Disclosures of Share-Holding & Control

Regulation 28. Disclosure related provisions

28(1).

• All disclosures under this Chapter must be made on an aggregated basis.

• Aggregation includes:

  1. The acquirer or promoter, and

  2. All persons acting in concert (PACs) with him.

• So , Individual holdings are not viewed in isolation.

• The combined shareholding and voting rights must be disclosed.

• It applies to:

  1. Initial disclosures.

  2. Continual disclosures.

  3. Any other disclosure obligations under the Chapter.

28(2).

• For the purposes of this Chapter: Convertible securities are treated as shares

  1. So , Acquisition of convertible securities would be treated as acquisition of shares.

  2. Holding of convertible securities would be treated as holding of shares.

  3. Accordingly, disclosures must be made as if actual shares are acquired/held.

28(3).

• For the purposes of this chapter:

• The term “encumbrance” is given a broad and inclusive meaning.

• It shall include:

• (a). Any Restriction on Free Title

  1. It covers any restriction on free and marketable title of shares

  2. It applies regardless of the name used

  3. It includes arrangements made Directly, or Indirectly

• (b). Specific Forms of Encumbrance

  1. It includes commonly recognized forms such as:

     1. Pledge

     2. Lien

     3. Negative lien (promise not to create further charge)

     4. Non-disposal undertaking (agreement not to sell shares)

• (c). Similar Arrangements (Catch-All Clause)

  1. It covers any covenant, transaction, condition, or arrangement.

     1. It must be in the nature of an encumbrance.

     2. It applies irrespective of terminology used.

     3. It includes both Direct structures, and Indirect structures.

28(4).

• When the stock exchange receives disclosures under this Chapter:

  1. The stock exchange must forthwith (immdeiately) disseminate the information.

Regulation 29. Disclosure of acquisition and disposal.

29(1).

• Initial Disclosure on Acquisition of 5% or More Shareholding

  1. Any acquirer along with persons acting in concert (PACs)

  2. When their aggregate shareholding/voting rights reaches 5% or more in the target company:

     1. They must disclose their total (aggregate) shareholding and voting rights.

     2. The disclosure must be made:

        1. In the prescribed format,

        2. As specified by Securities and Exchange Board of India.

     3. This is the first threshold disclosure (initial transparency trigger).

  3. The objective is to inform the market about significant acquisition of stake.

Higher Disclosure Threshold for Innovators Growth Platform (IGP) Companies

• There is an exception to the general 5% disclosure rule.

  1. The exception applies to listed entities whose specified securities are listed on the Innovators Growth Platform (IGP).

  2. The usual threshold of 5% is replaced with 10%.

  3. Disclosure requirement is triggered only when holding reaches 10% or more.

• Rationale:

  1. IGP companies are typically startups or high-growth companies.

  2. The relaxed provision provides relaxed compliance and flexibility in early-stage investments.

29(2).

• Continual Disclosure for Changes Beyond 2% (Post 5% Holding)

  1. Any person holding 5% or more shares/voting rights, along with persons acting in concert (PACs) have an obligation.

  2. The obligation is that they must disclose:

     1. Current shareholding/voting rights, and any change in such holdings

  3. The trigger for disclosure is when the change exceeds 2% of total shareholding/voting rights

  4. Important condition:

     1. The change is measured from the last disclosure made under 29(1), or 29(2).

  5. Even if:

     1. The change causes shareholding to fall below 5%, , disclosure is still required.

  6. The disclosure must be made:

     1. In the prescribed format,

     2. As specified by Securities and Exchange Board of India.

  7. This is a continual disclosure requirement after crossing the initial threshold.

Modified Continual Disclosure Threshold for IGP Companies

• With respect to listed entities on the Innovators Growth Platform (IGP) the threshold % has a slight modification.

• The 2% is replace with 5%.

  1. So , subsequent disclosure is required only when change exceeds 5% (instead of 2%).

  2. All other conditions remain the same Includes holdings of persons acting in concert (PACs).

29(3).

• Disclosures under 29(1) and 29(2) must be made within 2 working days.

• The time period is calculated from:

  1. Receipt of intimation of allotment of shares, or

  2. Acquisition of shares or voting rights, or

  3. Disposal of shares or voting rights.

• The disclosure must be made to:

• (a). Stock Exchanges - Every stock exchange where the target company’s shares are listed.

• (b). Target Company - At the registered office of the target company.

29(4).

• For disclosure purposes , encumbrance related transactions are treated as follows:

  1. Shares taken by way of encumbrance (e.g., receiving pledged shares) is treated as an acquisition.

  2. Shares given upon release of encumbrance (e.g., pledge released) is treated as a disposal.

• Accordingly, the person must make disclosures as if an actual acquisition or sale has occurred

• Disclosure must be made:

  1. In the prescribed format,

  2. As specified by Securities and Exchange Board of India.

Exception for Lenders Acting as Pledgees in Ordinary Course

• There is an exception to the rule treating encumbrance as acquisition/disposal.

