India: Takeover Exemption - Transfer Of Shares To A Family Trust

Introduction

The Securities Exchange Board of India (SEBI), vide the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations), stipulates that any acquisition of voting rights in a listed company in excess of the thresholds specified therein would trigger an obligation to make a mandatory open offer. The intent behind this obligation is that public shareholders must be provided an opportunity to exit when a party acquires substantial stake or control in the target company. However, such an obligation would be too onerous if it were to apply to circumstances involving inter group transfers, transfers between immediate relatives or promoters, transfers pursuant to transmission, succession or inheritance, acquisitions by lenders pursuant to debt restructuring, etc.

Accordingly, SEBI has provided certain general exemptions subject to certain conditions being complied. Where a transaction does not fall into one of these categories or where certain prescribed conditions are not being fulfilled, Regulation 11 of the Takeover Regulations empowers SEBI to grant exemptions to specific transactions on a case to case basis. The acquirer must file an application with SEBI, supported by a duly sworn affidavit, giving details of the proposed transaction and the grounds on which the exemption has been sought.

Standard Format for Exemption Applications

Earlier, SEBI had shared the format for an exemption application with certain applicants in the past and customarily applications were being submitted in the same format. SEBI has now decided to formalise the standard format in order to ensure uniformity of disclosures in such applications. On 22 December 2017, SEBI issued a circular (Ref: SEBI/HO/CFD/DCR1/CIR/P/2017/131) (Circular) specifying the standard format and providing instructions on the process involved. Broadly the exemption application should include the following information in terms of the Circular:

  • General details: Information regarding the acquirer, such as - whether the application is being made by the applicant or by a duly authorised representative, whether the acquirer is a promoter or part of the promoter group of the target company, past applications for exemption, details of pending directions by or proceedings before SEBI, etc.
  • Details of target company: General information including a brief history of the target company, details of its directors and promoters, details of its share capital, information regarding market price of its shares, the minimum offer price per share that would be payable as per the Takeover Regulations if an open offer was made, etc.
  • Details of the proposed acquisition: Information regarding number and percentage of shares or voting rights proposed to be acquired, the proposed acquisition price, details of the proposed sellers, pre and post shareholding patterns, whether the proposed acquisition would result in a change in control, the grounds for seeking exemption, etc.

Cases involving a trust as an acquirer

In the recent past, there has been an increase in the number of exemption applications being made by parties where the transaction involves settlement of shares to a family trust. This is usually in circumstances where promoters are undertaking succession planning involving transfer of shareholding held by individual promoters or promoter companies to trusts created with the promoters and their heirs as the beneficiaries. SEBI has been considering these applications on a case to case basis based on the recommendations of the takeover panel. In light of the increased number of exemption applications for such transactions, SEBI has included a separate schedule in the Circular discussing such cases and providing clarity regarding their treatment. Considering the various exemption applications involving trusts as acquirers that have been approved, SEBI has created a list of conditions that such applicants have satisfied which would act as guiding principles for any future applicants seeking an exemption:

  • The trust deeds must expressly state that: (1) the trust was a mirror image of the promoter's holdings; (2) the trust's beneficiaries and trustees only included individual promoters, their immediate relatives or their lineal descendants; (3) the beneficial interest of the beneficiaries has not been and will not be transferred, assigned or encumbered; (4) the assets will be distributed only to the beneficiaries of the trust or to their legal heirs on dissolution of the trust; and (5) the powers of trustees cannot be transferred or delegated to any persons other than themselves.
  • Further, the trust deed must include the following undertakings: (1) the trustees and indirectly the beneficiaries are vested with control or ownership of shares or voting rights for the purposes of the SEBI Act, 1992 and the regulations thereunder; (2) any change in trustees or beneficiaries or change in ownership and control of shares would be disclosed within 2 days; (3) the trust shall confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI and get its compliance status certified from an independent auditor.
  • In addition, the transferors must have been promoters of the target company for over 3 years (except for holding on account of inheritance), there must be no layering in terms of trustees / beneficiaries, and the trust deed must not limit the liability of any trustees or beneficiaries in relation to the SEBI Act, 1992 and the regulations thereunder.

While the above conditions will be the basis on which an application is considered, SEBI has clarified that complying with them would not ensure grant of exemption but would significantly expedite the exemption process. SEBI and the takeover panel will continue to scrutinise all applications on a case to case basis.

Comment

The standardised format for making an exemption application is a welcome move as it would streamline the application process and bring in certainty for applicants regarding SEBI's expectation on the disclosure front.

With regard to settlement of shares to a trust, the Circular seems to have been issued given the precautionary approach being adopted by certain parties and makes such transfers more restrictive and subject to a specific exemption. Strictly speaking under Indian trust law, ownership of the asset is vested with the trustee and therefore it is the relationship between a settlor and trustee which should be considered for ascertaining availability of a general exemption. So long as the settlors and the trustees of the relevant trust satisfy the requirements for an inter-se transfer exemption, a general exemption should ideally be available.

On the positive side, given that SEBI has now clarified the conditions and undertakings required with such applications, one hopes that it would assist SEBI in expediting decisions made on these applications and facilitate timely implementation of settlement transactions.

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 legalalerts@khaitanco.com

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions