India: Exit Opportunity Under SEBI (SAST) Regulations, 2011

Last Updated: 23 November 2012
Article by Ruchi Hans

SEBI (SAST) Regulations, 2011 is the most significant law which regulates M&As deals involving Indian Listed Companies. It endeavors to protect the interest of the investors of a listed company and make sure that an exit opportunity is given to the public shareholders at a highest possible price where there is a substantial acquisition of shares or voting rights or control over a listed company, consolidation of holdings by existing shareholders. The new Takeover Regulations sought to better ensure that the takeover markets operate in a fair, equitable and transparent manner. The exit opportunity is given to the shareholders in following situation:

I. Mandatory/Triggered Open Offer

SEBI (SAST) Regulations, 2011 provides the triggering events on which the acquirer is required to give an open offer to the shareholders of the Target Company. The triggering event may be signing of Share Purchase Agreement or actual acquisition of shares from the market or passing of special resolution for preferential basis and so on. Thus as soon as the intention of the acquirer to acquire the shares of Target Company beyond the threshold limits mentioned in the regulations, is expressed undeniably, the acquirer is required to give an open offer to the shareholders of the Target Company except where the acquisition is exempted under regulation 10 of these regulations. One of the triggering events is contemplated under regulation 3 of SEBI (SAST) Regulations, 2011.

Regulation 3 of SEBI (SAST) Regulations, 2011

Regulation 3 contains provisions regarding substantial acquisition of shares or voting rights of the Target Company. It provides specific limits beyond which the acquirer(s) is required to come out with an open offer in accordance with these Regulations.

The major thresholds limit as per SEBI (SAST) Regulations, 2011

1. Initial Threshold Limit

Regulation 3(1) provides that when an acquirer together with PACs intends to acquire shares or voting rights which along with the existing shareholding would entitle him to exercise 25% or more of the voting rights in the target company, in such a case the acquirer is required to make public announcement to acquire at least additional 26% of the voting capital of Target Company from the shareholders through an open offer.

2. Creeping Acquisition Limit

This regulation is meant for allowable acquisitions (both direct & indirect) only for those who already hold more than 25% shares or voting rights but less than 75% shares or voting rights in the Target Company. Regulation 3(2) allows the persons either by themselves or through PAC with them who are holding more than 25% but less than 75% shares or voting rights in the Target Company to acquire further upto 5% shares or voting rights in the financial year ending 31st March. The allowable acquisition of 5% is popularly known as 'Creeping Acquisition'. Thus, the acquirer is permitted to acquire additional shares and consolidate his holdings within the aforesaid limits.

However, it is to be noted that the creeping acquisition limit is subject to the condition that the post acquisition shareholding of the acquirer does not exceed beyond the maximum permissible non-public shareholding.

Further, where the acquirer who along with the PACs holds equal to or more than 25% but less than 75% shares and desires to acquire more than 5% shares in any financial year, can do so by making an open offer to the shareholders of the Target Company.

Determination of the quantum of acquisition of additional voting rights

  • No Netting off Allowed

The limit of 5% shall be calculated by aggregating all the purchases without netting the sales.

For example: where an acquirer holding 56% shares have acquired further 4% shares in the company during the financial year 2012-13 and sold of 2% shares in the same financial year, then he can further acquired only 1% shares without making the Public Announcement regardless of the fact that he has sold of 2% shares in the financial year 2012-13.

  • Acquisition of shares by way of issue of new shares

The difference between the pre-allotment and the post-allotment percentage voting rights shall be regarded as the quantum of additional acquisition.


Pre shareholding

Shares to be allotted pursuant to preferential allotment

Post shareholding


No. of shares


No. of shares


No. of shares


No. of shares











Non promoters














In the present case, the incremental increase in voting right is 5%, although the fresh allotment constitutes 11.99% of the expanded capital of the Company.

Accordingly, the incremental increase in voting rights is within the creeping acquisition limit

3. Individual shareholding of Acquirer to be considered

The most important point to be noted here is that now the Individual Acquirer Shareholding shall also be considered for determining the Open Offer Trigger Points apart from consolidated shareholding of Acquirer and Persons Acting in Concert.

For Instance:


Pre Holding

Creeping Acquisition

Post Holding

Applicability of SEBI (SAST) Regulations, 2011





Open Offer Obligations











4. Change in Control

Regulation 4 of the SEBI (SAST) Regulations, 2011 specifies that if any acquirer including person acting in concert acquires control over the Target Company irrespective of the fact whether there has been any acquisition of shares or not, then he has to give public announcement to acquire shares from shareholders of the Target Company.

Offer Size

In mandatory open offer, the acquirer has to give open offer to the shareholders for acquisition of atleast 26% of the total shares of the Target Company.

