Chapter-I

SEBI (Substantial Acquisition of Shares & Takeover) Regulations 1997

Regulation-2

Definitions

Acquirer
A Person who directly or indirectly acquires or agrees to acquire the shares of the target company either by himself or through person acting in concert and includes promoter of the target company.

Person Acting in concert

Persons who for a common objective or purpose of substantial acquisition of shares of the target company join hands together directly or indirectly and includes: Holding Companies Subsidiaries Companies Companies under the same management Directors of the above all companies Relatives, Family trusts and HUF, of the above directors, as per section 6 of the Companies Act, 1956

Promoter & Promoter Group

Every person who is in control of the target company and who is named in the shareholding pattern filed with stock exchange and includes promoter group.

Promoter Group shall consist of:

If the promoter is a body corporate:
Holding /Subsidiary Company A Company in which promoter holds 10% or more of the equity capital or vice versa. A Company of which such shareholders either individually or jointly holding 20% or more of equity capital, also holds either individually or jointly 20% or more of the equity capital in the target company.

If the promoter is an Individual:

Promoters Spouse, Promoters Parents

Promoters Brother & Sister Promoters Children Promoters spouses Parents Promoters spouses Brother & Sister A company in which promoter/his immediate relative/firm or HUF in which the promoter or his immediate relative is member, holds 10% or more of the share capital of such company. A company, in which the company referred above, holds 10% or more of the share capital. A Firm/HUF in which the aggregate holding of the promoter and his immediate relative is 10% or more of the capital of such firm/HUF.

Shares
Shares mean the shares carrying voting rights and include any security which is convertible into shares carrying voting rights but shall exclude preference shares.

Working days
Working days means the days of the Board.

Regulation-3

Exemption from the applicability of Regulations 10, 11 & 12

Nothing contained in Regulations 10, 11 & 12 shall apply i.e. the Acquirer shall not be required to make the public announcement in the following cases: Acquisition by way of allotment in a Public issue. Acquisition by way of allotment in a Right issue to the extent of his entitlement but post acquisition shareholding not exceeding beyond 75%. Acquisition in the ordinary course of business by the Banks/PFIs as pledgees or by registered stock brokers with stock exchange on behalf of clients. Acquisition under a public offer made under these regulations. Acquisition by way of transmission. Acquisition pursuant to a scheme of Merger/Amalgamation/demerger whether in India or foreign. Acquisition of shares of an Unlisted Companies whether in India or abroad provided, by way of such acquisition, the acquirer not acquires control over/shares of a listed company. (i.e. known as indirect Acquisition of shares of a Listed Company) Acquisition pursuant to delisting of shares. Acquisition of Global Depository Receipts and American Depository Receipts unless the holders thereof become entitled to exercise voting rights on the underlying shares or exchange such depository receipts with the underlying shares carrying voting rights. Acquisition by way of inter se transfer amongst: i). ii)iii)Group as defined in the MRTP Act, 1969 and such group has been shown in the last Published Annual Report of the Target Company; Relatives (as per section 6 of the Companies Act, 1956) **(Note-2) (a)(b)Qualifying Indian Promoters and Foreign Collaboration Shareholders Qualifying Promoters ** (Note-1)

Provided that the transferor and transferee are holding shares in the target company for a period of at least 3 years prior to the proposed acquisition.
iv)Acquirer and the persons acting in concert with him

Provided that such transfer takes place 3 years after the date of closure of the public offer made by them under these regulations.

Explanation:
(1)the Exemption under sub clauses (iii) & (iv) shall not be available, if inter se transfer of shares is at a price exceeding 25% of the price as determined under sub-regulation (4) & (5) of regulation 20. ** (Note-3) the benefit of availing exemption under inter se transfer clause shall be subject to such transferor and transferee having complied with regulation 7 & 8. ** (Note-4)

(2)-

In the above mentioned four cases of inter se transfer, the acquirer is not required to make public announcement but he shall: i)ii)notify to the Stock Exchange at least 4 working days in advance, the details of the proposed acquisition if the acquisition exceeding 5 %) submit a report to the SEBI within 21 days of the date of acquisition if such acquisition entitle him to exercise 15% or more voting rights along with a fee of Rs. 25,000/-.

