether the reason was outside the acquirer’s reasonable control; and
• whether the acquisition agreement was rescinded and the condition was properly disclosed.

This gives rise to a reasonable argument that Regulation 23(1)(c) was designed to deal specifically with contractual conditions, rather than simply creating another form of the general impossibility exception.

However, there is another side to the argument.

The overall purpose of Regulation 23 is to protect public shareholders and prevent an acquirer from making an open offer and then withdrawing it whenever the transaction becomes less attractive.

This is why the Supreme Court has historically applied a strict approach to withdrawal.

Therefore, the question is not simply:

“Does Regulation 23(1)(c) contain the word impossibility?”

It does not.

The real question is:

“Should the words ‘reasons outside the reasonable control of the acquirer’ be interpreted as requiring something close to impossibility, considering the purpose of the Takeover Regulations and the earlier case law?”

That question remains unanswered.

An MAE clause makes the issue even more complicated.

An SPA may allow the parties to terminate the transaction when a specified MAE occurs. But that does not automatically mean that the same event is sufficient to withdraw the statutory open offer.

10. MAE Clauses Under Indian Contract Law

The contractual and regulatory questions should therefore be kept separate.

If an SPA contains an MAE clause, the first question is whether that clause actually permits termination of the agreement.

The answer will depend on:

• the wording of the MAE clause;
• whether the agreed threshold has been crossed;
• how the parties allocated the relevant risk; and
• whether the circumstances fall within the contractual exceptions.

The Supreme Court’s decision in Energy Watchdog v. Central Electricity Regulatory Commission, (2017) 14 SCC 80, is relevant to the distinction between contractual force-majeure or contingency provisions and frustration under Section 56 of the Indian Contract Act, 1872.

Where the parties have already agreed in their contract what will happen if a particular event occurs, the contractual provision should ordinarily be considered first.

But even if the contract has been validly terminated, that does not automatically answer the separate securities-law question of whether the open offer can be withdrawn.

11. Halliburton v. Vedanta: Why It Should Be Used Carefully

Halliburton Offshore Services Inc. v. Vedanta Ltd. & Anr. is sometimes discussed in the context of MAE and force-majeure clauses.

However, it should be used only as a private-law comparison.

The Delhi High Court’s order dated 20 April 2020 arose in an interim proceeding involving the invocation of performance bank guarantees during the COVID-19 lockdown.

The Court considered the contractual and equitable circumstances relevant to the interim relief sought.

The case can therefore help illustrate how courts may approach contractual risk allocation and force-majeure arguments.

However, Halliburton does not establish the legal test for withdrawing an open offer under Regulation 23 of the SAST Regulations.

The statutory question under the SAST Regulations must be considered separately.

12. What Does Marwadi Chandarana Actually Tell Us?

The legal position can be understood through three simple questions.

Question 1: Can the SPA and SSA be terminated?

This is mainly a contractual question.

It depends on the MAE clause, whether the agreed trigger occurred, and how the parties allocated the relevant risks.

Question 2: Does termination of the SPA and SSA automatically cancel the open offer?

No.

The open offer is governed by the SAST Regulations.

Therefore, terminating the acquisition agreement does not automatically remove the statutory obligation created by the public announcement.

Question 3: Does an MAE-based termination satisfy Regulation 23(1)(c)?

This remains unanswered.

The SAT did not decide whether MCG’s 20% net-worth trigger satisfied Regulation 23(1)(c).

It also did not decide whether the Nirma/Akshya impossibility standard applies to Regulation 23(1)(c).

Instead, the matter was sent back to SEBI for a reasoned decision.

The preferential-issue restriction creates an additional issue because MCG’s proposed acquisition also involved a preferential route covered by Regulation 13(2)(g).

13. Conclusion

Marwadi Chandarana is an important decision, but its scope is limited.

The SAT did not decide that an MAE clause allows an acquirer to withdraw an open offer.

What the SAT decided was that SEBI must give proper reasons when deciding whether an open offer can be withdrawn. SEBI cannot reject such a request through brief or unclear communications without properly considering the acquirer’s factual and legal submissions.

The main legal question therefore remains unanswered:

Can an MAE clause, such as one based on a 20% reduction in the target’s net worth, satisfy Regulation 23(1)(c) and allow an open offer to be withdrawn?

Earlier cases such as Nirma and Akshya applied a strict standard of impossibility to withdrawal under the earlier Takeover Regulations. SEBI later applied similar reasoning to the residuary withdrawal provision under Regulation 23(1)(d) of the 2011 Regulations in Jyoti Limited.

However, Regulation 23(1)(c) is worded differently. It specifically deals with contractual conditions that are not fulfilled for reasons outside the acquirer’s reasonable control.

It is therefore still unclear whether the strict “impossibility” test from the earlier cases should also apply to Regulation 23(1)(c), or whether that provision requires a separate analysis based on its own wording.

For M&A transactions involving listed companies, this distinction is important.

Terminating an acquisition agreement because of an MAE does not automatically mean that the related open offer can also be withdrawn.

The contractual termination, the regulatory permission to withdraw the open offer, and the disclosure made to public shareholders must each be considered separately.

Until SEBI decides the matter again following the SAT’s directions, transaction advisers should therefore not assume that an MAE-based termination gives an automatic right to withdraw an open offer.

Cases Discussed

• Marwadi Chandarana Intermediaries Brokers Ltd. v. Securities and Exchange Board of India(Securities Appellate Tribunal, Mumbai), Appeal No. 37 of 2026, decided 8 July 2026.
• Nirma Industries Ltd. & Anr. v. Securities and Exchange Board of India(Supreme Court of India), Civil Appeal No. 6082 of 2008, decided 9 May 2013, (2013) 8 SCC 20; AIR 2013 SC 2360.
• Securities and Exchange Board of India v. Akshya Infrastructure Pvt. Ltd.(Supreme Court of India), Civil Appeal No. 6041 of 2013, decided 25 April 2014, (2014) 11 SCC 112.
• Pramod Jain & Ors. v. Securities and Exchange Board of India(Supreme Court of India), Civil Appeal No. 9103 of 2014, decided 7 November 2016, (2016) 10 SCC 243.
• In the Matter of Open Offer of Jyoti Limited, SEBI Order No. WTM/SR/CFD/39/08/2016, decided 1 August 2016.
• Energy Watchdog v. Central Electricity Regulatory Commission & Ors.(Supreme Court of India), (2017) 14 SCC 80.
• Halliburton Offshore Services Inc. v. Vedanta Ltd. & Anr.(Delhi High Court), O.M.P. (I) (COMM.) 88/2020 & I.A. 3697/2020, order dated 20 April 2020.