P ROJECT R EPORT ON

“PROCEDURE FOR ACQUISITION - A L EGAL

PERSPECTIVE ”

Submitted to:

Mr. V. Surya Narayana Raju

(Faculty Corporate Restructuring)

Submitted by:

Hemant Verma

Roll no. 58

Semester X (A)

Hidayatullah National Law University, Raipur

Submitted on: 1 st April, 2019
 ACKNOWLEDGMENTS

I feel highly elated to work on the topic “PROCEDURE FOR ACQUISITION-A LEGAL
PERSPECTIVE” The practical realization of this project has obligated the assistance and help
of many people. I express my deepest regard and gratitude to my teacher, Mr. V. Surya
Narayana Raju for his unstinted support. His consistent supervision, constant inspiration
and invaluable guidance have been of immense help in understanding and carrying out the
nuances of the project report.

My gratitude also goes out to the staff and administration of HNLU for the infrastructure in
the form of our library and IT Lab that was a source of great help for the completion of this
project.

Hemant Verma
Roll no. 58
(Semester X)
 TABLE OF CONTENTS

1. Acknowledgements............................................................................................................(i)
2. Abbreviations………………………………………………………………………...…(iii)
3. Introduction…………………………………………………………………………..…(iv)
4. Introduction to Research Methodology………………………………………..…………1
5. Meaning and Concept of Takeover……………………………………………………….4
6. Emergence of Takeover…………………………………………………………………...5
7. Kinds of Takeover………………………………………………………………………...8
8. Takeover Bids……………………………………………………………………………..9
9. Competitive Bid………………………………………………………………………….11
10. Legal Aspects of Takeover………………………………………………………………14
11. SEBI Regulations for Takeover………………………………………………………….14
12. Withdrawal of Offer……………………………………………………………………..27
13. Conclusion……………………………………………………………………………….35
14. Bibliography……………………………………………………………………………..36

ii
 ABBREVIATIONS

SAST Substantial Acquisition of Shares and Takeover

FEMA Foreign Exchange and Management Act

SEBI Securities Exchange Board of India

MRTP Act Monopolies and Restrictive Trade Practices Act, 1969

CA 02 Competition Act, 2002

CA, 2013 Companies Act, 2013

CA, 1956 Companies Act, 1956

NCLT National Company Law Tribunal

ICDR Issue of Capital and Disclosure Requirements

PAC persons acting in concert

SAT SEBI Appellate Tribunal

EPS Earning per share

DLO Draft Letter of Offer

iii
 INTRODUCTION

The twentieth century began with the process of transformation of entire business scenario. The
economy of India which was hitherto controlled and regulated by the Government was set free to
seize new opportunities available in the world. With the announcement of the policy of
globalization, the doors of Indian economy were opened for the overseas investors. But to
compete at the world platform, the scale of business was needed to be increased. In this changed
scenario, mergers and acquisitions were the best option available for the corporates considering
the time factor involved in capturing the opportunities made available by the globalization.

This new weapon in the armory of corporates though proved to be beneficial but soon the
predators with huge disposable wealth started exploiting this opportunity to the prejudice of
retail investor. This created a need for some regulation to protect the interest of investors so that
the process of takeover and mergers is used to develop the securities market and not to sabotage
it.

In the year 1992, with the enactment of SEBI Act, SEBI was established as regulatory body to
promote the development of securities market and protect the interest of investors in securities
market. Thus SEBI appointed a committee headed by P.N. Bhagwati to study the effect of
takeovers and mergers on securities market and suggest the provisions to regulate takeovers and
mergers.

The confidence of retail investors in the capital market is a crucial factor for its development.
Therefore, their interest needs to be protected, an exit opportunity shall be given to the investors
if they do not want to continue with the new management., full and truthful disclosure shall be
made of all material information relating to the open offer so as to take an informed decision, the
acquirer shall ensure the sufficiency of financial resources for the payment of acquisition price to
the investors., the process of acquisition and mergers shall be completed in a time bound manner.
disclosures shall be made of all material transactions at earliest opportunity.

iv
 INTRODUCTION TO RESEARCH METHODOLOGY

Scope and Objective

The scope of the research project is extends to understanding the procedure for acquisition of
shares in a takeover and the bidding process involved in a takeover through analysis of the
Companies Act, 1956 and 2013 and the various SEBI Regulations. In this research project the
terms acquisition and takeover are treated synonymously.

The objective of the project is to study the procedure for takeover bids and withdrawal of offer
for takeover under the Companies Act (both 1956 and 2013) and also to understand the
procedure for acquisition of shares in the entire process of taking over a company.

Review of Literature

1. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers___Acq
uisitions_in_India.pdf (last visited on 3-10-2017)
This Article explains the key corporate and securities laws with respect to procedure for
acquisition and takeover.
2. http://www.legalserviceindia.com/article/l183-Takeovers.html (last visited on 2-10-
2017)
The Article deals with the framework of the Companies Act, 2013 with regards to
takeovers and acquisitions and compares the process for the same in the Companies Act,
1956 and 2013.
3. http://indiacorplaw.blogspot.in/2014/03/withdrawal-of-takeover-offer.html (last visited
on 2-10-2017)
The Article gives an overview of the Companies Act, 2013 and also talks about
withdrawal of a Takeover offer.

1
Nature of Study

The doctrinal method of research has been used, which involve collection of data from both
primary and secondary sources; primary sources like statutes, reports of the commissions and
committees related thereto and Secondary sources like books written by various eminent authors
and articles found in the journals and websites, e-journals.

