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L.N. Srinivas

LL.M.NALSAR University of Law, Hyderabad

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1.1. Introduction:

From the beginning of the Takeover Regulations, 1997 up to know more than twenty three amendments has been made. But at present there is a steady increase in corporate restructuring by the Indian companies in order to stand in the race of competition filed the number of takeovers of listed companies has been increasing from time to time.[1] As a result by taking into consideration the increase of takeover market a need has arisen to review the Takeover Regulations, 1997. Towards the achievement the SEBI by its order dated September 4, 2009 has constituted the Takeover Regulations Advisory Committee (TRAC)[2] under the chairmanship of Mr. C. Achuthan,[3] Committee to examine, review and to suggest suitable amendments to it as it deemed fit.

But the committee felt that the legal framework regulating the substantial acquisition of shares and takeovers is precise, unambiguous and conflicting the interest of such shareholders.  As a result the committee felt the need to balance the interest of various stakeholders and to provide a fair, equitable and transparent regime is necessary. Hence the committee instead of making amendments to the existing regulations, it proposed a draft Takeover Regulation, 2010, which maintains such balance and achieve the goal of protection of the interests of the public shareholders in takeover situations.

The Report of the committee was submitted on July 19, 2010 and named the proposed takeover regulations as “Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2010”. The report is divided into three parts, and it will be kept in SEBI website up to August 31, 2010 for allowing public comments.[4]

1.2. Objectives of the Proposed Regulations:

If we compare the objectives of both the previous and the proposed regulations seems to be one and the same, it like a new wine in old bottle. But as per the Mr.C.Achuthan, Committee the following are the main objectives of the proposed Takeover Regulations, 2010, they are, to provide transparent legal framework for facilitating takeover activities, fair, transparent and equitable framework to protect the interest of investors, to balance the various conflicting objectives, to provide an exit opportunity to each shareholders when takeover of a target company takes place, to bring fair and accurate disclosures, and finally to bring fair competition among acquirers interested in taking over the same target company etc.[5]

Major changes in the TRAC Proposed Takeover Code Regulations 2010 and its Comparison with Regulations 1997:

As compared with the Current Takeover Code Regulation,1997, the following are the major changes which are introduced by the TRAC Committee under the proposed Draft Takeover Code Regulations, 2010, can be classified into three parts. The first part deals with regard to changes, expansion and inclusion of new definition under the regulations. The second part deals with regard to the new trigger points for making the open offer. And the third part deals with regard to the other provisions under the proposed takeover regulations and its impact on different sectors. They are as follows.

1.3. Alteration to Definition parts

            Changes in the definition part has been divided into three parts, they are as follows.

1.3.1. Changes to existing definitions:

1)      Control: The first major change taken place in the definition part is the term ‘Control’.[6] The term has be expanded and includes situations where a person has the ability or right to appoint majority of the directors or to exercise control in any other manner amounts to control. On the other hand the Directors and officers, who would enjoys certain rights in the Target Company on account of their employment, would not be considered to be in control of the Target Company. The exemption of change from joint control to single control not considered as change in control under the old regulations has been deleted in the new proposed Takeover Regulations,2010.[7]

2)      Disinvestment: As per the new definition along with the direct, even the indirect sale of the governments holding either by the central, state or even the sale by the Government company is also included in the definition of the term disinvestment.[8]

3)      Persons acting in concern: The scope of the term has been expanded and included others like trustee companies trustees, sponsor, Assets Management Company are also treated as persons deemed to be action in concern.[9] Along with the above even the Financial Advisors are also now included in the definition of the term person acting in concert under the new Proposed Regulations, 2010.

4)      Prompter: Instead of having a detail definition of the term promoter under the old Regulations,1997, under the present Proposed Takeover Regulation,2010 a reference was given to the SEBI (Issue of Capital Disclosure Requirements) Regulations,2009 to make the definition of the term same under both the regulations.