• It only applied when the following entities are acting as pledgees (lenders):

  1. Scheduled commercial banks.

  2. Public financial institutions.

  3. Housing finance companies.

  4. Systemically important NBFCs.

• In order to avail the exemption:

  1. The pledge must be created to secure indebtedness.

  2. It must be in the ordinary course of business.

  3. Such entities are not required to treat encumbrance as acquisition/disposal.

  4. Hence, no disclosure obligation arises under this specific rule.

• The objective of the exception is that:

  1. These entities deal with pledges routinely as part of lending activities.

  2. Treating every pledge as acquisition would create unnecessary compliance burden.

Explanation:

• For the purposes of this regulation the following are defined:

• A. Housing Finance Company (HFC)

  1. A “housing finance company” means a company that:

     1. Is registered with the National Housing Bank (NHB), and

     2. Carries on the business of housing finance.

  2. Additionally, it must satisfy either of the following:

     1. It is a deposit-taking company, or

     2. It has an asset size of ₹500 crore or more.

• B. Systemically Important NBFC

  1. A “systemically important non-banking financial company (NBFC)” has:

     1. The same meaning as defined under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.

     2. It typically refers to NBFCs that have large asset size, and are considered important for financial system stability.

Regulation 30. Omitted

Regulation 31. Disclosure of encumbered shares.

31(1).

• Every promoter of the target company is required to make disclosure.

• The disclosure must cover:

  1. Shares encumbered by the promoter, and

  2. Shares encumbered by persons acting in concert (PACs) with the promoter.

• “Encumbrance” includes:

  1. Pledge of shares.

  2. Lien or charge.

  3. Any other restriction affecting free transfer of shares.

• The disclosure must be made:

  1. In the prescribed format,

  2. As specified by the regulatory authority (i.e., Securities and Exchange Board of India)

Exception: Encumbrance Through Depository Not Required to be Disclosed

• The general rule requires disclosure of encumbered shares by promoters/PACs.

• However, this proviso creates an exception.

  1. No disclosure is required when: The encumbrance is created through a depository system.

  2. This typically covers: Standard pledge/hypothecation recorded electronically in demat form.

  3. The rationale is, Such encumbrances are already captured and traceable within the depository system.

31(2).

• Every promoter of the target company must make disclosure when there is:

  1. Invocation of encumbrance (e.g., lender enforcing pledge), or

  2. Release of encumbrance (e.g., pledge removed after repayment)

• The disclosure applies to:

  1. Shares held by the promoter, and

  2. Shares held by persons acting in concert (PACs)

• The disclosure must be made:

  1. In the prescribed format,

  2. As specified by Securities and Exchange Board of India

• The objective is to :

  1. Inform the market about changes in encumbrance status.

  2. To highlight potential change in control or financial stress signals.

Exception: No Disclosure for Invocation/Release via Depository

• The general rule requires disclosure of:

  1. Invocation of encumbrance, or

  2. Release of encumbrance by promoters/PACs.

• However, this proviso provides an exception.

• No disclosure is required when: Such encumbrance is created and handled through a depository system.

• This includes: Electronic pledge/invocation/release in demat form.

• The reason is:

  1. These transactions are already recorded and visible within the depository system.

  2. Hence, separate disclosure is not necessary.

31(3).

• Timeline and Recipients for Disclosure of Encumbrance

  1. Disclosures under 31(1) and 31(2) must be made within 7 working days.

  2. The time limit is counted from the date of:

     1. Creation of encumbrance, or

     2. Invocation of encumbrance, or

     3. Release of encumbrance.

  3. The disclosure must be made to:

     (a) Stock Exchanges

     1. Every stock exchange where the shares of the target company are listed.

     (b) Target Company

     1. At the registered office of the target company.

31(4).

• Annual Declaration of No Additional Encumbrance by Promoters

  1. Every promoter of the target company must make a yearly declaration.

  2. The declaration must confirm that:

     1. The promoter, along with persons acting in concert (PACs),

     2. Has not created any new encumbrance, directly or indirectly.

  3. This applies other than: Encumbrances that have already been disclosed during the financial year.

  4. Nature of requirement: It is a negative confirmation (i.e., confirming absence of undisclosed encumbrances).

  5. The format and manner of declaration is specified by Securities and Exchange Board of India.

31(5).

• The annual declaration under 31(4) must be made within 7 working days from the end of the financial year

• The declaration must be submitted to:

• (a). Stock Exchanges

  1. Every stock exchange where the target company’s shares are listed.

• (b) Audit Committee

  1. The audit committee of the target company.