I. INTRODUCTION TO THE TAKEOVER CODE

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”) governs the acquisition of shares, voting rights, or control in listed companies.

The core objectives are:

protection of minority shareholders,

ensuring equal exit opportunity,

transparency in corporate control transactions,

preventing creeping or covert takeovers.

The central compliance mechanism is the mandatory open offer.

II. STATUTORY AND REGULATORY FRAMEWORK

SEBI Act, 1992

SEBI (SAST) Regulations, 2011

Companies Act, 2013

SEBI (LODR) Regulations, 2015

Securities Contracts (Regulation) Act, 1956

III. KEY CONCEPTS UNDER THE TAKEOVER CODE

1. Acquirer

Any person who:

acquires shares or voting rights, or

acquires control over a listed company.

Includes persons acting in concert (PAC).

2. Control

Includes:

right to appoint majority of directors, or

ability to control management or policy decisions,

direct or indirect.

Control can exist even without share acquisition.

IV. TRIGGERS FOR MANDATORY OPEN OFFER

1. SHAREHOLDING THRESHOLD – 25% (REG. 3(1))

Acquisition of 25% or more voting rights triggers open offer.

2. CREEPING ACQUISITION – 5% (REG. 3(2))

An acquirer holding 25%–75% may acquire up to 5% per financial year without triggering open offer.

Exceeding 5% → mandatory open offer.

3. ACQUISITION OF CONTROL (REG. 4)

Acquisition of control triggers open offer irrespective of shareholding.

V. OPEN OFFER OBLIGATIONS

A. SIZE OF OPEN OFFER

Minimum 26% of total share capital.

Must provide exit opportunity to public shareholders.

B. OPEN OFFER PRICE (REG. 8)

Price determined based on:

negotiated price,

highest price paid by acquirer in preceding 26 weeks,

volume-weighted average market price.

Objective: fair price discovery.

C. PUBLIC ANNOUNCEMENT

Immediate disclosure upon triggering event.

Announcement through merchant banker.

D. LETTER OF OFFER

Detailed disclosures:

identity of acquirer,

purpose of acquisition,

future plans,

funding arrangements.

E. ESCROW REQUIREMENT

Acquirer must deposit:

25%–50% of total consideration depending on size.

Ensures seriousness and investor protection.

VI. EXEMPTIONS FROM OPEN OFFER

A. Automatic Exemptions (Reg. 10)

Inter-se promoter transfers

Transmission of shares

Allotment under rights issue (subject to conditions)

Debt restructuring by banks

B. SEBI-Granted Exemptions

Strategic acquisitions

Scheme of arrangement approved by NCLT

Rehabilitation schemes

VII. OBLIGATIONS OF TARGET COMPANY

Provide accurate information

No frustrating actions without shareholder approval

Board neutrality during offer period

VIII. ENFORCEMENT AND CONSEQUENCES OF NON-COMPLIANCE

Direction to make delayed open offer

Interest payment to shareholders

Monetary penalties

Debarment from capital markets

IX. IMPORTANT CASE LAWS ON TAKEOVER CODE & OPEN OFFERS

1. Daiichi Sankyo Company Ltd. v. Jayaram Chigurupati

Principle:
Failure to make a mandatory open offer violates minority shareholder exit rights and attracts SEBI enforcement.

2. SEBI v. Subhkam Ventures (India) Pvt. Ltd.

Principle:
Negative control rights alone do not constitute “control” unless they enable management or policy dominance.

3. Pramod Jain v. SEBI

Principle:
Indirect acquisition through layered transactions can trigger open offer obligations.

4. SEBI v. Cabot International Capital Corporation

Principle:
Acquisition of shares through offshore structures does not dilute Indian takeover obligations.

5. Nirma Industries Ltd. v. SEBI

Principle:
Creeping acquisition limits must be strictly adhered to; excess acquisition mandates open offer.

6. ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta

Principle:
Control can be established through management influence, not merely shareholding.

7. SEBI v. Technip SA

Principle:
Promoter restructuring without change in control may qualify for exemption, subject to strict conditions.

8. Bhagwati Developers Pvt. Ltd. v. Peerless General Finance

Principle:
The Takeover Code is a beneficial legislation aimed at protecting public shareholders.

X. DISTINCTION BETWEEN TAKEOVER CODE AND INSOLVENCY ACQUISITIONS

XI. CONCLUSION

The Takeover Code enshrines the principle that any substantial acquisition or change in control must offer an equal exit opportunity to public shareholders. Indian courts and SEBI have consistently interpreted the Code liberally in favour of investors, ensuring transparency and fairness in corporate control transactions.

Strict compliance with open offer obligations is not optional—it is the price of acquiring control in a listed company.