5)      Shares: As per the new definition of the term ‘Shares’ it also included the Depository Receipts. If further says all Depository Receipts which entitle the holder to exercise the voting rights in the target company are also treated as shares under the new definition.[10]

8.3.2. Definitions of terms deleted:

The following are some of the definitions of the terms which are defined under the old Takeover Regulations,1997 like, Investigation office, Panel, Public Shareholding, Sick Industrial Company etc, has not been defined and totally deleted under the Proposed Takeover Regulation,2010.[11]

1.3.3. New terms added to Definition part:

            The following are some of the new definitions has been added to the proposed Takeover Regulations, 2010, they are as follows;

  •   Business Day – instead of the term working day under the old definition a new word ‘Business day’[12] was defined but given the same meaning.
  • Acquisition – It means, directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company.[13]
  • Delisting threshold – It means a shareholding entitling exercise of ninety per cent of the voting rights in a target company, excluding voting rights on shares held by a custodian and against which depository receipts have been issued overseas, with reference to the share capital of the target company as of the last day of the tendering period.[14]
  • Manager to the open offer- means the merchant banker for the propose of Regulation – 12.[15]

1.4. Increased trigger limit for open offer:

As per the existing Takeover Code Regulations, 1997 an open offer is trigged upon acquisition of 15% or more shares or voting rights. It was introduced in 1998 and continued without any change up to know even though several arguments came to increase it. But under the proposed Takeover Regulations, 2010 the trigger limit has been increase from 15% to 25%.[16]  The committee recommendations for such increase is based on three points namely, estimation of average promoter shareholding prevailing in listed companies is 25% to 30%, helps to meet the international practices for open offer triggers and[17] as per the existing Indian corporate law, recognize that the shareholding more that 25% is sufficient to block the special resolutions which are required for critical decisions.[18]

1.5. Creeping Limit for Financial year:

In case of a creeping acquisition for every financial year, an acquirer holding 25% or more voting rights in a target company is only allowed to acquire additional voting rights in the target company up to 5% within a financial year[19] without making an open offer.[20]

1.6. Increase in Minimum Open Offer:

According to the existing Takeover Regulations,1997 an acquirer is required to make a statutory open offer for acquisition of a minimum 20% of the voting capital from public shareholders in case if once the threshold limit of 15% is reached. But under the proposed Takeover Regulation, 2010 it has been increased the statutory open offer size to 100% of remaining shareholders. The basic reason behind such increase in open offer size is to protect the interest of minority shareholders and each minority shareholders is entitle to exercise his right to exit the company in entirety in the event of Takeovers or Substantial acquisition of shares.[21]

But the impact of such increase may create higher acquisition cost for any takeover of a listed company and the large players may take a lead for acquisitions. On the other hand the criticism against such increase is that, it creates a lack of debt funding problem for domestic players in India to make acquisitions.[22]

1.7. Automatic delisting or restore to minimum public shareholding:

According to the existing Takeover Code the minimum public shareholding is required to be maintained and there is no provision for a single shot delisting of Target Company, the same should be undertaken in compliance with delisting regulations made by SEBI. But under the proposed Regulations there is an automatic delisting is available in case in the open offer the acquirer crossed 90% of shares or voting rights.

But incase if the acquirer shareholding has crossed the 75% but has not reached 90% in such case the acquirer is required to restore minimum public shareholding of 25%.[23] In this context there is a need to bring the coordination between the two regulations on delisting provisions.[24]

1.8. Indirect acquisition and its pricing an open offer:

As compared with earlier, recently there was litigation in the Supreme Court where people are struggling to explain when an indirectly acquired company would trigger an open offer. In order to overcome this the TRAC has attempted to clear the air surrounding indirect acquisitions .In its report submitted to SEBI on July 19, the Takeover Regulations Advisory Committee has laid out specific provisions for the open offer timing, size and price for indirectly acquired companies provisions that are ambiguous in the current takeover law. In the old regulations there is a common treatment for all indirect acquisition of Target Company irrespective of the size of the target company. But under the proposed regulations certain parameters has been laid down for determining the treatment of the indirect acquisition.[25]

The best example for such case is the Dunlop Case, in 2005, in which a Ruia controlled Singapore based SPV by the name of Wealth Sea had indirectly acquired 74.5% voting power in Dunlop India, via the acquisition of its British Virgin Islands-based parent. Since the transaction was structured as an indirect acquisition, no open offer was made—until 2007, when SEBI stepped in and ruled that an indirect change of control must result in an open offer. Hence the TRAC reproduced the principle and said that a 100% open offer is required for all indirect acquisitions whenever there is a change in control in an Indian listed company, regardless of whether or not that company is material to its parent.