Chapterisation

The research project is divided into 9 chapters. The first chapter deals with the method of
research used for the completion of the project. The second and third chapter introduces the
concept of takeovers and how they emerged as a part of the corporate transactions and the fourth
chapter explains the kinds of takeovers. The fifth and sixth chapter deals with the concept of
takeover bids and explains competitive bids in respect of takeovers. The seventh chapter contains
the legal aspects of takeovers including legal effects and implications of such transactions. The
eighth chapter enlists the various SEBI Regulations with respect to Takeovers in India. The last
chapter deals with the withdrawal of an offer for takeover and includes withdrawal of both a
voluntary offer as well as an open offer.

2
 MEANING & CONCEPT OF TAKEOVER

A high level of competitive pressure and an increasing appetite for growth have led firms across
geographies and industries to choose the inorganic growth path. Mergers & Acquisitions and
Takeovers provide a robust growth vehicle often best suited for such firms seeking an entry into
a market, geography, product category or broadening its product and / or client base.

Takeover, an inorganic corporate growth device whereby one company acquires control over
another company, usually by purchasing all or a majority of its shares. Takeover implies
acquisition of control of a company, which is already registered, through the purchase or
exchange of shares. Takeovers usually take place when shares are acquired or purchased from
the shareholders of a company at a specified price to the extent of at least controlling interest in
order to gain control of that company.

Takeover of management and control of a business enterprise could take place in different
modes. The management of a company may be acquired by acquiring the majority stake in the
share capital of a company. A company may acquire shares of an unlisted company through what
is called the acquisition under Section 395 of the Companies Act, 1956. Where the shares of the
company are closely held by a small number of persons, a takeover may be effected by
agreement with the holders of those shares. However, where the shares of a company are widely
held by the general public, it involves the process as set out in the SEBI (Substantial Acquisition
of Shares and Takeovers) Regulations, 2011.

Ordinarily, a larger company takes over a smaller company. In a reverse takeover, a smaller
company acquires control over a larger company. The takeover strategy has been conceived to
improve corporate value, achieve better productivity and profitability by making optimum use of
the available resources in the form of men, materials and machines.

Company Secretaries have important role to play in the take over process especially with regard
to compliances under the Companies Act, SEBI (SAST) Regulations 2011, Competition Law
aspects, FEMA regulations etc. The role would be with respect to preparation of checklist,

3
drafting of documents, obtaining of necessary approvals etc. The advisory role of company
secretaries in the effective execution of takeover deals is vital throughout the takeover process.

4
 EMEREGENCE OF TAKEOVER

Corporate Sector is an attractive medium for carrying on business as it offers a lot of benefits.
Raising money from public has its own positive features and it helps setting up big projects.
When promoters of a company desire to expand, they take a quick view of the industrial and
business map. If they find there are opportunities, they will always yearn for capitalizing such
opportunities. Compared to the efforts required, cost and time needed in setting up a new
business, it would make sense to them to look at the possibilities of acquiring an existing entity.

While the possibility of takeover of a company through share acquisition is desirable for
achieving certain strategic objectives, there has to be well defined regulations so that the interests
of all concerned are not jeopardized by sudden takeover threats. In this perspective, ifone were to
analyse, it would be clear that there has to be a systematic approach enabling and leading the
takeovers, while simultaneously providing adequate opportunity to the original promoters to
protect/counter such moves. Thus, while the acquirer should adopt a disciplined method with
proper disclosure of intentions so that not only the original promoters who are in command are
protected but also the investors. It would be in the interests of all concerned that the takeover is
carried out in a transparent manner1.

When adequate checks and balances are introduced and ensured, takeovers become a good tool.
That is the reason why regulations have been put in place and these regulations require sufficient
disclosures at every stage of acquisition. These regulations take so much care that they cover not
only direct acquisition of the acquirer but also includes acquisitions through relatives and
associates and group concerns.

In India, the process of economic liberalisation and globalisation ushered in the early 1990’s
created a highly competitive business environment, which motivated many companies to
restructure their corporate strategies. The restructuring process led to an unprecedented rise in
strategies like amalgamations, mergers including reverse mergers, demergers, takeovers, reverse
takeovers and other strategic alliances2.

1
Werton, J. Fred, et al, Mergers, Restructuring, and Corporate Control, (1998), p.481.
2
Ibid.

5
Objects of Takeover

The objects of a takeover may inter alia be

(i) To effect savings in overheads and other working expenses on the strength of combined
resources;

(ii) To achieve product development through acquiring firms with compatible products and
technological/manufacturing competence, which can be sold to the acquirer’s existing marketing
areas, dealers and end users;

(iii) To diversify through acquiring companies with new product lines as well as new market
areas, as one of the entry strategies to reduce some of the risks inherent in stepping out of the
acquirer’s historical core competence;

(iv) To improve productivity and profitability by joint efforts of technical and other personnel of
both companies as a consequence of unified control;

(v) To create shareholder value and wealth by optimum utilisation of the resources of both
companies;

(vi) To achieve economy of numbers by mass production at economical costs;

(vii) To secure advantage of vertical combination by having under one command and under one
roof, all the stages or processes in the manufacture of the end product, which had earlier been
available in two companies at different locations, thereby saving loading, unloading,
transportation costs and other expenses and also by affecting saving of time and energy
unnecessarily spent on excise formalities at different places and stages;

(viii) To secure substantial facilities as available to a large company compared to smaller

companies for raising additional capital, increasing market potential, expanding consumer base,
buying raw materials at economical rates and for having own combined and improved research
and development activities for continuous improvement of the products, so as to ensure a
permanent market share in the industry;

(ix) To increase market share;

6
(x) To achieve market development by acquiring one or more companies in new geographical
territories or segments, in which the activities of acquirer are absent or do not have a strong
presence.3

3
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers___Acquisitions_in_India.p
df

7
 KINDS OF TAKEOVER

Takeovers may be broadly classified into three kinds:

