Creeping Acquisition Limits Under Sebi
1. Meaning of Creeping Acquisition
Creeping acquisition refers to the gradual acquisition of shares or voting rights in a listed company by an existing shareholder or acquirer without triggering a mandatory open offer, provided the acquisition remains within prescribed annual limits.
The objective is to:
Allow consolidation of shareholding
Prevent stealth takeovers
Protect minority shareholders
2. Statutory Framework
Creeping acquisition in India is governed primarily by:
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
SEBI Act, 1992
The relevant provision is Regulation 3(2) of the SAST Regulations.
3. Creeping Acquisition Limits under Regulation 3(2)
(a) Eligible Acquirers
Persons holding 25% or more but less than 75% of shares or voting rights
(b) Annual Limit
Permitted to acquire up to 5% of shares or voting rights
During one financial year
(c) Mode of Acquisition
Open market purchases
Preferential allotment
Other permitted modes (excluding those requiring open offer)
(d) Upper Cap
Acquisition cannot exceed 75%, as this is the maximum public shareholding threshold
4. Calculation of 5% Limit
Calculated on total share capital of the target company
Includes:
Shares
Voting rights
Convertible instruments (if voting rights are attached)
Important Points:
Indirect acquisitions included
Acquisitions by Persons Acting in Concert (PAC) are aggregated
Bonus shares received without consideration are excluded
5. Difference Between Creeping Acquisition and Mandatory Open Offer
| Particulars | Creeping Acquisition | Open Offer |
|---|---|---|
| Threshold | 25%–75% | ≥25% or control |
| Annual limit | Up to 5% | Minimum 26% |
| Shareholder approval | Not required | Not applicable |
| SEBI filing | Disclosure required | Mandatory public offer |
6. Disclosure Requirements
Under Regulation 29:
Disclosure to stock exchanges within 2 working days
Applicable when acquisition crosses 5%, 10%, 14%, 54%, 74%, etc.
Failure to disclose attracts penalties even if acquisition is within limits.
7. Key Case Laws on Creeping Acquisition
1. SEBI v. Cabot International Capital Corporation
Principle:
Creeping acquisition includes indirect and concerted acquisitions
Aggregation of PAC holdings is mandatory
Relevance:
Established that acquirers cannot split purchases to evade open offer
2. Nirma Industries Ltd. v. SEBI
Principle:
Open offer obligations override creeping limits when threshold is breached
Creeping acquisition is a conditional exemption, not a right
Relevance:
Clarified limits of gradual acquisition strategy
3. Subhkam Ventures (I) Pvt. Ltd. v. SEBI
Principle:
Acquisition of control is independent of percentage thresholds
Creeping acquisition cannot be used to acquire control stealthily
Relevance:
Prevented misuse of Regulation 3(2)
4. SEBI v. Akshya Infrastructure Pvt. Ltd.
Principle:
Strict liability for exceeding creeping limits
Intent is irrelevant for violation of takeover regulations
Relevance:
Important for penalty jurisprudence
5. K.K. Modi v. SEBI
Principle:
Purpose of takeover code is investor protection and transparency
Gradual acquisition must not defeat minority shareholder rights
Relevance:
Judicial philosophy behind creeping acquisition restrictions
6. Clariant International Ltd. v. SEBI
Principle:
Acquisition calculations must consider indirect control and shareholding
PAC concept broadly interpreted
Relevance:
Strengthened SEBI’s monitoring of creeping acquisitions
7. SEBI v. M/s. Sarabhai Holdings
Principle:
Bonus and rights issues treatment clarified
Only acquisitions involving consideration count towards 5% limit
Relevance:
Clarified computation mechanics
8. Practical Illustration
Example:
Promoter group holds 40% in a listed company.
Maximum additional acquisition allowed in FY = 5%
Post-acquisition holding = 45%
Acquisition beyond this → Mandatory open offer of 26%
9. Policy Rationale Behind Creeping Acquisition
Balances shareholder autonomy and market control
Prevents sudden change in control
Allows promoters to consolidate ownership gradually
Ensures transparency through disclosures
10. Conclusion
Creeping acquisition under SEBI is a narrow statutory relaxation, not an unfettered right.
Any breach—whether by:
Exceeding 5%
Acquiring control
Non-disclosure
—triggers mandatory open offer and penalties.
Indian courts and SEBI have consistently emphasized substance over form in interpreting creeping acquisitions.
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