“Acquirer” means any person who, directly or indirectly, acquires or agrees to acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or control over a target company;
The term acquirer can be divided into following:
a. Any person
The term person includes both individuals & juristic persons like company, partnership firm etc, who either directly or indirectly acquire shares, voting rights or control over the target company.
b. Who directly or indirectly
The acquisition extends to both direct & indirect acquisition. For example the acquisition of shares of an unlisted holding or investment company which in turn holds majority stake in listed company. The other instance can be acquisition of voting rights in a listed company from the present promoters through power of attorneys or by entering into voting rights arrangement.
c. Acquires or agrees to acquire
The acquisition includes both completed acquisition as well as agreement to acquire.
In B.P.Amoco.Plc Vs SEBI, where it was held that the moment the acquirer sets into motion the process of acquiring shares or control, acquisition within the meaning of SEBI Takeover Regulations takes place. It was also held that acquirer includes both who has acquired shares as well as who agrees acquire shares or voting rights in a company. Similarly if the word ‘acquirer’ were to mean only those who have already acquired shares, then the provisions regarding ‘public announcement’ in the SEBI Regulations would be rendered nugatory. The salutary protections contemplated through public announcement would be lost.
d. Shares, voting rights or control over the Target Company
e. Whether by himself or through or with any person acting in concert with him
The acquisition can be on the behalf of acquirer either by himself alone or in association with person acting in concert or through the persons acting in concert i.e. through Special Purpose Vehicle or through the controlling entities. Person acting in Concert are further defined under Regulation 2(q) of the Code.
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Acquisition of 25% or more shares in a listed company
Acquisition of 25% or more shares in a listed company
Regulation 3 provides a threshold limit for mandatory public offer. This regulation explains that when an acquirer intends to acquire shares or voting rights which along with his existing shareholding would entitle him to exercise 25% or more of the voting rights in a company, in such a case the acquirer is required to make public announcement to acquire minimum 26% shares of Target Company from the shareholders through an Open Offer.
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Acquisition of Control
Acquisition of Control
SEBI Takeover Regulations defines Control to include the right to appoint majority of the directors or to control the management or policy decisions of the target company either individually or with person acting in concert.
Regulation 4 states that if any acquirer acquires control over the target company irrespective of any acquisition of shares or not he has to give public announcement to acquire shares from shareholders of the Target Company. It is appreciable that the acquisition of control also includes both direct & indirect acquisition of control over target company by virtue of acquisitions of companies whether listed or unlisted and whether in India or abroad.
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Acquisition of shares in unlisted company
Acquisition of shares in unlisted company
Acquisition of shares in an unlisted company does not trigger SEBI Takeover Regulations. However, this exemption shall not be applicable if by virtue of acquisition or change of control of any unlisted company, whether in India or abroad, the acquirer acquires shares or voting rights or control over a listed company.
The code extends to acquisition of shares of listed company. Therefore, if any listed company acquires the shares of an unlisted company, then the takeover code is not attracted. However, if acquisition of shares / change in control of unlisted company results into acquisition of shares or voting rights of listed company indirectly, then the Takeover Code will be applicable.
Example: The acquirer, whether individual or body corporate, acquires 51% shares of Y Ltd. Y Ltd. is an unlisted holding Company of Z Ltd., which is a listed Company.
Therefore, by virtue of acquisition of 51% shares of Y Ltd, the acquirer will acquire control over the Target Company or in other words, it will indirectly acquire the shareholding of Z Ltd. (Listed Subsidiary Company). Hence, although the acquirer has acquired shares of an unlisted Company, yet he will be required to comply with the provisions of SEBI Takeover Regulations in respect of Z Ltd
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Acquisition of shares pursuant to open offer
Acquisition of shares pursuant to open offer
Takeover Code provides for two types of considerations for acquisition of shares i.e. cash as well as non-cash consideration such as shares. The exemption is available when the acquirer acquires the shares in exchange for shares of another target company tendered pursuant to an open offer. Therefore such shares received by the shareholder of Target Company in consideration of open offer will not trigger the Takeover Open Offer, even if it exceeds the limits specified under the regulations, provided there is no change in the control and management of the Company.
Example: The acquirer is a listed body corporate (XYZ Ltd) & is acquiring the shares of another listed company (ABC Ltd). In consideration the acquirer is ready to issue shares in XYZ Ltd to the shareholder of ABC Ltd. If any of the shareholders in ABC Ltd. acquires shares in XYZ Ltd. beyond the prescribed limit specified in the takeover offer in consideration of the shares offered to the acquirer, then the provisions of open offer are not applicable.
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Creeping Acquisition
Creeping Acquisition
Regulation 3(2) of the SEBI Takeover Regulations .provides that an acquirer who already holds 25% or more shares or voting rights but less than maximum permissible non-public shareholding of the Target Company can either by himself or through persons acting in concert with them acquire further upto 5% shares or voting rights in the financial year ending 31st March. The allowable acquisition of 5% is known as ‘Creeping acquisition’. Thus, the acquirer is permitted to acquire additional shares and consolidate his holdings within the aforesaid limits.