Hence the only materiality distinction the TRAC made is for determination of the open offer price.  It further clarified that If the indirectly acquired company forms a significant part, that is, more than 80% of the Net Asset Value or Sales Turnover of the parent or 80% of the deal value, then such an acquisition will be treated as a direct acquisition and the price of the 100% open offer will be determined accordingly. But in case if the indirectly acquired company is less than 80%, then the 100% open offer will be priced based on separate indirect acquisition pricing norms. Hence the TRAC has made it clear that in both cases, whether it is material or immaterial the offer price will take into account the value of the shares of the indirectly acquired company.[26]

On the other hand in case of such indirect acquisition an immediate short form of public announcement has to be published within four business bays and a detailed public notice to be issued within 5 business days of completions of such acquisition.

1.9. One reference date for calculating Open offer price:

Under the current law both the parent and the target company public announcement dates have to be used as reference dates for the purpose of calculating the offer price. The best example for such debate is in Coflexip’s case, in which the price was Rs,43/- as of 2001, but it became double in 2002 at Rs,84/-. Hence finally the SAT came into picture and finally ruled that the 2001 date was the correct reference date. So in order to avoid such differences the TRAC has proposed only one reference date for the purpose of calculating the open offer price and that date  shall be the date on which the parent acquisition is announced in the public domain, or the date on which the parent enters into any agreement, whichever is earlier. Hence we can say that the reference date which has been set, is the date of the first announcement. So in a way the acquirer is protected from the volatility in the share prices in the Indian stock exchange as soon as the deal is announced for all subsequent periods.

 This new proposed reference date also introduces clarity in cases where the parent company is unlisted, the reason behind for giving such clarity in case of unlisted company is the debate that took place just recently in the 2009 Disa India case, where the Netherlands based company Disa Holdings was acquired but  no official public announcement was made, since the company was unlisted in the Netherlands. Therefore Disa Holding’s listed Indian subsidiary Disa India claimed that there was no reference date linked to the parent transaction at all and hence no such date had to be used for open offer price calculation. The argument which was raised in the Disa India case was upheld by the SAT. But the TRAC has now clarified that the reference date is any date on which the parent acquisition comes into the public domain, and not just an official public announcement date.

The TRAC further said that a 10% per annum has to be added to the open offer price in cases where the time period between the announcement of the parent deal and the public announcement for the target company exceeds 5 days.

1.10. Short form Public announcement:

In the Proposed Takeover Regulations a new concept called the ‘Immediate Short Form’ public announcement has been introduced and it applies both to the direct and indirect acquisitions. In case of direct acquisition an immediate short form public announcement is to be issued on the date of agreeing to acquire shares or voting rights or control and later within 5 business days of issue of public notice a detailed public notices is required to be issued by disclosing all material facts. In case of indirect acquisition an immediate short form of public announcement has to be published within four business bays and a detailed public notice to be issued within 5 business days of completions of such acquisition.  