**Notes: 1.
(i) (ii)

Qualifying Promoters: means

any person who is directly or indirectly in control of the company; Or any person named as promoter i)-- in any offer document to the public or existing shareholders Or ii)-- in the shareholding pattern disclosed by the company under the provisions of the Listing Agreement, whichever is later; and includes, (a) (1) (2) Where the qualifying promoter is an individual, a relative of the qualifying promoter (as per section 6 of the Companies Act, 1956); any partnership firm or company, directly or indirectly, controlled by the qualifying promoter / his relative / his firm or HUF in which the qualifying promoter or his relative is a partner or a coparcener, or by a combination thereof : Provided that, in case of a partnership firm, the share of the qualifying promoter or his relative, as the case may be, in such firm should not be less than fifty per cent (50%); (b) (1) Where the qualifying promoter is a body corporate, a subsidiary or holding company of that body; or any partnership firm or company, directly or indirectly, controlled by qualifying promoter of such body corporate / by his relative / a firm or HUF in which the qualifying promoter or his relative is a partner or coparcener, or by a combination thereof: (note: check that controlled by the qualifying promoter of such body corporate, not by such body corporate itself) Provided that, in case of a partnership firm, the share of such qualifying promoter or his relative, as the case may be, in such firm should not be less than fifty per cent (50%);

(2)

2.

Relative: Section 6 read with Schedule 1A of the Companies Act,

1956
LIST OF RELATIVES

(Section 6 & Schedule IA)

Relationship 1. Wife /Husband 2. Father 3. Mother (including step-mother) 4. Son (including step-son) 5. Sons wife 6. Daughter (including step-daughter) 7. Fathers father 8. Fathers mother 9. Mothers mother 10. Mothers father 11. Sons son 12. Sons sons wife 13. Sons daughter 14. Sons daughters husband 15. Daughters husband 16. Daughters son 17. Daughters sons wife 18. Daughters daughter 19. Daughters daughters husband. 20. Brother (including step-Brother) 21. Brothers wife 22. Sister (including step-sister) 23. Sisters Husband 24. Members of HUF *Name

3.

Sub regulation (4) of Regulation 20

The offer price shall be the highest of (a) (b) the negotiated price {under the agreement referred to in regulation 14(1);}

highest price paid during 26 weeks, if any, prior to the date of public announcement, by the acquirer or persons acting in concert with him, for acquisition, including by way of allotment in a public or rights or preferential issue; price paid the higher of: i. the average of the weekly high and low of the closing prices** of the shares during the twenty-six (26) weeks preceding the date of public announcement. Or the average of the daily high and low of prices** of the shares during the two (2) weeks preceding the date of public announcement. {** Prices as quoted on the stock exchange where the shares of the target company are most frequently traded}

(c)

ii.

Sub regulation (5) of Regulation 20

Where the shares of the target company are infrequently traded, the offer price shall be determined by the acquirer and the merchant banker subject to certain conditions.

Regulation-7

Stage-wise disclosure by the Acquirer/PAC/Promoter(s)/Target Company

By the Acquirer/PAC/Promoter/Pledgee other than Bank/FIs

i)ii)at every stage, the aggregate of his holding which entitle him to more than 5%, 10%, 54% or 74% shares as the case may be. at every purchase or sale aggregating 2% or more where such sale/purchase takes place between 15% or more but less than 55% shares and 55% to 60% shares provided acquired in terms of II proviso of regulation 11 (2).

to the Company and the Stock Exchange(s) within 2 days of, the acquisition of shares/receipt of intimation of allotment of shares and sale/purchase of shares and creation of the pledge, as the case may be.

By the Target Company

To all the Stock Exchanges on which the Shares of the Company are listed, within 7 days of receipt of the information from the Acquire/PAC/Promoter/ Pledgee other than Bank/FIs as the case may be.

