Amendment in Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011

♣ As we all know that in the current situation of the Covid-19 outbreak, everything has come to a standstill, there is no iota of doubt that this is going to have a long lasting impact on the businesses across the world. Considering the current situation of the Pandemic and in order to provide a helping hand to the Promoters and their Companies, the Securities and Exchange Board of India (herein after referred to as “Board”), in exercise of the powers conferred under Section 30 of the Securities and Exchange Board of India Act, 1992 (herein after referred to as the “Act”), has further amended the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (herein after referred to as “SEBI (SAST) Regulations, 2011”) via notification dated 16th June, 2020 (SEBI/LAD-NRO/GN/2020/14) and these Regulations may be called as Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2020 (herein after referred to as “SEBI (SAST) Regulations, 2020”).

♣ SEBI (SAST) Regulations, 2020 is effective from 16th day of June, 2020.

♣ Before moving ahead with the amendment we should first know the meaning of certain terms:

1. Acquirer: Acquirer means any person, who directly or indirectly acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a Target Company;

2. Promoter : Promoter shall include a person:

(i) who has been named as such in a draft offer document or offer document or is identified by the issuer in the annual return referred to in section 92 of the Companies Act, 2013; or

(ii) who has control over the affairs of the issuer, directly or indirectly whether as a shareholder, director or otherwise; or

(iii) in accordance with whose advice, directions or instructions the Board of Directors of the issuer is accustomed to act.

Provided that nothing in sub-clause (iii) shall apply to a person who is acting merely in a professional capacity;

Provided further that a financial institution, scheduled commercial bank, [foreign portfolio investor other than individuals, corporate bodies and family offices] , mutual fund, venture capital fund, alternative investment fund, foreign venture capital investor, insurance company registered with the Insurance Regulatory and Development Authority of India or any other category as specified by the Board from time to time, shall not be deemed to be a promoter merely by virtue of the fact that twenty per cent. or more of the equity share capital of the issuer is held by such person unless such person satisfy other requirements prescribed under these regulations;

3. Shares: “shares” means shares in the equity share capital of a Target Company carrying voting rights, and includes any security which entitles the holder thereof to exercise voting rights;

Explanation — For the purpose of this clause shares will include all depository receipts carrying an entitlement to exercise voting rights in the Target Company;

4. Target Company: means a Company and includes a Body Corporate or Corporation established under a Central legislation, State legislation or Provincial legislation for the time being in force, whose shares are listed on a stock exchange;

5. Voting Rights: means the right of a member of a Company to vote in any meeting of the Company or by means of postal ballot;

♣ Now, let’s understand the amendment with the help of the following table:

S. NO. PRE AMENDMENT SCENARIO POST AMENDMENT SCENARIO
1.

As per Regulation 3(2) of SEBI (SAST) Regulations, 2011 any Acquirer who along with Person Acting in Concert holds shares or voting rights in the Target Company in terms of Regulation 3(1) of SEBI (SAST) Regulation, 2011*, which entitles them to exercise 25% or more of the voting rights in the Target Company but less than the maximum permissible non-public shareholding (which is usually 75% of the total shareholding of the Target Company), can acquire additional shares or voting rights entitling them to exercise 5% or less of the voting rights in a financial year without attracting the requirement of giving an open offer.

However if they want to acquire shares or voting rights which entitle them to exercise more than 5% of the voting rights in the Target Company in a financial year then it is not permitted unless an open offer has been given in accordance with the provisions of the relevant Regulations.

 

 

As per SEBI (SAST) Regulations, 2020 a new proviso has been inserted before the existing proviso under Regulation 3(2), according to the proviso so inserted: an Acquirer or Person Acting in Concert who already holds shares or voting rights in the Target Company in terms of Regulation 3(1) of SEBI (SAST) Regulation, 2011* entitling them to exercise 25% or more of the voting rights in the Target Company can now acquire shares or voting rights entitling them to exercise more than 5% but upto 10% of the voting rights in the Target Company (which should be within the limit of maximum permissible non – public shareholding) without attracting the obligation to give an open offer as was earlier required in terms of Regulation 3(2) of SEBI (SAST) Regulations, 2011.

The important point which is to be kept in mind is that the above mentioned relaxation is applicable only when all the below mentioned conditions are satisfied:

• The acquisition of voting rights is done by the Promoters of the Target Company and

• The acquisition of voting rights is pursuant to acquisition via preferential issue of Equity Shares of the Target Company and not by any another means and

• This relaxation is applicable only for Financial Year 2020-2021.

2.

§ As per Regulation 6(1) of SEBI (SAST) Regulations, 2011 an Acquirer or Person Acting in Concert can opt for voluntary open offer if they already hold 25% or more but less than the maximum permissible non-public shareholding (normally 75%) subject to the following conditions:

§ There aggregate shareholding after offer should not exceed the maximum permissible non-public shareholding and

 

§ In order to be eligible to give voluntary open offer the Acquirer or Person Acting in Concert with the him, in the preceding 52 weeks should have acquired as many shares in the Target Company that it would attract the obligation to make the public announcement of an open offer i.e. they should have acquired more than 5% of the voting rights in the preceding 52 weeks in order to be eligible to opt voluntary open offer.

§ As per SEBI (SAST) Regulations, 2020 a new proviso has been inserted after the first proviso of Regulation 6(1) of SEBI (SAST) Regulations, 2011.

§ According to the proviso so inserted one of the conditions for opting voluntary open offer is being eased and the relaxation so provided is applicable till 31st March, 2021 only.

 

§ As per the amendment, any Acquirer or Person Acting in Concert with him who already holds 25 % or more of the voting rights in the Target Company can opt for making a voluntary open offer, even if in the preceding 52 weeks they have acquired below the threshold limit specified for attracting the obligation to make an open offer (i.e. even if they have acquired less than or equal to 5 %). This means that if an Acquirer or Person Acting in Concert with him, who already holds 25 % or more of the voting rights in the Target Company, acquires less than or equal to 5 % the voting rights in the preceding 52 weeks, then also they are eligible to give a voluntary open offer in accordance with the applicable Regulations.

§ One important point which is to be to be kept in mind is that in any case the total shareholding of the Acquirer along with the Person Acting in Concert can’t be more than the maximum permissible non-public shareholding.

*Regulation 3(1) of SEBI (SAST) Regulation, 2011: As per this regulation 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, entitle them to exercise twenty-five per cent 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 the applicable regulations.

Important points to be kept in mind:

a) As per Explanation No.1 of the Regulation 3(2) of SEBI (SAST) Regulations, 2011, only gross acquisitions during the relevant Financial Year is to be taken into consideration meaning thereby, any intermittent fall in shareholding or voting rights pursuant to disposal of shares or dilution in voting rights due to fresh issuance of shares by the Target Company. (In simple terms netting off is not allowed).

b) As per Explanation No. 2 of the Regulation 3(2) of SEBI (SAST) Regulations, 2011: in the case of acquisition of shares by way of issue of new shares by the Target Company or where the Target Company has made an issue of new shares in any given financial year, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition.

c) An acquirer is not be entitled to acquire or enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding (i.e. 75% of the total share Capital of the Company).

d) Acquisition pursuant to a resolution plan approved under section 31 of the Insolvency and Bankruptcy Code, 2016 [No. 31 of 2016] shall be exempt from the obligation under the proviso to the sub-regulation (2) of regulation 3.

Author can be reached out at csbhawnajindal@gmail.com.

Disclaimer: The Views expressed are solely of the Author and the intent of this article is to share the Knowledge on subject matter. Expert advice should be sought for your specific circumstances.

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