(i) Friendly Takeover: Friendly takeover is with the consent of taken over company. In
friendly takeover, there is an agreement between the management of two companies
through negotiations and the takeover bid may be with the consent of majority or all
shareholders of the target company. This kind of takeover is done through
negotiations between two groups. Therefore, it is also called negotiated takeover.
(ii) Hostile Takeover: When an acquirer company does not offer the target company the
proposal to acquire its undertaking but silently and unilaterally pursues efforts to gain
control against the wishes of existing management.
(iii) Bail Out Takeover: Takeover of a financially sick company by a profit earning
company to bail out the former is known as bail out takeover. There are several
advantages for a profit making company to takeover a sick company. The price would
be very attractive as creditors, mostly banks and financial institutions having a charge
on the industrial assets, would like to recover to the extent possible. Banks and other
lending financial institutions would evaluate various options and if there is no other
go except to sell the property, they will invite bids. Such a sale could take place in the
form by transfer of shares. While identifying a party (acquirer), lenders do evaluate
the bids received, the purchase price, the track record of the acquirer and the overall
financial position of the acquirer. Thus a bail out takeover takes place with the
approval of the Financial Institutions and banks.4

4
Ibid.

8
 TAKEOVER BIDS

Takeover bid” is an offer to the shareholders of a company, whose shares are not closely held, to
buy their shares in the company at the offered price within the stipulated period of time. It is
addressed to the shareholders with a view to acquiring sufficient number of shares to give the
offeror company, voting control of the target company.

A takeover bid is a technique, which is adopted by a company for taking over control of the
management and affairs of another company by acquiring its controlling shares.

Types of Takeover Bids

A takeover bid may be a “friendly takeover bid” or a “hostile takeover bid”. Bids may be
mandatory/competitive bids.

Mandatory Bid

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, require acquirers
to make bids for acquisition of certain level of holdings subject to certain conditions. A takeover
bid is required to be introduced through a public announcement through newspapers. Such
requirements arise in the following cases:

(a) for acquisition of 25% or more of the shares or voting rights;

(b) for acquiring additional shares or voting rights to the extent of 5% of the voting rights in
any financial year ending on 31st March if such person already holds not less than 25% but
not more than 75% or 90% of the shares or voting rights in a company as the case may be;

(c) for acquiring control over a company5

Factors Determining Vulnerability of Companies to Takeover Bids

The enquiry into such strategies is best initiated by an analysis of factors, which determine the
“vulnerability” ofcompanies to takeover bids. It is possible to identify such characteristics that

5
http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers___Acquisitions_in_India.p
df

9
make a company a desirable candidate for a takeover from the acquirer’s point of view. Thus, the
factors which make a company vulnerable are:

— Low stock price with relation to the replacement cost of assets or their potential earning
power;

— A highly liquid balance sheet with large amounts of excess cash, a valuable securities
portfolio, and significantly unused debt capacity;

— Good cash flow in relation to current stock prices;

— Subsidiaries and properties which could be sold off without significantly impairing cash
flow; and

— Relatively small stockholdings under the control of an incumbent management.

A combination of these factors can simultaneously make a company an attractive proposition or

investment opportunity and facilitate its financing. The company’s assets may act as collateral
for an acquirer’s borrowings, and the target’s cash flows from operations and divestitures can be
used to repay the loans.

10
 COMPETITIVE BID

Monopolies and Restrictive Trade Practices Act, 1969 (“MRTP Act”) and
Competition Act, 2002 (“CA02”):

The MRTP Act aims towards controlling monopolistic, restrictive and unfair trade practices,
which curtail competition in trade and industry. Monopolistic trade practice includes a trade
practice unreasonably preventing or lessening competition in the production, supply or
distribution of any goods or in the supply of any services. Sections 108A to 108I incorporated in
CA56 restrict the transfer of shares by body or bodies corporate under the same management
holding 10% or more of the subscribed share capital of any company without intimating the
Central government of the proposed transfer.

The Competition Commission can investigate any combination, which is a merger or acquisition
where any of the following apply:

o The parties jointly have assets exceeding INR 10 billion (about US$ 227 million)
or turnover of more than INR 30 billion (about US$682 million) in India, or assets
of US$ 500 million (about EUR 413 million) or turnover of more than US$ 1.5
billion (about EUR 1.2 billion) in India or outside India.

o The group to which the company will belong after the acquisitions and the
company jointly have assets exceeding INR 40 billion (about US$ 909.6 million)
or turnover of more than INR 120 billion (about US$ 2.7 billion) in India, or
assets of US$ 2 billion (about EUR 1.7 billion) or turnover of more than INR 120
billion (about US$ 2.7 billion) in India, or assets of US$ 2 billion (about EUR 1.7
billion) or turnover of more than US$ 6 billion (about EUR 5 billion) in India or
outside India.

o The bidder already has direct or indirect control over another enterprise engaged
in the production, distribution or trading of a similar, identical or substitutable
good or service, and the acquired enterprise and this other enterprise jointly have
assets exceeding INR 10 billion or turnover of more than INR 30 billion in India,

11
 or assets of US$ 500 million or turnover of more than US$ 1.5 billion in India or
outside India.

o The enterprise after the merger or acquisition has assets exceeding INR 10 billion
or turnover of more than INR 30 billion in India, or assets of US$ 500 million or
turnover of more than US$ 1.5 billion in India or outside India.

While investigating the combination, the Competition Commission must examine whether it is
likely to cause, or causes, an adverse effect on competition within the relevant market in India.
The Competition Commission has 90 days from the date of publication of details of the
combination by the parties to pass an order approving, prohibiting or requiring modification of
the combination, or to issue further directions. If it does not do this, the combination is deemed
approved. There is no obligation to suspend the combination while the investigation is taking
place.6

6
http://indialawjournal.com/volume1/issue_1/m_a_regulations.html

12
 LEGAL ASPECTS OF TAKEOVER

The legislations/regulations that mainly govern takeover is as under

1. SEBI (SAST) Regulations 2011

2. Companies Act, 1956

3. Listing Agreement

SEBI (SAST) Regulations 2011 lays down the procedure to be followed by an acquirer for
acquiring majority shares or controlling interest in another company.

