Substantial Acquisition of Shares or Voting Rights in and Acquisition of
Control Over a Listed Company

Frequently Asked Questions

FAQs are intended to supplement information given in other articles

What are the criteria for determining whether the shares of the Target Company are frequently or infrequently traded?

The shares of the target company will be deemed to be infrequently traded if the annualised trading turnover in that share during the preceding 6 calendar months prior to the month in which the PA is made is less than 5% (by number of shares) of the listed shares. If the said turnover is 5% or more, it will be deemed to be frequently traded.

Are only those shareholders whose names appear in the register of target company on a specified date, eligible to tender their shares in the open offer?

No. Any shareholder who holds the shares on or before the date of closure of the offer is eligible to participate in the offer.

What is a competitive bid?

Competitive bid is an offer made by a person, other than the acquirer who has made the first public announcement.

What happens if there is a competitive offer and a person had availed the first offer at a lower price? Can the person switch his acceptance to a better offer?

Yes, switching of acceptances between different offers is possible. The shareholder has the option to withdraw acceptance tendered by him upto three working days prior to the date of closure of the offer

To enable the shareholders to be in a better position to decide as to which of the subsisting offers is better and also not to cause last minute decisions / confusions, the offer price and size are effectively frozen for the last 7 working days prior to the closing date of the offers. Shareholders may wait till the commencement of that period to be aware of upward revisions in the offer price and size of the offers, if any.

Can an acquirer withdraw the offer once made?

No, the offer once made can not be withdrawn except in the following circumstances:

• Statutory approval(s) required have been refused;

• The sole acquirer being a natural person has died;

• Such circumstances as in the opinion of the Board merits withdrawal.

How can a person avail the offer if he/she has not received the letter of offer?

The Public Announcement contains procedure for such cases i.e. where the shareholders do not receive the letter of offer or do not receive the letter of offer in time. The shareholders are usually advised to send their consent to Registrar to offer, if any or to MB on plain paper stating the name, address, number of shares held, Distinctive Folio No, number of shares offered and bank details along with the documents mentioned in the Public Announcement, before closure of the offer. The public announcement and the letter of offer along with the form of acceptance is available on the SEBI website at www.sebi.gov.in.

Is there any compensation to a shareholder for delayed receipt of payment under the offer?

Acquirers are required to complete the payment of consideration to shareholders who have accepted the offer within 30 days from the date of closure of the offer. In case the delay in payment is on account of non receipt of statutory approvals and if the same is not due to wilful default or neglect on part of the acquirer, the acquirers would be liable to pay interest to the shareholders for the delayed period in accordance with Regulations.

If the delay in payment of consideration is not due to the above reasons, it would be treated as a violation of the Regulations and therefore, also liable for other action in terms of the Regulations.

Is the acquirer required to accept all the shares under the open offe?

No, if the shares received by the acquirer are more than the shares agreed to be acquired by him, the acceptance would be on proportionate basis.

What are the safeguards incorporated in the takeover process so as to ensure that shareholders get their payments under the offer/ receive back their share certificates?

Before making the Public Announcement, the acquirer has to open an escrow account in the form of cash deposited with a scheduled commercial bank or bank guarantee in favour of the Merchant Banker or deposit of acceptable securities with appropriate margin with the Merchant Banker. The Merchant Banker is also required to confirm that firm financial arrangements are in place for fulfilling the offer obligations. In case, the acquirer fails to make the payment, MB has a right to forfeit the escrow account and distribute the proceeds in the following way

1. 1/3 of amount to target company

2. 1/3 to regional SEs, for credit to investor protection fund etc.

3. 1/3 to be distributed on pro rata basis among the shareholders who have accepted the offer.

The Merchant Banker is required to ensure that the rejected documents which are kept in the custody of the Registrar / Merchant Banker are sent back to the shareholder through Registered Post.

Besides forfeiture of escrow account, SEBI can initiate separate action against the acquirer which may include prosecution / barring the acquirer from entering the capital market for a specified period etc.

Whether all types of acquisitions of shares or voting rights over and above the limits specified in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, necessarily require acquirer to make a public announcement followed up by an open offer?

No. Certain type of acquisitions as stipulated under regulation 3 of Chapter I of the Regulations, are specifically exempted from the open offer process subject to the acquirer complying with the requirements/conditions, as may be applicable, for such acquisitions. Such exemptions include acquisitions arising out of firm allotment in public issues, rights issues, inter-se transfer amongst group companies, relatives, promoters, acquirer and PACs, Indian promoters and foreign collaborators and transfer of shares from state level Financial Institutions to co-promoters of company pursuant to the agreement etc.

Which are those acquisitions/ transactions where reporting to SEBI is mandatory?

Reporting is mandatory under Regulation 3(4) in respect of acquisitions arising out of firm allotment in public issues, rights issues, inter-se transfer amongst group companies, relatives, promoters, acquirer and PACs, Indian promoters and foreign collaborators and transfer of shares from state level Financial Institutions to co-promoters of company pursuant to the agreement.

What is the time frame to submit such report and procedure fee thereof?

The report is required to be submitted to SEBI within 21 days from the date of acquisition / allotment along with a fee of Rs.10,000/- per report.

What information is required to be furnished to Stock Exchanges in compliance of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and when is it required to be furnished?

For transactions, which entail reporting requirements, details of the proposed acquisition need to be filed with SEs where shares of target company are listed, at least four working days before the date of actual acquisition/ allotment

A person who, along with PAC, if any, (collectively referred to as " Acquirer" hereinafter) acquires shares or voting rights (which when taken together with his existing holding) would entitle him to more than 5% or 10% or 14% shares or voting rights of target company, is required to disclose at every stage the aggregate of his shareholding to the target company and the Stock Exchanges within 2 days of acquisition or receipt of intimation of allotment of shares.

Any person who holds more than 15% but less than 75% shares or voting rights of target company, and who purchases or sells shares aggregating to 2% or more shall within 2 days disclose such purchase/ sale along with the aggregate of his shareholding to the target company and the Stock Exchanges

Further, annual disclosures have to be given regarding holding of promoters, persons in control and persons holding more than 15% shares or voting rights of the Target company. Further , a copy of the Public Announcement to acquire shares from public is to be given to the Stock Exchanges simultaneously with the publication in the newspapers.. Subsequently, upward revisions in offer, withdrawal of offer has also to be intimated to the Stock Exchanges simultaneously.

Are mergers and amalgamations of companies also covered under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997?

No, only takeovers and substantial acquisition of shares of a listed company fall within purview of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Mergers and Amalgamations are outside the purview of SEBI as they are a subject matter of the Companies Act, 1956.