Regulation-8

Yearly disclosure by the Acquirer / PAC / Promoter(s) / Target Company

By Every Person other than Promoter

Within 21 days from the financial Year ending on 31st March to the Company about the number and the percentage of shares held by himself and/or with the person acting in concert as on 31st March.

By the Promoter
Within 21 days from the financial Year ending on 31st March and Within 21 days from the record date for the purpose of declaration of dividend to the Company about the number and the percentage of shares held by himself and/or with the person acting in concert as on 31st March.

By the Target Company

Within 30 days from the financial Year ending on 31st March and Within 30 days from the record date for the purpose of declaration of dividend to the all Stock Exchanges the changes, if any in the holdings of the persons other than promoters and also holdings of the promoters as on 31st March.

Regulation-8A

Disclosure of Pledged Shares by Promoter / Promoter Group / Target Company

By a Promoter/Every Person forming part of the Promoter Group

Creation of Pledge of Shares:
Within 7 days of creation of pledge, to the Company.

Invocation of Pledge of Shares:

Within 7 days of invocation of pledge, to the Company.

By the Target Company

If during any quarter ending on March, June, September and December of any year, aggregate number of pledged shares of a promoter or person forming part of the Promoter group are lower of: i)ii)If Pledged shares exceeding 25,000; Or If Pledged shares exceeds 1% of the total shareholding of the Company, then

the Company shall disclose to all Stock Exchanges within 7 days of the receipt of the information for pledged shares either for creation or invocation.

Chapter-III
SEBI (Substantial Acquisition of Shares & Takeover) Regulations 1997

Substantial Acquisition of Shares and Public Announcement by the Acquirer

There are three levels, when the Acquirer shall make the Public Announcement. The Acquirer shall not acquire shares either himself or through PAC by which he becomes entitled to exercise the percentage of the voting rights of the target company as specified at level-I, level-II & level-III as below directly or indirectly, unless he makes a public announcement except in case of acquisition under regulation 3 :

Level-I---Regulation-10
In case to become entitled to exercise 15 % or more voting rights directly or indirectly.

Level-II---Regulation-11 (Creeping Acquisition) Between 15% but less than 55%

If the Acquirer acquires, directly or indirectly more than 5% voting rights in a financial year ending on 31st March within the above said range.
An acquirer who together with the person acting in concert holds 15% or more shares may acquire either himself or through persons acting in concert, additional shares upto 5% in a financial year ending on 31st March without making a public announcement subject to the following condition that: 1. the post acquisition shareholding of the acquirer together with persons acting in concert shall not increase beyond 55% .

Between 55% but upto 75%

If the Acquirer acquires directly or indirectly any voting rights within the above said range.
An acquirer who together with the person acting in concert holds 55% or more shares may acquire either himself or through persons acting in concert, additional shares upto 5% without making a public announcement subject to the following conditions: [II Proviso of Regulation 11(2)]: 1. such additional shares are acquired through the open market purchase on the stock exchange but not through bulk deal/block deal/negotiated deal/preferential allotment and the post acquisition shareholding of the acquirer together with persons acting in concert shall not increase beyond 75% .

2.

Level-III---Regulation-12
In case to become entitled to control over the Target Company either directly or indirectly.

Regulation-13

Appointment of Merchant Banker as Manager to Offer

Appointment
The Acquirer shall appoint Category-I Merchant Banker as Manager to Offer before making public announcement under regulations 10, 11 & 12. Such Merchant Banker should be registered with the Board (SEBI). Such MB should not be associated with the Acquirer / Target Company.

Regulation-14

Time of Public Announcement of Offer

In case of Direct Acquisition:

Within 4 working days either from entering into agreement for acquisition or deciding to acquire shares as the case may be.

In case of Indirect Acquisition:

Within 3 months of the completion of the acquisition of the parent company or the company holding shares of the target company in India.

Regulation-15

Publication of the Public Announcement in the Newspapers & its submission simultaneously
In all editions of the following newspapers: One English National daily One Hindi National daily One Regional language daily of the place where the Registered office of the Target Company is situated. One Regional language daily of the place of the concerned stock exchange where the shares of the Target Company most frequently traded.