As far as Companies Act is concerned, the provisions of Section 372A apply to the acquisition of
shares through a Company. Section 395 of the Companies Act 7 lays down legal requirements for
purpose of take-over of an unlisted company through transfer of undertaking to another
company.

The takeover of a listed company is regulated by clause 40A and 40B of the Listing Agreement.
These clauses in the Listing Agreement seek to regulate takeover activities independently and
impose certain requirements of disclosure and transparency.

SEBI REGULATIONS FOR TAKEOVER

Substantial Acquisition of Shares & Takeover

Acquisition of Shares

Acquisitions may be via an acquisition of existing shares of the target, or by subscription to new
shares of the target.

Transferability of shares:

7
Section 395 Companies Act, 1956.

13
Broadly speaking, an Indian company is set up as a private company or as a public company.
Membership of a private company is restricted to 200 members and a private company is
required by the Companies Act, 2013 to restrict the transferability of its shares. A restriction on
transferability of shares is consequently inherent to a private company, such restrictions being
contained in its articles of association (the byelaws of the company), and usually in the form of a
pre-emptive right in favor of the other shareholders. With the introduction of Companies Act,
2013, although shares of a public company are freely transferable, share transfer restrictions for
even public companies have been granted statutory sanction. The articles of association may
prescribe certain procedures relating to transfer of shares that must be adhered to in order to
affect a transfer of shares. While acquiring shares of a private company, it is therefore advisable
for the acquirer to ensure that the non-selling shareholders (if any) waive any rights they may
have under the articles of association. Any transfer of shares, whether of a private company or a
public company, must comply with the procedure for transfer under its articles of association.

Squeeze out Provisions:

Section 395 envisages a complete takeover or squeeze-out without resort to court procedures.
Section 395 provides that if a scheme or contract involving the transfer of shares or a class of
shares in a company (the ‘transferor company’) to another company (the ‘transferee company’)
is approved by the holders of at least 9/10ths (in value) of the shares whose transfer is involved,
the transferee company may give notice to the dissenting shareholders that it desires to acquire
the shares held by them. Once this notice is issued, the transferee company is not only entitled,
but also bound, to acquire such shares. In computing 90% (in value) of the shareholders as
mentioned above, shares held by the acquirer, nominees of the acquirer and subsidiaries of the
acquirer must be excluded.

If the transferee already holds more than 10% (in value) of the shares (being of the same class as
those that are being acquired) of the transferor, then the following conditions must also be met:

￭ The transferee offers the same terms to all holders of the shares of that class whose transfer is

involved; and

14
￭ The shareholders holding 90% (in value) who have approved the scheme/contract should also

be not less than 3/4th in number of the holders of those shares (not including the acquirer).

￭ The scheme or contract referred to above should be approved by the shareholders of the

transferee company within 4 months from the date of the offer. The dissenting shareholders have
the right to make an application to the Court within one month from the date of the notice, if they
are aggrieved by the terms of the offer. If no application is made, or the application is dismissed
within one month of issue of the notice, the transferee company is entitled and bound to acquire
the shares of the dissenting shareholders.

Section 395 does not regulate the pricing of the offer made by the acquirer, and the powers of the
court are limited if an objection is made by a dissenting shareholder. The court cannot direct the
acquirer to pay a price that has not been offered. The Court would be guided by the fairness of
the scheme including the valuation offered. However, if an overwhelming majority has approved
the scheme, it would be a heavy burden on the dissenting shareholder to establish why his shares
should not be compulsorily acquired.

Section 395 of the CA 1956 provides that the ‘transferor company’ (i.e. the target) can be any
body corporate, whether or not incorporated under Indian law. Therefore the target can also be a
foreign company. However, a ‘transferee company’ (i.e. the acquirer), must be an Indian
company.

Section 236 of CA, 2013

Under the CA 2013, if a person or group of persons acquire 90% or more of the shares of a
company, then such person(s) have a right to make an offer to buy out the minority shareholders
at a price determined by a registered valuer in accordance with prescribed rules.8 The provisions
in the CA 2013 aim to provide a fair exit to the minority shareholders, as the price offered must
be based on a valuation conducted by a registered valuer. However, it is not clear whether the
minority shareholders can choose to retain their shareholding.

Scheme of capital reduction under section 100 of the CA 1956

8
Section 236 of the Companies Act, 2013.

15
Section 100 of the CA 1956 permits a company to reduce its share capital in any manner and
prescribes the procedure to be followed for the same. The scheme of capital reduction under
section 100 of the CA 1956 must be approved by, (i) the shareholders of the company vide a
special resolution; and (ii) a competent court by an order confirming the reduction. When the
company applies to the court for its approval, the creditors of the company would be entitled to
object to the scheme of capital reduction. The court will approve the reduction only if the debt
owed to the objecting creditors is safeguarded/provided for. What is interesting to note is that the
framework for reduction of capital under section 100 has been utilized to provide exit to certain
shareholders, as opposed to all shareholders on a proportionate basis. The courts have held that
reduction of share capital need not necessarily be qua all the shareholders of the company.9

Scheme of capital reduction under Section 66 CA, 2013

The capital reduction requirements are more stringent under the CA 2013. In addition to giving
notice to creditors of the company, the NCLT is required to give notice of the application for
reduction of capital to the Central Government and the SEBI (in case of a listed company), who
will have a period of three months to file any objections. Companies will have to mandatorily
publish the NCLT order sanctioning the scheme of capital reduction.