1.11. Removal of Whitewash provisions:

Under the existing Takeover Regulation there is an exception that an open offer is not required in case if the shareholders of the target company pass a special resolution by postal ballot to that effect for approving the change in control. But under the proposed regulations it has been removed, to protect the interest of minority shareholders.[27]  One more allowed change is that under the current Takeover Code Regulations an acquirer is allowed to nominate a director on the target Board if he has deposited the full offer amount in an escrow account and can do so only after the expiry of 15 days window for competing offers has closed, this created a controversy. As a result the TRAC has made it clear that there should not be any change to be take place in the constitution of the Board of the Target Company during the Period of Competition offers.[28]

1.12. Governance Issue/Mandatory Recommendation by Independent Directors:

In the old regulations the Board of Directors of the target company can sent their recommendations on the open offer to their shareholders. But under the proposed regulations it imposed an obligation of the target company to constitute a independent directors and such independent directors are required to make a reasoned recommendation on the open offer and shall be published by target company. On the other hand no representatives can be appointed by the acquirer in the Board of the target company unless he deposits 100% consideration in the escrow account and the deadline for making competition offers is expired.[29]

1.13. Additional provisions for Withdrawal of Open offer:

Under the old regulations withdrawal of open offer is allowed only under specified circumstances like death of sole acquirer, or any other circumstances as deeded fit by the SEBI, that to after acquiring required statutory approval. Along with the above circumstances one more exemption is allowed for withdrawal, the additional provision says that, withdrawal of open offer is allowed if any condition stipulated in the acquisition agreements is not met for reasons outside the reasonable control of the acquirer.

1.14. Voluntary Open Offer and its restrictions:

In the proposed Takeover Regulations an acquirer holding collectively 25% or more voting rights in the target company can make an voluntary open offer for a minimum size of 10% of voting capital shares of the target company and it should be in compliance with minimum public shareholding norms.[30] On the other hand an exception is provided that, the voluntary open offer can be raised to a fully fledged offer for 100% remaining shareholders in case if a competitive bid is filed, within fifteen business days of such filing of competitive bid.[31]

The restrictions against such voluntary open offer are, no voluntary open offer can be made in case if the acquirer has acquired and shares in the preceding fifty two weeks, and also no such voluntary open offer can be made by the acquirer for a period of six months after the open offer.[32]

1.15. Overhaul of Exemptions from open offer:

As compared with the current law, the TRAC has laid down a clear picture with regard to the exemptions from making an open offer. [33]And also it has shifted the provisions dealing with exemptions from Regulation – 3 to Regulation – 10 to bring a clear and unambiguous picture to the Regulations. Now under the present proposed Takeover Code Regulation, 2010 the TRAC has made it more difficult particularly to automatic exemption route and has closed all the loopholes which are existing in the current Takeover Code, and also introduced anti-abuse conditions in the exemptions part and it further classified the exemptions part into two parts namely, transactions which trigger a statutory open offer due to substantial acquisition of shares or voting rights or change in control and the transactions which trigger a statutory open offer due to acquisition of shares or voting rights exceeding prescribed thresholds limit but where there is no change in control.

On the other hand a complete exemption from making an open offer is provided under the current Takeover Code in case of an acquisition in accordance to a scheme of arrangement, if such restructuring is undertaken either by the target company or its parent. But under the proposed Takeover Regulations, 2010, the TRAC has made it more difficult to obtain an open offer exemption, it proposed that the exemption for such schemes of arrangement is available only in cases where the cash equivalent component of the consideration is less than 25% of total consideration paid under the scheme and the persons who were previously holding voting rights of the target company’s parent are required to continue to hold 33% voting rights either directly or indirectly of the restructured company after the post restructuring.[34]

One more exemption in the TRAC report is that it proposed to make buybacks automatically exemption but in case if because of such  buybacks if the shareholding goes beyond the control threshold then he is required to make an open offer, but it does not apply if the acquirer has obtained an exemption from the Board. In order to get this exemption he should not vote on the buyback in the Board meeting or shareholders meeting and his increase in voting rights does not cross the control threshold.

1.16. Prohibition of Non-competent fee:

Under the Takeover Code Regulations, 1997 a non-competent fees upto 25% of the offer priced is permitted to be paid to the promoters of the target company in addition to the offer price. But under the TRAC Proposed Takeover Code Regulations, 2010, the provision of non-compete fee was omitted and the promoters to be paid the same price per share as the pub shareholders entitled. d

1.17. Activities and Timelines for Open offer Process:

Under the proposed Takeover Regulations the procedural timelines for various activities in the open offer process has been reduced from 95 days to 57 business days from the date of public announcement. It further clarified that under the old Regulations the Public announcement should be made within 4 working days of entering into an agreement or making a decision for acquisition.