Till now, 61 Mandatory Offers have been made under SEBI (SAST) Regulations, 2011.

II. Voluntary Open Offer

"Voluntary Open Offer" means Open Offer given by the acquirer voluntarily without triggering the mandatory Open Offer obligations as envisaged under SEBI (SAST) Regulations, 2011. Generally, the purpose of giving Voluntary Open Offer is to consolidate the shareholding.

Regulation 6 of SEBI (SAST) Regulations, 2011 deals with the concept of Voluntary Open Offer and provides the eligibility, conditions and restrictions with respect to the same that are detailed below:

Eligibility for making Voluntary Open Offer

  • Acquirer along with PACs should be holdingat least 25% or more shares in the Target Company prior to making voluntary Open Offer.
  • The Acquirer or PACs have not acquired any shares of the Target Company in the preceding 52 weeks without attracting the Open Offer obligation.

Conditions for making Voluntary Open Offer

  • The aggregate shareholding after completion of the Voluntary Open Offer should not exceed beyond the maximum permissible non-public shareholding.
  • No acquisition during the offer period except under the Voluntary Open Offer.


The acquirer becomes ineligible to acquire further shares for a period of six months after the completion of Open Offer except by way of:

  • Another Voluntary Open Offer;
  • Acquisitions by making a competing offer.

Size of the Voluntary Open Offer


By a person holding 25% or more shares and making voluntary Open Offer u/r  6

By a person holding less than 25%

Minimum Offer Size



Maximum Offer Size

Maximum permissible non public shareholding permitted under Securities Contracts (Regulations) Rules 1957

Maximum can be for entire share capital of the target company.

Till now, 6 Voluntary Offers have been made under SEBI (SAST) Regulations, 2011.

III. Competing Offer

The term Competing Offers refers to an offer given by any other person (Competitor Acquirer) after an offer has already been given by an acquirer to the shareholders of the Target Company to acquire the shares held by them. 

E.g. If 'A' (Acquirer) has already given an Open Offer in terms of SEBI (SAST) Regulations, 2011 to the shareholders of X Ltd. (Target Company) and subsequently during the relevant period, B (any other person) also gives the similar offer to the shareholders of the Target Company, then offer given by B shall be termed as 'Competing Offer' in terms of these regulations.

Legal Provision

Regulation 20 of SEBI (SAST) Regulations, 2011 deals with the concept of Competing Offer. As per regulation 20 (1), Upon a public announcement of an Open Offer for acquiring shares of a Target Company being made, any person, other than the acquirer who has made such public announcement, shall be entitled to make a public announcement of an Open Offer within fifteen working days of the date of the Detailed Public Statement (DPS) issued by the acquirer who has made the first public announcement.

Timing under Competing offers



Public announcement under Competing Offer

Within 15 working days of the date of DPS issued by the First Acquirer.

No Public announcement under Competing Offer or no acquisition of shares that would attract the obligation to make PA

After 15 working days of the DPS issued by the First Acquirer and until the expiry of the offer period under the said offer

Upward revision of the offer price under Competing Offer

Upto 3 working days prior to the commencement of the tendering period.

Increase in offer size by the acquirer in case of voluntary offer

Within a period of fifteen working days from the public announcement of a competing offer.

Comments of board on DLOO in respect of Competing Offer

SEBI shall provide its comments on the draft letter of offer in respect of each competing offer on the same day.

Publication of Recommendations  of the committee of Independent Directors

At least two working days before the commencement of the tendering period.

Size of competing offers

As per regulation 20 (2), the minimum number of shares for competitive offer shall be determined as under:


  • Competing offer can be made within 15 working days from the date of DPS made by the acquirer who makes the first PA. Unless the first open offer is a conditional offer, the competing offer cannot be made conditional as to the minimum level of acceptance.
  • A competing offer is not regarded as a voluntary Open Offer and therefore all the provisions of SEBI (SAST) Regulations, 2011, including that of offer size, would also apply in case of Competing Offer.
  • Upon PA of competing offer, an acquirer who had made a preceding offer is allowed to revise the terms of his open offer; if the terms are more beneficial to the shareholders of the target company. The upward revision of the offer price can be made any time up to three working days prior to commencement of the tendering period.
  • No induction of any new director to the board of directors of the target company during the pendency of competing offers. Provided that in the event of death or incapacitation of any director, the vacancy arising therefrom may be filled by any person subject to approval of such appointment by shareholders of the target company by way of a postal ballot. 

Till now, no competing offers have been made under SEBI (SAST) Regulations, 2011.


To sum up it can be said that the increase in threshold limit to 25% is a welcome move and would be beneficial for the India Inc. as it would attract more Private Equity investors and would be in line with the Global M&A practices. Apart from this, the increase in offer size to 26% is in interest of the public shareholders.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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