India: SEBI Notifies Exit Option Route For Dissenting Shareholders Regarding Change In Objects By A Listed Company

The Securities and Exchange Board of India (SEBI) has notified an amendment to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (ICDR Regulations) on 18 February 2016 (Amendment). The Amendment introduced Chapter VI-A to the ICDR Regulations which lists  the conditions and manner in which an exit opportunity is to be provided to dissenting shareholders by a company, in case a company wants to change or vary a term of contract or objects of the issue stated in a prospectus.

Background to the Amendment

The Companies Act, 2013 (the Act) introduced Sections 13(8) and 27(2) which mandate that a company which has raised money from public by filing a prospectus, cannot vary the terms of a contract referred to in the prospectus or objects for which it raised the money through prospectus, unless: (i) it has been approved by the shareholders in a general meeting by way of a special resolution; and (ii) an exit offer has been given to dissenting shareholders (being those shareholders who voted against the special resolution to alter the terms/objects), by the promoters or shareholders in control (Exit Offer). The Act provided that SEBI will formulate rules in this regard.

In light of the above, SEBI has introduced this Amendment.

Applicability of the Exit Offer

The obligation of giving an Exit Offer is upon either the promoters or shareholders in control of any company and such person is required to provide an Exit Offer if the following conditions are fulfilled:

  1. The initial public offer (IPO), further public offer (FPO) and institutional placement programme (IPP) opened post 1 April 2014 (i.e. post commencement of the Act).
  1. The proposal to alter the terms/objects is dissented by at least 10% of the shareholders voting in the general meeting.
  1. The amount utilized for the objects of the issue is less than 75% of the total amount raised through the prospectus (including the amounts earmarked for general corporate purposes).

When is an Exit Offer not applicable

A company is not required to provide an Exit Offer if there is no identifiable promoter or shareholders having control, or if more than 75% of the aggregate amount raised through the prospectus has been utilised.

Who can participate?

All shareholders who hold shares as on the date of the board meeting at which the proposal to alter the objects/terms of prospectus is approved (Relevant Date) and who have dissented on the day of the general meeting (irrespective whether they acquired the shares in primary or secondary market), subject to the condition of 10% as mentioned above.

Exit Offer Price

The Exit Offer Price would be the highest of the following:

  1. the volume-weighted average price paid/payable for acquisitions, whether by the promoters/shareholders in control/any person acting in concert with them, during the fifty-two weeks immediately preceding the Relevant Date;
  1. the highest price paid/payable for any acquisition, whether by the promoters/shareholders in control/any person acting in concert with them, during the twenty-six weeks immediately preceding the Relevant Date;
  1. the volume-weighted average market price of such shares for a period of sixty trading days immediately preceding the Relevant Date as traded on the recognised stock exchange where the maximum volume of trading in the shares of the issuer are recorded during such period, provided such shares are frequently traded;
  1. where the shares are not frequently traded, the price determined by the promoters/shareholders in control and the merchant banker taking into account valuation parameters including book value, comparable trading multiples, and such other parameters as are customary for valuation of shares of such issuers.

For the above-mentioned formulations, the "Relevant Date" is the date of the board meeting at which the proposal to alter the objects/terms of the contract is approved. Also, the pricing formulae stated above is same as formulae used for determining the floor price for an open offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).

Exit Offer Mechanism

  1. Board of directors to approve the change in terms of a contract referred to in the prospectus or objects for which the company raised the money through the prospectus.
  1. The notice for passing special resolution (along with the explanatory statement) for altering the objects/terms shall include disclosures required under the Companies Act and should also include a statement that the promoters or the shareholders having control shall provide an exit opportunity to the dissenting shareholders.
  1. A merchant banker registered with SEBI should be appointed to finalise the Exit Offer price.
  1. After passing of the special resolution, the company should submit the voting results to the recognised stock exchanges (Stock Exchanges) which shall subsequently be disseminated to the public within one working day.
  1. Promoter/shareholders having control is required to deposit the aggregate consideration in an escrow account two working days prior to the opening of the tendering period.
  1. Tendering period to start no later than seven working days from the date of the general meeting and remain open for ten working days.
  1. The dissenting shareholders can withdraw their acceptance to the Exit Offer till closure of the tendering period.
  1. Promoters/shareholders having control to make payment of consideration to the dissenting shareholders within ten working days from the last day of tendering period and furnish details thereof to the Stock Exchanges within two working days of the said payment.

Exemption from mandatory trigger of open offer requirements and exceeding maximum permissible public shareholding

Through an amendment to the Takeover Regulations on 17 February 2016, an Exit Offer is exempt from the requirement of Regulation 3 of the Takeover Regulations and accordingly:

  1. No offer will be triggered pursuant to acquisition under the Exit Offer irrespective of percentage acquisition; and
  1. Acquisition beyond minimum public shareholding requirements is also permitted.  

Compliance with minimum public shareholding requirements

If the Exit Offer results in the aggregate shareholding of the promoter/shareholders in control (taken together with persons acting in concert with them) exceeding the maximum permissible non-public shareholding, such promoter/shareholders in control shall bring down the non-public shareholding to the limit, within a period of twelve months, in terms of Rule 19A(2) of Securities Contracts (Regulation) Rules, 1957, as amended.


The Amendment seeks to safeguard the interest of those persons who have invested in a company based on the representations made in the prospectus.

Few points to consider:

  1. While the SEBI board meeting dated 11 January 2016 mentioned about exemptions from contra trade restrictions on promoters/controlling shareholders/dissenting shareholders  under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (the Insider Trading Regulations), these regulations have not been amended yet; and
  1. No exemption for acquisition by way of the Exit Offer under the Insider Trading Regulations is currently permitted. In certain instances, promoter/shareholders in control may fall within the definition of "insider" under the Insider Trading Regulations.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

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