But under the TRAC Proposed Takeover Regulations,2010 a new concept called the “Short Form Public Announcement” should be made on the  same day of agreeing to acquire shares or voting rights or control over the target company and a detailed public statement should be within 5 business days from making of the short form public announcement.[35]

1.18. Impact of Recommendations on different sectors:

By taking into consideration the different recommendations made by the TRAC, it has be tried to laid down the following, are the impacts of those recommendations on different sectors as follows, they are;

1.18.1. Impact on promoters of Target Company:

The first impact of the proposed Takeover Code Regulation, 2010 on the promoters of the Target Company is that, due to the increase of initial trigger threshold limit from 15% to 20% made the hostile takeovers of some of the listed companies having promoter shareholding lower made easy, the second impact is that the promoters are not now allowed to get non-compete fee and eligible only for the price which can be paid to other public shareholders of the target company. the third impact is that the creeping acquisition upto 5% per annum till 75% is allowed for any acquirer holding 25% or more voting rights in the target company, makes the promoters to increase their shareholding upto 75% in the target company without making an open offer, whereas under the current regulation it is allowed only upto 55% .

1.18.2. Impact on public shareholders:

The impact of such recommendations on the public shareholders is that, the increase of offer size from 20% to 100%  provides an exit opportunity to the shareholders regarding his all shares and the prohibition of non-compete fee provides an equal treatment and bring uniformity regarding the price offered, reducing the timeline for open offer decreased the market risk to the public shareholders, and finally they can get an option to take decisions regarding the open offer basing on the mandatory statement required to be made by the independent directors of the target company to their shareholders.

1.18.3. Impact on acquirers:

The impact of the recommendation of the TRAC proposed Takeover Code Regulations, 2010 against the acquires is that the cost of acquiring a listed company has been increased because of increasing the open offer size, and for domestic acquires there is a hurdle for getting fund because the banks have limitation of financing for acquisition of shares of another company, this gives an advantage to the foreign acquirers. On the other hand there is an option available to the acquirers to directly go for delisting of the target company if the acquirer acquires the shares exceeding the delisting threshold.


Hence it is clear that as compared with the current Takeover Code Regulations, 1997, the advisory committee proposed draft Takeover Code Regulations, 2010, is very clear and removed the confusion on certain provisions and tried to bring fair, equitable and transparent legal framework which is in conformity with the best global practices. On the other hand it also tried to protect the interest of investors by providing an exit opportunity and by prohibition of competent fee where all the shareholders will get the same price.

Before going to conclude, it is important to say that a human being remembers everything to forget and forgets everything to remember new things, in the same way the advisory committee, while submitting the draft to SEBI, it has also not taken into considered certain aspects like, in a recent Subhkam Ventures Pvt Ltd vs. SEBI, 2010 case, where the supreme court has made it clear about the meaning of the term, control and made the distinction between “positive and negative control” and finally held that acquisition of certain affirmative rights with the purpose, only to protect the investment does not constitute the acquisition of control, in this scenario even the advisory committee has also failed to discuss about the concept of negative control, under the proposed regulations. In the same way further,  more clarity is required to be given to the provisions, dealing with the voluntary open offer particularly, with respect to the situation,where the person holding less that 25%  shares desires to consolidate his shareholding, through open offer is allowed or not.

One more lacuna in the TRAC report is that it has pointed out about the need for uniformity regarding the “taxation issues” in case of shares acquired in open offer. In this context, it has just simply suggested that SEBI has to take up the matter with the Government but it has not tried to make any suggestions on it.

