The Takeover Activity has significantly diminished since the outbreak of the pandemic, in addition to the added challenge of uncertainty posed to buyers, target company and investors by COVID-19. Consequently, leading to the decrease in share prices of many public companies worldwide, with businesses facing unpredictability relating to long-term impacts of the crisis. Due to the extensive nature of the pandemic the financial investors and corporates who would otherwise be active even in volatile market are adopting an inward-looking approach and are focusing on their own business and investee companies.

However, in India, The Securities and Exchange Board of India (“SEBI”), being the regulatory body for listed companies, has been actively taking steps to temporarily liberalizing regulations relating to raising of capital from securities market, facilitate fund raising and resultantly ease up the process of raising capital by companies during the crisis. The article is an attempt to analyse the adequacy and effectivity of the three main amendments, with special focus on the first and third, made to The Securities and Exchange Board of India (Substantial Acquisition Of Shares And Takeovers) Regulations, 2011 (“Takeover Code”) in connection with pricing norms for preferential issue under SEBI (Issue of Capital and Disclosures Requirement) Regulations, 2018 (“ICDR Regulations”).


With the aim of increasing market activity and raising funds by companies, SEBI via notification dated June 16, 2020 (“First Amendment”) has relaxed the obligation on promoters for making an open offer under Regulation 3(2) of the Takeover Code by increasing the permissible thresholds of acquiring fresh shares.

Consequently, a relaxation allowing acquisition of 10%, instead of the existing 5% by promoters of listed company has come into effect for financial year 2020-2021. However, such relaxations have been made specific to acquisition in form of preferential issue of equity shares, resultantly excluding acquisitions in form of transfers, block and bulk deals.

A. Reasons validating the First Amendment  

  • Managing Cash Flow- The option of raising additional funds from promoters without being obligated to make open offers will mitigate the liquidity crunch being faced by companies because of financial challenges caused by Coronavirus.
  • Boost the stock market activity
  • Recover/ Increase the price of shares

B. Pricing norms of Preferential Issue under ICDR Regulations

Pre-Board Meeting

In regard to the First Amendment, the relaxation is conditional to investments being undertaken by way of preferential issue. The pricing norms of such preferential issue is laid down under Regulation 164 of the ICDR Regulations, which can be summarised as under-

If the issuer’s equity shares have been listed on recognised stock exchange for twenty six weeks or more, the price of such preferential issue shall be higher of the average of weekly high and low of volume weighted average price in recognised stock exchange during the preceding-

  •  Twenty-six weeks,or
  • Two weeks

Consequence of pricing regulations

Due to the economic challenges posed by Coronavirus, leading to a stock market crisis has resultantly lowered the prices of shares of most companies, which has currently dropped severely as compared to the prices at the beginning of twenty-six weeks.  Hence, the promoters may be discouraged to subscribe for additional shares if made to pay at the price determined by the above-mentioned regulation, despite of forgoing costs involved in a public offer.

Post Board Meeting

In order to amend the above issue, SEBI in the last Board Meeting held on June 25, 2020 has decided to provide  an  additional  option  to  the  existing  pricing methodology for Preferential Issuance as temporary relaxation due to COVID-19.

Consequently, the price of the equity shares to be allotted pursuant to the preferential issue shall not be less than higher of the average of the weekly high and low of the volume weighted average price of the related equity shares quoted on the recognized stock exchange during the preceding-

  • Twelve weeks(Instead of twenty-six weeks), or
  • Two weeks

The above amendment decided in the Board Meeting has been effectuated via Notification dated July 1, 2020 by insertion of Regulation 164(B) to the ICDR Regulations.

The new rule shall be in force till December 31, 2020 along with a lock-in period of 3 years, which would bring stability for upcoming years. This relaxation may provide the desired solution to the above-mentioned issue, resulting in ease of fundraising by corporate along with motivation to promoters for infusing funds. A balance has been attempted to be achieved between liquidity crunch being faced by companies and allottee’s interest.


