Substantial Acquisition of Shares , Voting Rights or Control
Section 3. Substantial acquisition of shares or voting rights.
3(1).
• An acquirer cannot acquire shares or voting rights in a target company in isolation; the law looks at his holdings together with the holdings of persons acting in concert with him.
• While calculating the holding, all existing shares or voting rights already held by the acquirer are added to the shares or voting rights held by persons acting in concert with him.
• If, after such acquisition, the combined holding entitles them to exercise twenty-five per cent or more of the voting rights in the target company, a regulatory trigger is crossed.
• On crossing this twenty-five per cent threshold, the acquirer is not permitted to proceed unless he makes a public announcement.
• The public announcement must be for an open offer to acquire shares of the target company.
• The open offer must be made strictly in accordance with the requirements and procedure laid down under the applicable regulations.
3(2).
he rule applies to an acquirer and persons acting in concert (PAC) with the acquirer.
This means the acquirer and anyone working together with them are treated as one group.The rule becomes relevant only when this group already holds 25% or more of the voting rights in a target company.
At the same time, their holding must be less than the maximum permissible non-public shareholding allowed under law.
Once this threshold is crossed, the acquirer cannot freely keep buying shares.
In any single financial year, the acquirer (along with PAC) is permitted to acquire only up to 5% additional voting rights.
If the acquirer wants to acquire more than 5% voting rights in that financial year, they cannot do so quietly.
To acquire more than 5%, the acquirer must make a public announcement.
This public announcement must be for an open offer to acquire shares from the public shareholders.
The open offer must be made strictly in accordance with the takeover regulations.
The purpose of this rule is to protect public shareholders by ensuring transparency and giving them an exit opportunity when control or significant influence is being increased.
There is a general limit on how much voting power can be acquired in a target company in a single financial year.
An exception is carved out for acquisitions that cross the five per cent mark but do not go beyond ten per cent of the voting rights.
This higher window of acquisition is not open to everyone; it is restricted only to promoters of the target company.
Even for promoters, the mode of acquisition is tightly defined: the additional voting rights must arise from a preferential issue of equity shares made by the target company.
The relaxation is not permanent. It is available only for the financial year 2020–21, and not before or after.
Once that financial year ends, the acquisition limits revert to the usual position, and this special leeway no longer applies.
An acquirer is allowed to increase her shareholding only up to a certain outer boundary set by law.
That boundary is defined by the maximum permissible non-public shareholding in the company.
Even when an acquisition is otherwise permitted, the acquirer cannot go beyond this ceiling.
This restriction applies not only to the actual purchase of shares or voting rights, but also to any agreement or arrangement that would result in such an acquisition.
The moment the proposed acquisition, when added to the existing holding, would push the aggregate shareholding beyond the permitted non-public limit, the law steps in and blocks it.
In effect, every acquisition is allowed only so long as the resulting shareholding stays within the maximum non-public shareholding threshold, and no further.
There is an existing restriction under the proviso to sub-regulation (2) of regulation 3 that would ordinarily apply to certain acquisitions.
A further carve-out is then introduced for acquisitions that arise out of a resolution plan.
This resolution plan must be one that has been approved under section 31 of the Insolvency and Bankruptcy Code, 2016.
Where the acquisition is a direct consequence of such an approved resolution plan, it is treated differently from ordinary market or contractual acquisitions.
In these cases, the acquirer is exempted from complying with the obligation imposed by the proviso to sub-regulation (2) of regulation 3.
Explanation:
For purposes of determining the quantum of acquisition of
additional voting rights under this sub-regulation:
(i).
What matters for regulatory purposes is the gross acquisition of shares or voting rights.
The law looks at how much has been acquired in total, not at temporary reductions that may occur along the way.
Any intermittent fall in shareholding or voting rights is ignored for this calculation.
Such a fall could happen because the acquirer disposes of some shares after acquiring them.
It could also happen because the target company issues fresh shares, which dilutes the acquirer’s voting rights.
Regardless of whether the drop is due to sale of shares or dilution from a fresh issue, it does not reset or reduce the acquisition already counted.
(ii).
The situation arises when shares are acquired through the issue of new shares by the target company, or when the target company issues new shares during a financial year.
In such cases, the focus is not on the absolute number of shares issued, but on the change in voting power.
The acquirer’s percentage of voting rights before the allotment is first identified.
The percentage of voting rights after the allotment of the new shares is then determined.
The law treats the difference between these two percentages as the real measure of what has been additionally acquired.