Publication:

Submission:

Submit simultaneously to the following: To the Board (SEBI) through Merchant Banker To the Concerned Stock Exchanges To the Target Company at its registered office

Regulation-18

Submission of Letter of Offer to the Board & to the Shareholders of the Target Company

To the Board (SEBI) by Manager to Offer

Sent draft Letter of Offer to the Board within 14 days from the date of Public Announcement along with the following documents: i)ii)Fee as per Table below Due Diligence Certificate

Fee Table:
Offer size

Fee (Rs.)

Less than or equal to 10 crore rupees.

One lakh rupees (Rs. 1,00,000)

More than 10 crore rupees, but less than or equal to 0.125 per cent of the offer size. 1,000 crore rupees. More than 1,000 crore rupees, but less than or equal to 5,000 crore rupees. One crore twenty five lakh rupees (Rs. 1,25,00,000) plus 0.03125 per cent of the portion of the offer size in excess of one thousand crore rupees (Rs. 1000,00,00,000). A flat charge of 3 crore rupees (Rs. 3,00,00,000).

More than 5,000 crore rupees.

To the Shareholders of the Target Company

Letter of Offer to be dispatched to the shareholders is that has been approved by the SEBI. As per this regulation, Letter of offer can be dispatched to the shareholders of the target company only after 21 days from the date of its submission to the SEBI. But practically, this is sent to the shareholders only after being approved by SEBI.

Regulation-19

Specified Date for the purpose of determining the name of Shareholders for sending them LoO.

Such date can not be later than 30 days from the date of public announcement.

Regulation-25

Competitive Bid

Competitive Bid: means

A Public Announcement by the person (hereinafter referred as Competitive Bidder) other than the acquirer (hereinafter referred as First Bidder) who has made the first announcement. Competitive bid shall be made within 21 days of the public announcement by first bidder. Competitive bid shall be equal to the holding of the first bidder and including the number of shares for which the offer has been made by such first bidder.

Revising the offer by the First Bidder upon competitive bid

The First Bidder shall have the option to revise the offer upon competitive bid, within 14 days of such competitive bid.

Closing date of the Offer where there is a Competitive bid

The date of closure of the original bid as well as of all the subsequent competitive bids shall be the date of closure under the last subsisting competitive bid. i.e. the offer under all the subsisting bids shall close on the same date.

Regulation-25(6) & 26

Upward Revisions by the First Bidder & the Competitive Bidder(s)

Upward Revisions by the First bidder & Competitive bidder(s)

Both the bidders i.e. the first bidder & the competitive bidder, shall have the option to make the upward revisions in their offers subject to the following conditions: i)ii)iii)iv)v)vi)upward revision can be made only up to 7 working days prior to the date of closure of the offer. upward revision can be made only in respect of the shares & the number of shares to be acquired. no change in any terms & conditions except mode of payment. making the public announcement in all the newspapers in which the original public announcement was made. informing the Board, Stock Exchanges & the Target Company at its registered office simultaneously. increasing the value of the Escrow account as per regulation 28(9).

Regulation-28 & 29

Escrow Account-Normal & Special

Normal Escrow Account-Regulation-28

Amount to be deposited in Normal Escrow Account
The Acquirer shall open an Escrow Account before making the public announcement with and deposit in an escrow account the following sum as a security on the basis of the total consideration payable assuming full acceptance of the

offer irrespective of whether the consideration payable is in cash or otherwise, where the consideration payable is: Upto Rs. 100 crores Exceeding Rs. 100 crores 25% of the consideration payable 25% upto Rs. 100 crores and 10% thereafter

{In case where the offers are subject to Minimum level of acceptance and the acquirer does not want to acquire minimum of 20% , then 50% of the consideration payable in cash shall be deposited in the escrow account.}

Increasing the amount in Escrow Account in case upward revision

The amount shall be increased to equal to at least 10% of the extra consideration payable upon such revision.