A. Enhanced deposited in the escrow account for offers in lieu of indirect acquisition

SEBI in the Board Meeting held on June 25, 2020 made further amendments to the Takeover Code by mandating deposit of the amount equivalent to 100% of the consideration payable for the open offer, subsequent to an indirect acquisition and a public announcement of an open offer, within two working days before public statement. This has been incorporated in the Takeover code vide notification dated July 1, 2020 by way of addition of a Proviso to Regulation 17(1).

Prior to the amendment, the requirement of deposit to the Escrow Account was only 25% of the consideration involved in the open offer, which has now been increased to 100% of the amount. Further, the new rule has effectively aligned the treatment of open offer which has been triggered by either direct or an indirect acquisition, since the requirement was deposit has always been 100% for direct acquisition. Resultantly, an additional financial burden has been bought on acquiror wherein, the obligation would be required to be factored and taken care of during the early stage of indirect acquisition.

B. Interest in cases of delay of payment to shareholders

With the insertion of 11A to Regulation 18(11), SEBI has cleared the air around imposition of interest in case of delay by acts or omission attributable to acquiror for payment of open offer to the shareholders. Prior to the amendment, due to lack of existence of a clear provision for imposition of interest, the situation under which it would be applicable remained unclear. As a matter of practise SEBI had always imposed 10% interest in such cases, however, with this amendment the requirement has been incorporated into the Takeover Code for omissions and acts attributable to the acquiror.

However, the Regulation also contains a proviso which authorizes the Board to grant waiver on the payment of such interest, for acts beyond the control and not attributable to the acquiror.

C. Permissibility of Bulk Deal and Block Deal during an Open Offer

SEBI vide its notification dated July 1, 2020 also cleared the vagueness and doubts revolving around acquisition of shares by way of bulk or block deals in the process of open offer. The amendment made changes to Regulation 22(2A) of the Takeover Code to permit such transactions during open offer process, subject to such shares being deposited in an escrow account and refraining the exercise of voting rights till 21 days from the publication of detailed public statement relating to such open offer and the acquiror being made to deposit the entire amount in an escrow account.

This has provided a much-needed clarity and coherence that would enable the parties involved in the transaction in structuring deals in a more efficient manner has been introduced by SEBI.


In order to deal with liquidity crunch in the market, SEBI has proposed certain amendments to raise money from the promoters. Further, relaxations have been provided to the promoters for infusing such additional funds into the company, by way of mitigating the burden to make an open offer and adopting a rational and justified approach in pricing such preferential issue so that they are not demotivated from purchasing the same. However, considering the fact that the market may take time to recover, this new rule may also provide a gateway to promoters for avoiding making an open offer.

Additionally, the treatment of making deposits to an escrow account in cases of direct and indirect acquisition has now been aligned. This has been done in addition to providing clarity and legitimising charging interest in case of delay of payment to shareholders and permitting bulk and block deals in case of an open offer, being subject to certain conditions.


1. ‘Timely changes to streamline takeovers’ by Akila Agrawal, at LiveMint dated June 26, 2020.

2. ‘Limits on Creeping acquisition by promoters increased during COVID 19 crisis’ by Vinod Kothari Consultants dated June 18, 2020.

3. ‘SEBI eases rules to raise funds via preferential issues, tweaks takeover code’ by Jayshree Upadhyay, at LiveMint dated June 25, 2020.

4. ‘SEBI Approves Amendments To Regulations Governing Listed Companies’ by Arindam Ghosh and Abhishek Dadoo, at Mondaq dated July 6, 2020.

5. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018.

6. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

7. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2020 dated June 16, 2020.

8. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2020 dated June 23, 2020.

9. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2020 dated July 1, 2020.

10. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2020 dated June 16, 2020.

11. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2020 dated June 16, 2020.

12. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2020 dated June 23, 2020.

13. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Second Amendment) Regulations, 2020 dated July 1, 2020.

14. SEBI Board Meeting, Press Release, dated June 25, 2020.

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