That difference alone is counted as the quantum of additional acquisition for regulatory purposes.
3(3).
The rule applies specifically for the purposes of sub-regulation (1) and sub-regulation (2).
It looks at the individual shareholding of the person acquiring shares.
If, by acquiring shares, that individual’s holding crosses the stipulated thresholds, a regulatory trigger is activated.
This trigger arises even if the overall or aggregate shareholding of the group remains unchanged.
The fact that the acquirer may be acting together with persons acting in concert does not dilute this requirement.
In other words, once an individual acquirer on her own crosses the threshold, the law requires her to make an open offer for acquiring shares of the target company.
This obligation exists irrespective of any change, or lack of change, in the aggregate shareholding of the concert party group.
3(4).
The regulation first makes it clear that its own requirements are not universal.
A specific exclusion is created for acquisition of shares or voting rights of a company by certain persons.
These persons are the promoters or the shareholders who are in control of the company.
The exemption applies only when the acquisition is carried out in accordance with Chapter VI-A of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
Where the acquisition strictly follows the framework laid down under that chapter, this regulation does not step in or impose any obligation.
In effect, acquisitions by promoters or controlling shareholders that comply with the special capital-raising and disclosure regime under Chapter VI-A are kept completely outside the scope of this regulation.
3(5).
The regulation generally uses twenty-five per cent as a key reference point or threshold.
A different treatment is created for a listed entity on the Innovators Growth Platform.
For such an entity, the standard twenty-five per cent benchmark is not applied in its usual form.
Instead, wherever this regulation refers to “twenty-five per cent”, that reference is to be read as “forty-nine per cent”.
This substitution applies only in the case of entities that have listed their specified securities on the Innovators Growth Platform.
In effect, the regulation deliberately raises the trigger threshold for these entities, recognising their distinct listing framework and stage of growth.
Section 4. Acquisition of Control
The rule applies regardless of how many shares or voting rights an acquirer already holds or proposes to acquire.
The focus shifts from shareholding percentages to the act of acquiring control over the target company.
No acquirer is permitted to take control, whether directly or indirectly, in an unchecked manner.
The moment an acquisition of control is contemplated, a regulatory condition is triggered.
That condition is the requirement to make a public announcement.
The public announcement must be for an open offer to acquire shares of the target company.
This open offer has to be made strictly in accordance with the applicable regulations.
In essence, control cannot change hands unless the acquirer first opens up an exit opportunity to the public shareholders through a properly announced open offer.
Section 5. Indirect Acquisition of Shares & Control
5(1).
This provision is meant to prevent acquirers from avoiding open offer obligations by using layered or indirect structures. Instead of buying shares or control in the target company directly, a person may acquire another company or entity which, in turn, holds shares or control in the target company.
The regulation therefore says that the law will not stop at the surface-level transaction. It will examine the ultimate consequence of the acquisition. If, as a result of acquiring another company or entity, a person (along with persons acting in concert) gains the ability to exercise or influence voting rights or control over a target company to an extent that would normally trigger an open offer if done directly, then the acquisition will be treated as if it were made directly in the target company.
In essence, the regulation adopts a “look-through” approach. It treats indirect routes to control or significant voting power in the same manner as direct acquisitions, ensuring that public shareholders are not deprived of an exit opportunity merely because the transaction was structured indirectly.
Broken down in points
The rule applies specifically for the purposes of regulation 3 and regulation 4.
It covers acquisition of shares, voting rights, or control in any company or other entity, not just the target company.
The acquisition may be direct or indirect, and may involve an intermediate holding or parent entity.
The focus is on what the acquisition enables the acquirer to do, rather than how the transaction is structured.
The test is whether the acquirer, together with persons acting in concert, gains the ability to exercise or direct the exercise of voting rights or control over a target company.
The level of voting rights or control acquired is compared with the thresholds prescribed under these regulations.
If acquiring that same level of voting rights or control directly in the target company would have triggered an obligation to make a public announcement of an open offer, the regulation steps in.
In such circumstances, the acquisition is deemed to be an indirect acquisition of shares, voting rights, or control over the target company.
As a result, the acquirer becomes subject to the open offer obligations, even though the acquisition was not made directly in the target company.
5(2).
notwithstanding anything else contained in these regulations, giving it overriding effect.
It operates specifically in cases of indirect acquisitions that attract sub-regulation (1).
The regulation evaluates the relative financial importance of the target company within the entity or business being acquired.
This evaluation is carried out using the most recent audited annual financial statements.