In case the acquirer desires to acquire more than 5% shares or voting rights in one financial year, then he can do so only by making a public announcement in terms of these regulations.
Further, the following points need consideration:
a) No Netting off allowed:
The Regulation specifically provide that for the purpose of determining the quantum of acquisition of additional voting rights, the gross acquisitions without considering the disposal of shares or dilution of voting rights owing to fresh issue of shares by the target company shall be taken into account.
b) Incremental voting rights in case of fresh issue on expanded capital
In the case of acquisition of shares by way of issue of new shares by the target company, the difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition.
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Inter-se Transfer of shares
Inter-se Transfer of shares
Acquisition of shares through inter se transfer is exempt from the provisions of Regulation 3 & 4 that is to say acquisition through inter se transfer is not subject to open offer if it complies with the following formalities
i. Inter se transfer amongst immediate relatives
The term “Immediate Relative” is defined under Regulation 2(l) which provides that immediate relatives means any spouse of a person, and includes parent, brother, sister or child of such person or of the spouse.
ii. Inter se transfer of shares between persons named as promoters in the shareholding pattern filed by the target company in terms of the listing agreement or these regulations for not less than three years prior to the proposed acquisition.
In SEBI (SAST) Regulations, 2011, the scope of inter se transfer of shares amongst the promoters of the company has been contracted as it provides the exemption only in the case of inter se transfer of shares amongst the persons named as promoters in the shareholding pattern which is only one of the clause amongst the others which have been exempted under SEBI (SAST) Regulations, 1997.
iii. Inter se transfer of shares amongst persons acting in concert for not less than three years prior to the proposed acquisition, and disclosed as such pursuant to filings under the listing agreement.
The transfer of shares inter se amongst the persons where such persons have been shown as person acting in concert in any filing made under listing agreement for a period of three years prior to the proposed acquisition.
iv. Inter se transfer of shares between
• Shareholders of a target company who have been persons acting in concert for a period of not less than three years prior to the proposed acquisition and are disclosed as such pursuant to filings under the listing agreement, and;
• any company in which the entire equity share capital is owned by such shareholders in the same proportion as their holdings in the target company without any differential entitlement to exercise voting rights in such company.
The next category of exemption is in the case of inter se transfer of shares amongst the shareholders of the Target Company and any Company where such shareholders have been shown as PACs in any filing made under listing agreement for a period of not less than 3 years prior to the proposed acquisition and the entire equity share capital of the such company is held by such shareholders in the same proportion in which they holds shares in the target company without any differential entitlement to exercise voting rights in such company.
Compliances required for the exemption:
If the shares of the target company are frequently traded, the acquisition price per share shall be maximum of 25% of volume weighted average market price for a period of 60 trading days preceding the date of issuance of notice for proposed inter se transfer on the stock exchange where the maximum volume of trading in the shares are recorded. And if the shares of the target company are infrequently traded, the acquisition price shall not be higher by more than twenty-five percent of the price determined in terms of clause (e) of sub-regulation (2) of regulation 8.
The benefit of exemption will be available subject to such transferor(s) and transferee(s) having complied with compliance of Chapter V i.e. disclosure under Regulation 29-Disclosure of acquisition and disposal, Regulation 30-Continual Disclosure and Regulation 31-Disclosure of encumbered shares.
The Acquirer shall intimate the stock exchange where the shares of the company are listed for the purpose of dissemination of information to public, the details of the proposed acquisition at least 4 working days prior to the proposed acquisition. [Regulation 10(5)]
The Acquirer is required to file a report within 4 working days of the date of acquisition to the stock exchange giving all details in respect of acquisitions and the stock exchange shall disseminate the information to public. [Regulation 10(6)]
The Acquirer is further required to file a report within 21 working days from the date of acquisition to SEBI giving all details in respect of acquisitions with supporting documents along with non refundable fees of rupees twenty five thousand by way of banker’s cheque or demand draft in favor of Securities & Exchange Board of India. [Regulation 10(7)]
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Penalties under Takeover Regulations
Penalties under Takeover Regulations
1. Regulation 32: Power of the Board to issue directions
In the event of non-compliance of the provisions of SEBI Takeover Regulations the acquirer is liable for the penal provisions contained in the code itself. Regulation 32 empowers the Board to issue directions to the Acquirer for the non-compliance of the obligations contained in the Regulations. Some of the consequences that may be faced by the Acquirer are divesting the shares acquired in violation of the regulations and directing appointment of Merchant Banker for such divestiture; transfer of shares or any proceeds of a directed sale of shares acquired in violation of the regulations to Investor Protection and Education Fund; not to give effect to any transfer of shares acquired or exercise voting rights attached to the shares acquired in violation of these regulations; debarring the person from accessing the capital market or dealing in securities; Initiate enquiry proceedings against the intermediary registered for failure to carry out the requirement of these regulations and others.