Components of Escrow Account

Where Public Offer is not subject to minimum level of acceptance The Escrow account shall consist of: **

i)-

Cash deposited with a scheduled commercial bank Or {In such case the acquirer shall simultaneously issue DD or Cheque of the same amount in favor of Merchant Banker} Bank guarantee in favor of merchant banker Or {In such case, the Bank Guarantee shall be valid for a maximum period of 20 days after the closure of offer and shall also deposit with bank at least 1% of the total consideration payable.} Deposit of approved securities (Marketable securities) + Margin Money with the merchant banker Or {In such case the acquirer shall simultaneously issue a power of attorney in favor of Merchant Banker empowering the Merchant Banker to sell off the underlying securities in case of failure in fulfilling his obligation by the acquirer and further in case any deficit on realization of such securities, the Merchant Banker shall be liable to make good any such deficit and shall also deposit with bank at least 1% of the total consideration payable}

ii)-

iii)-

**{To be noted that in such case the escrow account can be maintained only in either of the above components not in combinations thereof} Where Public Offer is subject to minimum level of acceptance The Escrow account shall consist of:

i)-

Cash deposited with a scheduled commercial bank

Forfeit the amount in Escrow Account & its distribution

The amount in the escrow account shall/may be forfeited by the Board:

a. b.

In case non-fulfillment of his obligations by the acquirer (shall be forfeited either in full or part) In case of failure to obtain the approval of shareholders under regulation 20(3) (may be forfeited)

After forfeiting, the entire amount in the Escrow Account shall be forward to the Merchant Banker for distribution in the following manner after deduction of expenses, if any, of the merchant banker and the registrar of the offer: i)ii)iii)1/3 of the amount to the target company 1/3 of the amount to the Investor Protection and Education Fund established by the Board 1/3 of the amount to be distributed on pro-rate basis among the shareholders who have accepted the offer.

Releasing/Refund of the Amount in Normal Escrow Account

In case where such Escrow account consists Cash Where consideration payable is in cash
i)ii)iii)not exceeding 90% of the cash deposit, for transfer to the Special Escrow Account under regulation 29, within 7 days from the date of closure of offer and the balance 10% on completion of all obligations. Or Upon withdrawal of offer

Where consideration payable is in shares / other secured instruments

i)ii)Upon withdrawal of offer, Or Upon completion of all obligation and certification by Merchant Banker

In case where such Escrow account consists Bank Guarantee / Marketable securities either consideration is payable in cash or shares etc.
i)1% Cash deposit under regulation 28(10) shall be released upon completion of all obligations.

Special Escrow Account & Payment of Consideration-Regulation-29

Amount to be deposited in Special Escrow Account

Where the consideration payable is in cash, the Acquirer shall open a Special Escrow Account with Banker to the Offer registered with the Board within 7 days from the date of closure of the offer and shall deposit therein such amount as would, together with 90% of the amount lying in the Normal Escrow Account, if any, make up the entire sum due and payable to the shareholders as consideration for acceptances, received and accepted in terms of these regulations. The unclaimed amount, if any, lying in such account for a period of 3years from the date of deposit thereof, shall be transferred to the Investor Education & Protection fund maintained by the Stock Exchange of the Target Company.

Regulation-20

Offer Price

The offer to acquire shares under regulation 10, 11 or 12 shall be made at a price not lower than the price determined as per sub regulations (4) & (5). The Acquirer can pay price either:

i. ii. iii.

In cash

Or

In shares other than preference shares either by issuing, exchange and/or transfer (In case acquirer is a Or listed company) In secured instruments either by issuing, exchange and/or transfer (in case acquirer is an unlisted acquirer & have a min. A grade rating from a credit rating from a credit rating agency registered with Or the Board) In combinations thereof. {The Shareholders shall be provided an option to accept payment either in cash or by exchange of shares or other secured instruments in case where during the immediately 12 months from the date of public announcement the acquirer has acquired any class of shares in cash either under any agreement or in the open market or by any other manner.} In case where the consideration is payable in securities and issuance of which requires approval of shareholders the acquirer shall obtain such approval within 7 days from the date of closure of offer and if he fails the entire consideration shall be paid in cash.

iv.

Takeover Code

Ankit Agarwal, ACS, LLB, M.Com