Substantial Acquisition of Shares or Voting Rights in and Acquisition of
Control Over a Listed Company -Part: V

Bail out takeovers ( Regulation 30 )

1. The provisions of this Chapter shall apply to a substantial acquisition of shares in a financially weak company not being a sick industrial company, in pursuance to a scheme of rehabilitation approved by a public financial institution or a scheduled bank; (hereinafter referred to as lead institution).

2. The lead institution shall be responsible for ensuring compliance with the provisions of this Chapter.

3. The lead institution shall appraise the financially weak company taking into account the financial viability, and assess the requirement of funds for revival and draw up the rehabilitation package on the principle of protection of interests of minority shareholders, good management, effective revival and transparency.

4. The rehabilitation scheme shall also specifically provide the details of any change in management.

5. The scheme may provide for acquisition of shares in the financially weak company in any of the following manner:

   1. outright purchase of shares, or

   2. exchange of shares, or

   3. combination of both.

Provided that the scheme as far as possible may ensure that after the proposed acquisition the erstwhile promoters do not own any shares in case such acquisition is made by the new promoters pursuant to such scheme.

Explanation: For the purpose of this chapter, the expression "financially weak company" means a company, which has at the end of the previous financial year accumulated losses, which has resulted in erosion of more than 50% but less than 100% of its networth as at the beginning of the previous financial year, that is to say, of the sum total of the paid-up capital and free reserves.

1. Before giving effect to any scheme of rehabilitation the lead institution shall invite offers for acquisition of shares from atleast three parties.

2. After receipt of the offers under sub-regulation (1), the lead institution shall select one of the parties having regard to the managerial competence, adequacy of financial resources and technical capability of the person acquiring shares to rehabilitate the financially weak company.

3. The lead institution shall provide necessary information to any person intending to make an offer to acquire shares about the financially weak company and particularly in relation to its present management, technology, range of products manufactured, shareholding pattern, financial holding and performance and assets and liabilities of such company for a period covering five years from the date of the offer as also the minimum financial and other commitments expected of from the person acquiring shares for such rehabilitation.

1. The lead institution shall evaluate the bids received with respect to the purchase price or exchange of shares, track record, financial resources, reputation of the management of the person acquiring shares and ensure fairness and transparency in the process.

2. After making evaluation as provided in sub-regulation (1), the offers received shall be listed in order of preference and after consultation with the persons in the affairs of the management of the financially weak company accept one of the bids.

The person acquiring shares who has been identified by the lead institution under sub-regulation (2) of Regulation 32, shall on receipt of a communication in this behalf from the lead institution make a formal offer to acquire shares from the promoters or persons in charge of the affairs of the management of the financially weak company, financial institutions and also other shareholders of the company at a price determined by mutual negotiation between the person acquiring the shares and the lead institution.

Explanation: Nothing in this regulation shall prohibit the lead institution offering the shareholdings held by it in the financially weak company as part of the scheme of rehabilitation.

1. The person acquiring shares from the promoters or the persons in charge of the management of the affairs of the financially weak company or the financial institution shall make a public announcement of his intention for acquisition of shares from the other shareholders of the company.

2. Such public announcement shall contain relevant details about the offer including the information about the identity and background of the person acquiring shares, number and percentage of shares proposed to be acquired, offer price, the specified date, the date of opening of the offer and the period for which the offer shall be kept open and such other particulars as may be required by the board.

3. The letter of offer shall be forwarded to each of the shareholders other than the promoters or the persons in charge of management of the financially weak company and the financial institutions.

4. If the offer referred to in sub-regulation (1) results in the public shareholding being reduced to 10% or less of the voting capital of the company, the acquirer shall either -

   1. within a period of three months from the date of closure of the public offer, make an offer to buy out the outstanding shares remaining with the shareholders at the same offer price, which may have the effect of delisting the target company; OR

   2. undertake to disinvest through an offer for sale or by a fresh issue of capital to the public which shall open within a period of 6 months from the date of closure of public offer, such number of shares so as to satisfy the listing requirements.

5. The letter of offer shall state clearly the option available to the acquirer under sub-regulation (4).

6. For the purposes of computing the percentage referred to in the sub-regulation (4), the voting rights as at the expiration of thirty days after the closure of the public offer shall be reckoned.

7. While accepting the offer from the shareholders other than the promoters or persons in charge of the financially weak company or the financial institutions, the person acquiring shares shall offer to acquire from the individual shareholder his entire holdings if such holding is upto hundred shares of the face value of rupees ten each or ten shares of the face value of rupees hundred each.

No person shall make a competitive bid for acquisition of shares of the financially weak company once the lead institution has evaluated the bid and accepted the bid of the acquirer who has made the public announcement of offer for acquisition of shares from the shareholders other than the promoters or the persons in charge of the management of the financially weak company.

1. Every offer which has been made in pursuance of Regulation 30 shall be accompanied with an application to the Board for exempting such acquisitions from the provisions of Chapter III of these Regulations.

2. For considering such request the Board may call for such information from the company as also from the lead institution, in relation to the manner of vetting the offers, evaluation of such offers and similar other matters.

3. Notwithstanding grant of exemption by the board, the lead institution or the acquirer as far as may be possible, shall adhere to the time limits specified for various activities for public offer specified in Chapter III.

Where proposals for acquisition of shares in respect of a financially weak company is made by a state level public financial institution, the provisions of these Regulations in so far as they relate to scheme of rehabilitation prepared by a public financial institution, shall apply except that in such a case the Industrial Development Bank of India, a corporation established under the Industrial Development Bank of India Act, 1964 shall be the agency for ensuring the compliance of these Regulations for acquisition of shares in the financially weak company.