I. Power to impose penalties and initiate adjudication proceedings:
1. 15H.Penalty for non-disclosure of acquisition of shares and takeovers.-
If any person, who is required under this Act or any rules or regulations made thereunder, fails to,-
i. disclose the aggregate of his shareholding in the body corporate before he acquires any shares of that body corporate; or
ii. make a public announcement to acquire shares at a minimum price;
iii. make a public offer by sending letter of offer to the shareholders of the concerned iv) make payment of consideration to the shareholders who sold their shares pursuant to letter of offer.
he shall be liable to a penalty twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher.
2. Criminal prosecution under section 24 of the SEBI Act.
In addition to any award of penalty by the Adjudicating Officer under the Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations thereof, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine which may extend to twenty-five crore rupees or with both. Further, for the non compliance of the directions of the Adjudicating Officer, the person shall be punishable with imprisonment for a term which shall not be less than one month, but which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both.
3. Directions under section 11B of the SEBI Act.
The Board may, in the interest of securities market, give directions, without prejudice to its right to prosecute under section 24 of the SEBI Act including:
a) Directing the person concerned not to further deal in securities.
b) Prohibiting disposal of securities acquired in violation of these regulations.
c) Direct sale of securities acquired in violation of these regulations.
4. Directions under section 11(4) of the Act;
The authority may give the directions to the person in default & the directions may include the following:
i. Suspend the trading of any security in a recognised stock exchange;
ii. Restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities;
iii. Suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position;
iv. Impound and retain the proceeds or securities in respect of any transaction which is under investigation
v. Attach bank accounts of persons involved in violation for a period not exceeding one month.
vi. Direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation
5. Cease and desist order in proceedings under section 11D of the Act;
A Cease and desist order can also be passed under section 11D of the SEBI Act from committing or causing any violation of the SEBI Takeover Regulations.
6. Adjudication proceedings under section 15HB of the Act.
A residual clause has been provided in the Act, wherein whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, he shall be liable to a penalty which may extend to one crore rupees.
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Person Acting in Concert
Person Acting in Concert
Under regulation 2 (1) (q) of the SEBI Takeover Regulations, the term ‘Person Acting in Concert’ has been defined in two parts. In the first part, the term has been defined in the general terms.
Commonality of objective
The persons will be deemed to be person acting in concert who are acting in concert because of the commonality of objective of acquisition of shares or voting rights or gaining control over the Target Company.
The commonality can be achieved pursuant to any agreement or any understanding entered by such person. The agreement or understanding can be formal or may be informal.
There must be an element of co-operation in the concerted action of these persons. This cooperation could be extended in several ways, directly or indirectly, or through an agreement, formal or informal.
Further, the term common objective has been restricted by the subsequent words in the sense that the common objective shall be the acquisition of shares or voting rights or gaining control over the Target Company.
Therefore, it becomes clear that the two persons must share a common intention of acquisition of shares or voting rights to be treated as person acting in concert.
Business Relations
Further, the code identifies persons who virtue of their business relations is presumed to be person acting in concert. The responsibility has been cast on these persons to show that the fact is otherwise in given situation.
The second part of the definition lists out certain instances where two persons will be deemed to be persons acting in concert. Therefore, where first part is general, second part is specific in nature. The section part of the definition lists out certain instances where two persons will be deemed to be ‘person acting in concert’
PAC vs DEEMED PAC
The term ‘Person Acting in Concert’ has been defined in two parts. In the first part, the term has been defined in the general terms whereas in the second part certain instances have been specifically listed out where the two persons will be deemed as PAC, unless contrary is established. These are called deemed PAC.
However it is of utmost importance to mention here that second part starts with the words “without prejudice to the generality of this definition, the persons falling within the following categories shall be deemed to be persons acting in concert with other persons in the same category, unless the contrary is established”. It means that the first part will prevail over the second part. Therefore, at the first instance, the persons mentioned thereafter will be deemed to be person acting in concert as suggested by the words “unless the contrary is established”. However, notwithstanding the fact that two persons fall in one or other category of second part of the definition, it has nevertheless to be established that they share common objective. This intention of the law-makers has been made clear by the starting words of second part i.e. “without prejudice to the generality of this definition”.
Therefore, if the two persons does not share common objective of substantial acquisition of shares or voting rights or acquisition of control, they will not be treated as persons acting in concert even if they fall in one or the other category of the second part of the definition. Therefore, the main difference between the persons not falling in the second part of the definition and person falling in the second part of the definition is that in the former case it is to be positively established that two persons share common objective whereas in the letter case this presumption is already there and it has to be rebutted that the two persons does not share common objective.
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Shares
Shares
Shares means shares in the equity share capital of a target company carrying voting rights, and includes any security which entitles the holder thereof to exercise voting rights;
Provided that all depository receipts entitling the holder thereof to exercise voting rights in the target company shall be regarded as shares.
Shares mean
i. Equity share capital of a company carrying voting rights
ii. Includes any security which would entitle the holder to receive shares with voting rights
iii. All depository receipts carrying voting rights in the target company shall be regarded as shares.