New Share issuance

Section 42, 62 of CA 2013 and Rule 13 of the Companies (Share Capital and Debenture) Rules
2014 prescribe the requirements for any new issuance of shares on a preferential basis (i.e. any
issuance that is not a rights or bonus issue to existing shareholders) by an unlisted company.
Some of the important requirements under these provisions are described below:

￭ The company must engage a registered valuer to arrive at a fair market value of the shares for

the issuance of shares.10

￭ The issuance must be authorized by the articles of association of the company11 and approved

by a special resolution12 passed by shareholders in a general meeting, authorizing the board of

9
Sandvik Asia Limited vs. Bharat Kumar Padamsi and Ors [2009]92SCL272(Bom); Elpro International Limited
(2009 4 Comp LJ 406 (Bom)).
10
Section 62 (1) (c) Companies Act, 2013.

16
directors of the company to issue the shares.13 A special resolution is one that is passed by at
least 3/4ths of the shareholders present and voting at a meeting of the shareholders. If shares are
not issued within 12 months of the resolution, the resolution will lapse and a fresh resolution will
be required for the issuance.14

￭ The explanatory statement to the notice for the general meeting should contain key disclosures

pertaining to the object of the issue, pricing of shares including the relevant date for calculation
of the price, shareholding pattern, change of control, if any, and whether the
promoters/directors/key management persons propose to acquire shares as part of such
issuance.15

Shares must be allotted within a period of 60 days, failing which the money must be returned
within a period of 15 days thereafter. Interest is payable @ 12%p.a. from the 60th day.16

￭ These requirements apply to equity shares, fully convertible debentures, partly convertible

debentures or any other financial instrument convertible into equity.17

Limits on Acquirer

Section 186 of the CA 2013 provides for certain limits on inter-corporate loans and investments.
An acquirer that is an Indian company might acquire by way of subscription, purchase or
otherwise, the securities of any other body corporate upto (i) 60% of the acquirer’s paid up share
capital and free reserves and securities premium, or (ii) 100% of its free reserves and securities
premium account, whichever is higher. However, the acquirer is permitted to acquire shares
beyond such limits, if it is authorized by its shareholders vide a special resolution passed in a
general meeting.

Asset/Business Purchase

11
Rule 13(2)(a) of the Companies (Share Capital and Debenture) Rules 2014.
12
Rule 13(2)(b) of the Companies (Share Capital and Debenture) Rules 2014.
13
Rule 13(1) of the Companies (Share Capital and Debenture) Rules 2014.
14
Rule 13(2)(f) of the Companies (Share Capital and Debenture) Rules 2014.
15
. Rule 13(2)(d) of the Companies (Share Capital and Debenture) Rules 2014.
16
Section 42(6) Companies Act, 2013.
17
Rule 13(1) of the Companies (Share Capital and Debenture) Rules 2014.

17
As against a share acquisition, the acquirer may also decide to acquire the business of the target
which could typically entail acquisitions of all or specific assets and liabilities of the business for
a consideration. Therefore, depending upon the commercial objective and considerations, an
acquirer may opt for (i) asset purchase whereby one company purchases all of part of the assets
of the other company; or (ii) slump sale whereby one company acquires the ‘business
undertaking’ of the other company as a going concern i.e. acquiring all assets and liabilities of
such business.

Under CA 2013, the sale, lease or other disposition of the whole or substantially the whole of
any undertaking of a company requires the approval of the shareholders through a special
resolution.18 The term “Undertaking” means an undertaking in which the investment of the
company exceeds 20% of its net worth as per the audited balance sheet of the preceding financial
year, or an undertaking which generates 20% of the total income of the company during the
previous financial year. Further this requirement applies if 20% or more of the undertaking
referred to above is sought to be sold, leased or disposed off. An important consideration for
these options is the statutory costs involved i.e. stamp duty, tax implications etc. We have delved
into this in brief in our chapter on ‘Taxes and Duties’.

Securities and Exchange Board of India (Issue Of Capital And Disclosure Requirements)
Regulations, 2009

If the acquisition of an Indian listed company involves the issue of new equity shares or
securities convertible into equity shares (“Specified Securities”) by the target to the acquirer, the
provisions of Chapter VII (“Preferential Allotment Regulations”) contained in ICDR Regulations
will apply (in addition to company law requirements mentioned above). We have highlighted
below some of the important provisions of the Preferential Allotment Regulations.

Pricing of the issue

The Preferential Allotment Regulations set a floor price for an issuance. The floor price of shares
is linked to the average of the weekly high and low closing price of the stock of the company
over a 26 week period or a 2 week period preceding the relevant date.

18
Section 180 of the Companies Act, 2013.

18
Lock in

Securities issued to the acquirer (who is not a promoter of the target) are locked-in for a period of
1 year from the date of trading approval. The date of trading approval is the latest date when
trading approval is granted by all stock exchanges on which the securities of the company are
listed. Further, if the acquirer holds any equity shares of the target prior to such preferential
allotment, then such prior holding will be locked in for a period of 6 months from the date of the
trading approval. If securities are allotted on a preferential basis to promoters/ promoter group,
they are locked in for 3 years from the date of trading approval subject to a limit of 20% of the
total capital of the company. The locked-in securities may be transferred amongst promoter/
promoter group or any person in control of the company, subject to the transferee being subject
to the remaining period of the lock in.

Exemption to court approver merger

The Preferential Allotment Regulations do not apply in the case of a preferential allotment of
shares pursuant to merger / amalgamation approved by the Court under the Merger Provisions
discussed above.

Takeover Code

If an acquisition is contemplated by way of issue of new shares, or the acquisition of existing

shares or voting rights, of a listed company, to or by an acquirer, the provisions of the Takeover
Code are applicable. The Takeover Code regulates both direct and indirect acquisitions of shares
or voting rights in, and control over a target company. The key objectives of the Takeover Code
are to provide the shareholders of a listed company with adequate information about an
impending change in control of the company or substantial acquisition by an acquirer, and
provide them with an exit option (albeit a limited one) in case they do not wish to retain their
shareholding in the company.

Mandatory offer

Under the Takeover Code, an acquirer is mandatorily required to make an offer to acquire shares
from the other shareholders in order to provide an exit opportunity to them prior to
consummating the acquisition, if the acquisition fulfils the conditions as set out in Regulations 3,

19
4 and 5 of the Takeover Code. Under the Takeover Code, the obligation to make a mandatory
open offer by the acquirer19 is triggered in the following events:

a. Initial Trigger If the acquisition of shares or voting rights in a target company entitles the
acquirer along with the persons acting in concert (“PAC”) to exercise (25% or more of
the voting rights in the target company.
b. Creeping Acquisition If the acquirer already holds 25% or more and less than 75% of the
shares or voting rights in the target, then any acquisition of additional shares or voting
rights that entitles the acquirer along with PAC to exercise more than five per cent (5%)
of the voting rights the target in any financial year. It is important to note that the five per
cent (5%) limit is calculated on a gross basis i.e. aggregating all purchases and without
factoring in any reduction in shareholding or voting rights during that year or dilutions of
holding on account of fresh issuances by the target company. If an acquirer acquires
shares along with other subscribers in a new issuance by the company, then the
acquisition by the acquirer will be the difference between its shareholding pre and post
such new issuance. It should be noted that an acquirer (along with PAC) is not permitted
to make a creeping acquisition beyond the statutory limit of nonpublic shareholding in a
listed company20 i.e. seventy five per cent (75%).

Acquisition of Control

If the acquirer control over the target. Regardless of the level of shareholding, acquisition of
‘control’ of a target company is not permitted, without complying with the mandatory offer
obligation under the Takeover Code. What constitutes ‘control’ is most often a subjective test
and is determined on a case-to-case basis. For the purpose of Takeover Code, ‘control’ has been
defined to include:

￭ Right to appoint majority of the directors;

19
Annexure 2 of the Takeover Code.
20
Maximum permissible non-public shareholding is derived based on the minimum public shareholding requirement
under the Securities Contracts (Regulations) Rules 1957 (“SCRR”). Rule 19A of SCRR requires all listed companies
(other than public sector companies) to maintain public shareholding of at least 25% of share capital of the
company. Thus by deduction, the maximum number of shares which can be held by promoters i.e. Maximum
permissible non-public shareholding) in a listed companies (other than public sector companies) is 75% of the share
capital.

20
￭ Right to control the management or policy decisions exercisable by a person or PAC, directly

or indirectly, including by virtue of their shareholding or management rights or shareholders

agreements or voting agreements or in any other manner. Over time, the definition of ‘control’
has been subject to different assessments and has turned to be, quite evidently, a grey area under
the Takeover Code. The Supreme Court order in case of SEBI vs. Subhkam Ventures Private
Limited21, which accepted an out-of-court settlement between the parties, had left open the legal
question as to whether negative control would amount to ‘control’ under the Takeover Code. In
fact, the Supreme Court had ruled that SAT ruling in this case (against which SEBI had appealed
before the Supreme Court) which ruled that ‘negative control’ would not amount to ‘control’ for
the purpose of Takeover Code, should not be treated as precedent. With no clear jurisprudence
on the subject-matter, each veto right would typically be reviewed from the commercial
parameters underlying such right and its impact on the general management and policy decisions
of the target company. Given the recent Jet Etihad deal22, SEBI, recently indicated, its plans to
introduce new guidelines to define ‘bright lines’ to provide more clarity as regards ‘change in
control’ in cases of mergers and acquisitions.

Indirect acquisition of shares or voting rights

For an indirect acquisition obligation to be triggered under the Takeover Code, the acquirer must,
pursuant to such indirect acquisition be able to direct the exercise of such percentage of voting
rights or control over the target company, as would otherwise attract the mandatory open offer
obligations under the Takeover Code. This provision was included to prevent situations where
transactions could be structured in a manner that would side-step the obligations under Takeover
Code. Further, if:

￭ the proportionate net asset value of the target company as a percentage of the consolidated net

asset value of the entity or business being acquired; or

21
SAT Appeal No. 8 of 2009, Date of decision: January 15, 2010.
22
http://www.nishithdesai.com/information/research-and-articles/nda-hotline/nda-hotline-single-view/article/sebi-
clears-jet-etihad-deal.html?no_cach e=1&cHash=fa0e90046247a7f4ea1dad57cba60bad, Last accessed on 7 th
October 3.45pm.

21
￭ the proportionate sales turnover of the target company as a percentage of the consolidated sales

turnover of the entity or business being acquired; or

￭ the proportionate market capitalisation of the target company as a percentage of the enterprise

value for the entity or business being acquired;

is in excess of eighty per cent, on the basis of the most recent audited annual financial
statements, then an indirect acquisition would be regarded as a direct acquisition under the
Takeover Code for the purposes of the timing of the offer, pricing of the offer etc.

Voluntary open offer

An acquirer who holds between 25% and 75% of the shareholding/ voting rights in a company is
permitted to voluntarily make a public announcement of an open offer for acquiring additional
shares of the company subject to their aggregate shareholding after completion of the open offer
not exceeding 75%.23 In the case of a voluntary offer, the offer must be for at least 10% of the
shares of the target company, but the acquisition should not result in a breach of the maximum
non-public shareholding limit of 75%. As per SEBI’s Takeover Code Frequently Asked
Questions, any person holding less than 25% shareholding/voting rights can also make a
voluntary open offer for acquiring additional shares.

Minimum Offer size

Mandatory offer24- The open offer for acquiring shares must be for at least 26% of the shares of
the target company. It is also possible for the acquirer to provide that the offer to acquire shares
is subject to a minimum level of acceptance.25

Voluntary Open Offer26 - In case of a voluntary open offer by an acquirer holding 25% or more
of the shares/voting rights, the offer must be for at least 10% of the total shares of the target
company. While there is no maximum limit, the shareholding of the acquirer post acquisition
should not exceed 75%. In case of a voluntary offer made by a shareholder holding less than

23
Regulation 6 (1) of the Takeover Code.
24
Regulation 7 (1) of the Takeover Code.
25
Regulation 19 of the Takeover Code.
26
Regulation 7 (2) of the Takeover Code.

22
25% of shares or voting rights of the target company, the minimum offer size is 26% of the total
shares of the company.

Pricing of the offer

Regulation 8 of the Takeover Code sets out the parameters to determine offer price to be paid to
the public shareholders, which is the same for a mandatory open offer as well as a voluntary
open offer. There are certain additional parameters prescribed for determining the offer price
when the open offer is made pursuant to an indirect acquisition. Please see [Annexure 2] for the
parameters as prescribed under Regulation 8 of the Takeover Code. It is important to note that an
acquirer to reduce the offer price but an upward revision of offer price is permitted, subject to
certain conditions.

Competitive Bid/ Revision of offer/bid

The Takeover Code also permits a person other than the acquirer (the first bidder) to make a
competitive bid, by a public announcement, for the shares of the target company. This bid must
be made within 15 working days from the date of the detailed public announcement of the first
bidder. The competitive bid must be for at least the number of shares held or agreed to be
acquired by the first bidder (along with PAC), plus the number of shares that the first bidder has
bid for. Each bidder (whether a competitive bid is made or not) is permitted to revise his bid,
provided such revised terms are more favorable to the shareholders of the target company.27 The
revision can be made up to three working days prior to the commencement of the tendering
period.

Take Private Mechanism

The SEBI regulations on delisting prescribe the method and conditions for delisting a company,
which earlier could only be undertaken by the promoter of the company. Recently, the SEBI
notified the SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2015 (“Amended
Delisting Regulations”). The Amended Delisting Regulations now allow an acquirer to initiate
delisting of the target.

27
Regulation 20 of the Takeover Code.

23
Further, SEBI has also amended the Takeover Code28 wherein it inserted Regulation 5A to
incorporate the changes introduced in the Amended Delisting Regulation. Pursuant to Regulation
5A, now an acquirer may delist the company pursuant to an open offer in accordance with the
Delisting Regulations provided that the acquirer declares upfront his intention to delist. Prior to
the inclusion of Regulation 5A, an open offer under the Takeover Regulations could not be
clubbed with a delisting offer, making it burdensome for acquirers to delist the company in the
future.

The Takeover Code provided for a one year cooling off period between the completion of an
open offer under the Takeover Regulations and a delisting offer in situations where on account of
the open offer the shareholding of the promoters exceeded the maximum permissible non-public
shareholding of 75% as provided under the Securities Contract Regulation Rules.29 This
restriction is not affected by Clause 5A in that the acquirer will continue to be bound by this
restriction if the acquirer’s intent to delist the company is not declared upfront at the time of
making the detailed public statement.

Listing Agreement

The Securities Contract (Regulations Act), 1956 requires every person whose securities are listed
on a stock exchange to comply with the conditions of the listing agreement with that stock
exchange. Clause 40A of the listing agreement entered into by a company with the stock
exchange on which its shares are listed, requires the company to maintain a public shareholding
of at least 25% on a continuous basis. If the public shareholding falls below the minimum level
pursuant to:

￭ the issuance or transfer of shares (i) in compliance with directions of any regulatory or

statutory authority, or (ii) in compliance with the Takeover Code, or

￭ reorganization of capital by a scheme of arrangement, the stock exchange may provide

additional time of 1 year (extendable upto to 2 years) to the company to comply with the

28
Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment)
Regulations, 2015.
29
Regulation 7(5) of the Takeover Code.

24
minimum requirements. In order to comply with the minimum public shareholding requirements,
the company must either issue shares to the public, or offer shares of the promoters to the public.
If a company fails to comply with the minimum requirements, its shares may be delisted by the
stock exchange, and penal action may also be taken against the company. SEBI in its board
meeting of November 19th 2014 approved the SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2014 (“Listing Regulations”). The Listing Regulations provide for a
comprehensive framework governing various types of listed securities and when notified will
replace the Listing Agreements.

Section 195 of the CA 2013 prohibits all persons including any director or key managerial
personnel of a company from engaging in insider trading. However, communications required in
the ordinary course of business or profession or employment or under any law are an exception.
This section does not distinguish between a listed or unlisted company or even between a private
or a public company whereas SEBI Insider Regulations are applicable only on the listed public
companies. It will be interesting to see how this section will be applied to a private company,
which is usually run by the founders/shareholders and where there is no market determined price
readily available.

25
 WITHDRAWAL OF OFFER

Withdrawal of Voluntary Offer: Takeover Code

In a recent landmark order SEBI has held that that a voluntary offer once made under the
takeover code can only be withdrawn under exceptional circumstances and a mere delay in the
public offer coupled with fall in market price or devaluation of Earning Per Share (EPS) cannot
be reasons to permit the withdrawal of a public offer. Although the ruling is based on the SAST
Regulations 1997 (which now stands repealed by the SAST Regulations, 2011), the ruling still
carries significance as the provision relating to withdrawal of offer is substantially the same in
both the regulations. But before we discuss the ruling let me state the facts briefly.

Sometime in November, 2009 Mr. Promod Jain and Pranidhi Holdings Private Limited
(acquirers) along with J.P. Financial Services Private Limited ( person acting in concert (PAC))
made a voluntary public announcement (not been triggered by any agreement) in accordance
with regulation 10 and 12 read with regulation 14 of the SAST Regulations 1997 ("1997
regulations" or "old takeover code") to acquire 25% equity shares of the target company. As on
the date of the public announcement, the acquirers and the PAC collectively held 6.47% equity
shares of the target company. The controversy arose when the acquirers and the PAC requested
SEBI for a permission to withdraw the open offer under regulation 27(1)(d) of the 1997
regulations in response to several complaints received against the target company and its
promoters.