An indirect acquisition will be treated as a direct acquisition if any one of the following thresholds is crossed:
(a) the proportionate net asset value of the target company as a percentage of the consolidated net asset value of the entity or business being acquired;
(b) the proportionate sales turnover of the target company as a percentage of the consolidated sales turnover of the entity or business being acquired; or
(c) the proportionate market capitalisation of the target company as a percentage of the enterprise value for the entity or business being acquired;
If any of the above percentages exceeds eighty per cent, the law intervenes.
In such a case, the indirect acquisition is regarded as a direct acquisition of the target company.
This reclassification applies for all purposes of these regulations.
It includes, without limitation, obligations relating to timing, pricing, and all other compliance requirements applicable to an open offer.
In effect, where the target company forms the overwhelming substance of the transaction, the regulations strip away the indirect label and apply the full direct acquisition regime.
Explanation:
The explanation applies only for computing the percentage referred to in clause (c) of the sub-regulation.
The focus is on determining the market capitalisation of the target company.
This market capitalisation must be calculated using the volume-weighted average market price (VWAP) of the target company’s shares.
The relevant price data is taken over a period of sixty trading days.
These sixty trading days must precede a specific reference date.
The reference date is the earlier of:
the date on which the primary acquisition is contracted, and
the date on which the intention or decision to make the primary acquisition is announced in the public domain.
The VWAP is not taken from just any stock exchange.
It must be taken from the stock exchange where the maximum volume of trading in the target company’s shares is recorded during that sixty-day period.
In effect, the regulation ensures that the market capitalisation is based on a representative, liquidity-driven price over a meaningful time frame, anchored to the earliest point at which the acquisition becomes firm or publicly known.
Delisting Offer
5A(1).
notwithstanding anything contained in these regulations and in the Delisting Regulations, giving it overriding effect.
The situation begins when an acquirer makes a public announcement of an open offer.
That open offer must be for acquiring shares, voting rights, or control of a target company.
The public announcement should be made under sub-regulation (1) of regulation 3, regulation 4, or regulation 5, as applicable.
Once such an open offer is announced, the acquirer is not confined to acquisition alone.
The acquirer is permitted to seek the delisting of the target company.
This is done by making a delisting offer.
The delisting offer must be made in accordance with this regulation, which governs how an open offer and delisting process are to be combined.
The acquirer must make a clear declaration of intention to delist the target company.
This declaration is required at two distinct stages:
at the time of making the public announcement of the open offer, and
at the time of making the detailed public statement.
Both disclosures are mandatory; declaring the intention at only one stage is not enough.
The regulation does not permit the acquirer to wait and decide later whether to delist.
Any subsequent declaration of delisting, made after the public announcement or detailed public statement, is expressly rejected.
Such a later declaration will not be considered sufficient for the purpose of making a delisting offer under sub-regulation (1).
In effect, the law requires the delisting intention to be transparent, upfront, and consistent from the very beginning, ensuring that shareholders are fully informed before responding to the open offer.
This proviso recognises that indirect acquisitions can be complex and layered. At the stage of the initial public announcement, the acquirer may not yet have full clarity on whether the transaction will ultimately justify or require a delisting of the target company, especially when the indirect acquisition does not amount to a deemed direct acquisition under regulation 5(2).
Because such transactions do not immediately resemble a direct takeover of the target company, the regulations allow some flexibility in when the delisting intention must be disclosed. Instead of forcing the acquirer to declare a delisting plan at the earliest announcement—when the structure and outcome of the acquisition may still be evolving—the law permits the declaration to be deferred to the detailed public statement, which is a more comprehensive and informed disclosure document.
At the same time, this flexibility is tightly controlled. The declaration cannot be postponed indefinitely or made at a later, strategic stage. It must still be disclosed clearly and formally in the detailed public statement, ensuring that public shareholders receive this information before they make any decision regarding the open offer.
Broken down in points
The proviso applies only when the open offer is triggered by an indirect acquisition.
It further applies only if that indirect acquisition is not classified as a deemed direct acquisition under sub-regulation (2) of regulation 5.
Such acquisitions are treated as structurally and economically different from direct takeovers.
At the stage of the initial public announcement, the acquirer is not required to disclose an intention to delist.
The regulation permits the acquirer to delay the declaration of delisting intent.
The first and only stage at which this declaration must be made is the detailed public statement.
Any declaration made after the detailed public statement would not meet the regulatory requirement.
