Provision of Escrow under SEBI (SAST) Regulations, 2011

1. Regulation 17(1) 

Not later than 2 working days prior to the DPA of open offer for acquiring shares, the acquirer shall create an escrow account in respect of security for performance of his obligations under these regulations and deposit in the escrow account amount as such.

Sr. No. Consideration payable under the open offer Escrow Amount
1 On 1st 500 Cr. Amount equal to 25% of the consideration
2 On the balance consideration An additional amount equal to 10% of the balance consideration.

2. Proviso to Regulation 17(1)

Where an open offer is made conditional upon minimum level of acceptance then 100% of the consideration which is payable in respect of minimum level of acceptance or 50% of the consideration payable under the open offer, whichever is higher, shall be deposit in the escrow account.

3. Regulation 17(2)

The consideration payable under the open offer shall be computed as provided for in regulation 16(2) and in event of any increase or revision in the offer price or the offer size, then the value of the escrow amount shall be computed on the revised consideration calculated at such revised price and additional amount shall be bought into the escrow account prior to effecting such revision.

4. Regulations 17(3)

The forms of escrow account-

1. Any cash deposited with the scheduled commercial bank;

2. Bank guarantee issued in favour of manager to the open offer by the scheduled commercial bank;

3. Deposit of frequently traded shares and freely transferable securities with appropriate margin.

5. Proviso to Regulation 17(3)

The securities sought to be provided towards escrow account shall be requirement to be confirm setout in regulation 9(2).

6. Regulation 17(4)

In case if the escrow account is created by way of bank guarantee or by deposit of securities, the acquirer shall also ensure that at least 1% of the total consideration payable is deposited in cash with a scheduled commercial bank.

7. Regulation 17(5)

In case if the escrow account in form of cash deposit with scheduled commercial bank, the acquirer shall while opening the account, empower the manager to the open offer to instruct the bank to issue a banker’s cheque or DD or to make payment of the amount lying to the credit of escrow account, in accordance with requirements under these regulations.

8. Regulation 17(6)

In case if the escrow account in form of a bank guarantee, such bank guarantee shall be in favour of the manager to the open offer and shall be kept valid throughout the offer period and for an additional period of 30 days after completion of payment of consideration to shareholders who tendered their shares in acceptance of the open offer.

9. Regulation 17(7)

In case if the escrow account as is in form of securities, the acquirer shall empower the manager to the open offer to realize the value of such escrow account by sale or otherwise and in event there is any shortfall in amount required to be maintained in the escrow account, the manager to the open offer shall be liable to make good such shortfall.

10. Regulation 17(8)

Manager to the open offer shall not release the escrow account until the expiry of 30 days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of open offer, save and except for transfer of funds to the special escrow account required under regulations 21.

11. Regulation 17(9)

In the event of non-fulfillment of obligations under these regulations by the acquirer the board may direct the manager to the open offer to forfeit the escrow account or any amount lying in the special escrow account, either in full or in part.

12. Regulation 17(10)

Escrow account deposited with the bank in cash shall be released only in following manner,

1. The 100% amount to the acquirer upon withdrawal of offer in terms of regulations 23 as certified by the manager to the open offer;

2. For transfer of an amount not exceeding 90% of escrow account, to the special escrow account in accordance with regulation 21

3. to the acquirer, the balance of the escrow account after transfer of cash to the special escrow account, on the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, as certified by the manager to the open offer;

4. the entire amount to the acquirer upon the expiry of thirty days from the completion of payment of consideration to shareholders who have tendered their shares in acceptance of the open offer, upon certification by the manager to the open offer, where the open offer is for exchange of shares or other secured instruments;

5. the entire amount to the manager to the open offer, in the event of forfeiture for non-fulfillment of any of the obligations under these regulations, for distribution in the following manner, after deduction of expenses, if any, of registered market intermediaries associated with the open offer,—

(i) one third of the escrow account to the target company;

(ii) one third of the escrow account to the Investor Protection and Education Fund established under the Securities and Exchange Board of India (Investor Protection and Education Fund) Regulations, 2009; and

(iii) one third of the escrow account to be distributed pro-rata among the shareholders who have accepted the open offer.

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