Last, but not the least, one more area, where the TRAC report has not taken into consideration is that, today the corporate takeovers has changed its path from domestic takeovers to cross border takeovers, the best example, in present days, is that Vedanta Resources Plc a company listed in the London Stock Exchange, which controlling the Indian sterlite Industries Ltd has decided to acquire a controlling stake in Cairn India Ltd, and filed the draft letter of offer with SEBI, on the other hand the Mahendra & Mahendra entered into a memorandum of understanding with Ssangyong Motor Company (SYMC) to acquire a majority control stake in the South Korean SUV Maker, in this context, the need of a clear and separate provisions to deal with situations in case of a cross border takeover has to be considered, but failed to do so, except that, it dealt with the issues relating to the ADR and GDR concerned and the holding of depository receipts and restricted the exemptions to it.

Hence as compared with the current regulations, we can say this proposed draft takeover regulations 2010, up to some extent has tried to remove all the loopholes , but we are not the one to say whether the recommendations made by the TRAC is good or bad because a decision will never be a good or bad, but it depends upon the changing circumstances and future needs, in the same way, the SEBI has also allowed the public feedback up to August 31st, by uploading the report in its website.  Now it’s the time to wait whether the TRAC report will succeed in its journey or not, after facing the hurdles in the form of criticism. Time will decide.

[1] Koushik Chatterjee, NEW TAKEOVER CODE: IS IT ACHIEVABLE FOR CORPORATE INDIA. (August 27, 2010)

[2] Takeover Regulations Advisory Committee, hereinafter called as “TRAC”.

[3] He is the former Presiding Officer of the Securities Appellate Tribunal.

[4] Report of The Takeover Regulations Advisory Committee Mr. C. Achuthan, PROPOSED TAKEOVER REGULATIONS, 2010. (Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2010). (September 2, 2010).

[5] Report of The Takeover Regulations Advisory Committee Mr. C. Achuthan, PROPOSED TAKEOVER REGULATIONS, 2010. (Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2010).

[6]New Regulations,2010, Regulation – 2(1)(g). Old Regulations,1997, Regulations – 2(c).


[8] New Regulations,2010, Regulation – 2(1)(i). Old Regulations,1997, Regulation – 2(1)(cc).

[9] New Regulations,2010, Regulation – 2(1)(r). Old Regulations,1997, Regulation – 2(1)(e).

[10] New Regulations,2010, Regulation – 2(1)(w). Old Regulations,1997, Regulation – 2(1)(k).

[11] A Comparison of Regulations, 1997 with the Recommendation given by TRAC.

[12] Proposed Takeover Regulations,2010, Regulation – 2(1)(e).

[13] Proposed Takeover Regulations,2010, Regulation – 2(1)(c).

[14] Proposed Takeover Regulations,2010, Regulation – 2(1)(h).

[15] Proposed Takeover Regulations,2010, Regulation – 2(1)(p).


[17] A Comparison of Regulations, 1997 with the Recommendation given by TRAC.

[18] Proposed Takeover Regulations,2010, Regulation – 3(1).

[19] Proposed Takeover Regulations,2010, Regulation – 3(2).


[21] Report of The Takeover Regulations Advisory Committee Mr. C. Achuthan, PROPOSED TAKEOVER REGULATIONS, 2010. (Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2010).


[23] Proposed Takeover Regulations,2010, Regulation – 7(4)&(5).

[24] Takeover Regulations — Proposed Makeover,

[25] Proposed Takeover Regulations,2010, Regulation – 5(1).

[26] Isha Dalal, INDIRECT ACQUISITIONS: ON TRAC.                          

[27] Takeover Regulations — Proposed Makeover,


[29] Proposed Takeover Regulations,2010, Regulation – 26.

[30] Proposed Takeover Regulations,2010, Regulation – 6.

[31] Proposed Takeover Regulations,2010, Regulation – 7(2).

[32] Proposed Takeover Regulations,2010, Regulation – 6(2).

[33] Bharat Vasani, EXEMPTIONS: ON TRAC.

[34] Sandeep Katwala, ON TRAC? FOREIGN ACQUIRERS.

[35] Arun Scaria and Sahil Shah (ed.,), INDIAN TAKEOVER REGULATION UP FOR OVERHAUL.

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