In effect, the regulation balances transactional complexity with shareholder transparency by allowing delayed disclosure, but only up to a clearly defined point in the open offer process.
Explanation 1:
his explanation applies to the acquirer and looks at their relationship with the target company during the two years immediately before the date of the public announcement under the regulation.
During this preceding two-year period, the acquirer must not have been a promoter or part of the promoter group of the target company.
The acquirer must not have been a person in control of the target company at any time during those two years.
The acquirer must not have been directly associated with the promoter or any person who was in control of the target company during that period.
The acquirer must not have been indirectly associated with the promoter or any person in control, meaning even connections through intermediaries, arrangements, or related entities are not allowed.
The acquirer must not have held more than 25% of the shares or voting rights in the target company at any time during the two years before the public announcement.
Explanation 2:
This explanation applies at the time of acquisition by the acquirer.
The acquirer must not acquire control together with an existing promoter of the company.
The acquirer must not acquire control jointly with any person who is already in control of the company.
“Joint control” means a situation where control is shared, and key decisions of the company require mutual consent of the acquirer and the existing promoter or controller.
The intent is that the acquirer should not enter into a shared-control arrangement with the current promoter or controlling person.
In simple terms, the acquirer must either acquire independent control or remain a non-controlling investor, but cannot become a co-controller with the existing promoter or controller.
5A(2).
The Delisting Offer Obligations shall be fulfilled by the acquirer in the following manner: (rephrase)
(a).
The requirement applies to three documents:
the public announcement, the detailed public statement, and the letter of offer.Each of these documents must clearly mention the open offer price.
The open offer price must be determined strictly in accordance with Regulation 8 of the regulations.
In addition to the open offer price, these documents must also mention the indicative price for delisting.
Both prices must be disclosed upfront so that shareholders are fully informed.
In simple terms, all key offer documents must clearly disclose (a) the legally determined open offer price and (b) the proposed indicative delisting price.
This proviso applies only when the open offer is for an indirect acquisition.
It further applies only if such indirect acquisition is not treated as a deemed direct acquisition under sub-regulation (2) of Regulation 5.
In such cases, the acquirer is not required to disclose the open offer price and the indicative delisting price at the time of the public announcement.
Instead, the acquirer must disclose (notify) the open offer price at the time of issuing the detailed public statement.
The acquirer must also disclose the indicative delisting price at the same stage.
Both the open offer price and the indicative price must again be mentioned in the letter of offer.
In simple terms, for certain indirect acquisitions, price disclosure is deferred from the public announcement stage to the detailed public statement and the letter of offer stage.
The acquirer must state an indicative price for the delisting offer.
This indicative price must include a suitable premium, meaning it should be higher than the base price to reflect what the acquirer is willing to pay to delist the company.
The premium should genuinely reflect the acquirer’s willingness to pay, and not be a nominal or artificial increase.
The acquirer must provide full disclosures explaining how the indicative price was arrived at.
These disclosures must clearly set out the rationale and justification for fixing that particular indicative price.
The acquirer is permitted to revise the indicative price upwards (increase it), if required.
Such upward revision must be done before the start of the tendering period.
Any upward revision of the indicative price must be properly and clearly disclosed to the shareholders.
In simple terms, the indicative delisting price must include a justified premium, be transparently explained, and may be increased (but not decreased) before tendering begins, with full disclosure to shareholders.
Explanation:
The indicative price must be determined in accordance with clause (o) of sub-regulation (1) of Regulation 2 of the Delisting Regulations.
This means the indicative price must follow the definition and parameters prescribed under that clause.
The indicative price cannot be lower than the book value of the company.
The book value must be computed strictly in accordance with the Explanation to sub-regulation (5) of Regulation 22 of the Delisting Regulations.
Any method of calculation outside the prescribed explanation is not permitted.
(b).
(i) Where the delisting threshold is met under Regulation 21 of the Delisting Regulations
The response to the offer results in the minimum shareholding level required for delisting being achieved.
Since the delisting conditions are satisfied, the delisting offer succeeds.
In this situation, every shareholder who has tendered their shares under the offer is entitled to payment.
Such shareholders shall be paid the indicative delisting price, and not the open offer price.
This reflects that the shares are being acquired as part of a successful delisting.
(ii) Where the delisting threshold is not met under Regulation 21 of the Delisting Regulations
The response to the offer is insufficient to reach the required delisting threshold.
As a result, the delisting attempt fails, even though an open offer was made.
All shareholders who have tendered their shares will still receive consideration.
However, they shall be paid only the open offer price, and not the higher indicative delisting price.
This ensures that shareholders are not left unpaid, but the higher delisting price applies only if delisting is successfully achieved.
5A(3).
when a delisting offer made under sub-regulation (1) is not successful.
The delisting offer may fail for any of the following reasons:
(a) due to non-receipt of prior approval of shareholders as required under Regulation 11 of the Delisting Regulations.
(b) due to non-receipt of prior in-principle approval of the relevant stock exchange as required under Regulation 12 of the Delisting Regulations.
(c) because the delisting threshold specified under Regulation 21 of the Delisting Regulations is not achieved.
If the delisting offer fails for any of the reasons mentioned in (a), (b) or (c), the acquirer is required to take further steps.
The acquirer must, within two working days from the occurrence of such failure, make a public announcement.
This announcement must be published in all the newspapers in which the detailed public statement was originally published.
After making the announcement, the acquirer must comply with all applicable provisions of these regulations.
Specifically, the acquirer must proceed with and complete the open offer in accordance with the regulatory requirements.
In simple terms, even if delisting fails under (a), (b) or (c), the acquirer must promptly inform the public and continue with the open offer process as mandated.
5A(4).
his provision applies when a competing offer is made under sub-regulation (1) of Regulation 20 of these regulations.
In such a situation, the following consequences apply to the acquirer:
(a) the acquirer shall not be entitled to delist the target company.
This means that once a competing offer exists, delisting through this offer is no longer permitted.(b) the acquirer shall not be liable to pay interest to the shareholders for any delay that occurs because of the competing offer.
The delay is treated as justified, since it arises due to a regulatory competing process.(c) the acquirer must comply with all applicable provisions of these regulations and must make a public announcement regarding this situation.
The announcement under (c) must be made within two working days from the date of the public announcement of the competing offer made under Regulation 20(1).
This announcement must be published in all the newspapers in which the detailed public statement was originally published.
In simple terms, if a competing offer is made, the acquirer cannot delist, is protected from interest liability for delay, and must promptly disclose and continue to comply with the regulations.
5A(5).
This rule applies to shareholders who have already tendered their shares in acceptance of the offer made under sub-regulation (1).
Such shareholders are given a right to withdraw the shares they have tendered.
The withdrawal can be made after the announcement referred to under sub-regulation (3).
The time limit for exercising this right of withdrawal is within five working days from the date of that announcement.
Once the five working days expire, withdrawal is no longer permitted.
In simple terms, shareholders who have tendered their shares get a five-working-day window to change their decision and withdraw, starting from the date of the specified announcement.
5A(6).
This provision applies where a delisting offer under sub-regulation (1) fails, but as a result of the open offer, the acquirer’s shareholding exceeds the maximum permissible non-public shareholding threshold.
In such a situation, the following consequences apply:
(a) the acquirer may make a further attempt to delist the target company in accordance with the Delisting Regulations.
This further attempt must be made within twelve months from the date of completion of the open offer.
The acquirer must continue to exceed the maximum permissible non-public shareholding in the target company during this period.
(b) such further delisting attempt shall be successful only if the following conditions are fulfilled:
(i) the delisting threshold under Regulation 21 of the Delisting Regulations is met; and
(ii) fifty percent of the residual public shareholding is acquired.(c) if the further delisting attempt also fails, the acquirer is required to take corrective action.
The acquirer must ensure compliance with the minimum public shareholding requirement of the target company.
Such compliance must be achieved in accordance with the Securities Contracts (Regulation) Rules, 1957.
This must be done within twelve months from the end of the period referred to in clause (a).
(d) the floor price for the further delisting attempt referred to in clause (a) shall be the higher of the following:
(i) the indicative price offered under the first delisting attempt;
(ii) the floor price determined under the Delisting Regulations as on the relevant date of the subsequent delisting attempt; and
(iii) the book value of the company, computed using the method stated in the Explanation to clause (a) under sub-regulation (2).
5A(7).
This rule applies whenever a delisting is undertaken, whether it is the first delisting attempt or any subsequent attempt.
During such delisting, all provisions of the Delisting Regulations shall apply.
The application of the Delisting Regulations is on a mutatis-mutandis basis, meaning:
the provisions apply with necessary changes and adaptations, as required by the context.However, this is subject to an exception.
If this regulation specifically provides otherwise, then those specific provisions will override the Delisting Regulations.
In simple terms, for every delisting attempt, the Delisting Regulations apply in full, except where this regulation expressly modifies or excludes any requirement.