The factual ground(s) agitated by the acquirers for the withdrawal of the open offer was three
fold. Firstly, it was contented that SEBI had unreasonably delayed in issuing observations to the
draft letter of offer (DLO). Secondly, it was contended that the management/promoters of the
target company had acted in a mala fide manner in the sense it had suppressed material facts,
depleted valuable fixed assets of the company in gross violation of regulation 23 (1) (a) & (c) of
the 1997 regulations and siphoned off funds by advancing fictitious advances and loans. Lastly,
it was contended that the financial health of the target company had deteriorated in that the

26
profitability of the target company had significantly declined from the profits in the periods just
prior to making the public announcement resulting in negative EPS.

The legal submissions made by the acquirer in support of the above grounds were (a) the offer
was voluntary and hence it did not give any vested right to shareholders as in the case of a
triggered offer, (b) regulation 27 (1)(d) gives SEBI plenary discretion to allow withdraw of an
open offer (c) the SAT ruling in the Nirma case has to be distinguished as it was based on a
mandatory offer whereas in the present case the promoters had perpetrated the fraudulent
activities after the public announcement was made (d) the public offer has to be governed by the
provisions of the Indian Contract Act, 1872 and since the offer has not been accepted by the
shareholders of the target company (no conclusion of the contract due to no acceptance) the offer
can be withdrawn and (e) SAT has held in B.P. Amco Plc. and Castrol Limited v. SEBI and
Luxottica Group SPA v. SEBI that when the offer does not materialize or in genuinely difficult
situations the acquirer can withdraw the offer.

On the first aspect (a) SEBI held that a voluntary offer is governed by the same provisions as a
mandatory offer i.e. regulation 10 and 12 of the SAST regulations 1997 and hence, once the
public announcement is made there is no difference between the two. They are governed by the
same principles which is inter alia incorporated in regulation 22(1) which states that "the public
announcement of offer to acquire the shares of a target company shall be made only when the
acquirer is able to implement the offer" and the withdrawal of the same has to be in accordance
with regulation 27(1). on the second aspect (b) SEBI held that the phrase 'such circumstances' as
incorporated in regulation 27(1)(d) has to be read ejusdem generis in that SEBI has the power to
permit withdrawal of open offer when the circumstances are similar to that in regulation 27(1)(b)
& 27(1)(c). This view is supported by the Nirma case wherein the SAT had held that regulation
27 (b) to (d) has to be construed strictly and the phrase "such circumstances" in clause (d) had to
be construed ejusdem generis i.e. there has to be an element of impossibility in implementing the
offer. SEBI relied on the Nirma case on the ground that the ruling was based on the
interpretation and scope of regulation 27 and was not fact specific (this answers the third aspect
(c)).

27
The novel fourth argument (d) also did not find favour with SEBI and rightly so, as SAST
Regulations is a special law and all public offers such as the one in this case are to be governed
by the SAST and not the Indian Contact Act. If the argument of the acquirer were to be accepted
then it would lead to a peculiar situation wherein the acquirers would withdraw the public offer
even when only some of the shareholders would have tendered their shares and others would
have not. On the final aspect (e) SEBI distinguised the B.P.Amco and the Luxottica and rightly so
on the ground that both the cases were based on regulation 27(1) as it stood prior to the
amendment in 2002 and the public offer in those cases were made subject to the fulfillment of
certain conditions which included statutory approvals.

On the factual aspect of SEBI held that several complaints had been received against the
acquirers and the PAC and hence there was some delay in issuing the observations. Further,
SEBI held that an acquirer who wishes to invest a substantial sum of money and acquire control
of the target company ought to have exercised proper due diligence before making the public
announcement. This was buttered by the fact that the acquirer and the PAC was not an outsider
in the sense they were holding approximately 6% of the equity shares in the target company. On
the basis of these factual and legal findings SEBI refused to grant permission to withdraw the
offer.

Impact: This case demonstrates albeit indirectly one of the issues relating to hostile takeovers in
India under the old takeover code. Although under the new takeover code the situation has not
improved greatly, on the contrary it has made hostile takeovers nearly impossible. But based on
the background of the new takeover code i.e. TRAC Report it is possible to argue that this was
not the intended consequence. However ruling(s) such as the present one will create more
difficulty to an already hostile climate for hostile takeovers. I shall explore this aspect in a
subsequent post.30

30
Avantika Govil, Withdrawal of Voluntary Offer: Takeover Code,
http://indianlegalspace.blogspot.in/2012/04/withdrawal-of-voluntary-offer-takeover.html

28
Withdrawal of open offer

Current Provisions:
The Takeover Regulations currently provide that no open offer, once made, shall be withdrawn
except under the following circumstances:
(a) the statutory approval(s) required have been refused;
(b) the sole acquirer, being a natural person, has died;
(c) such circumstances as in the opinion of SEBI merits withdrawal

Committee Deliberations:
Ordinarily, once an open offer is made, its inexorable conclusion ought to be the completion of
the open offer. However, there could be circumstances where the open offer cannot be
completed. These circumstances can be classified into two types viz.
(a) where it is rendered impossible for the open offer to continue – for example, death of an
acquirer who is an individual, or rejection of any statutory approval required for the offer (as
provided for currently); and
(b) non-attainment of any condition stipulated in the agreement that attracted the open offer
obligation for reasons beyond the control of the acquirer, resulting in the agreement itself not
being acted upon.
There was extensive debate within the Committee about whether non-attainment of conditions
other than regulatory approvals should be permitted as a reason for withdrawal of the offer. The
Committee examined regulations in other jurisdictions and found that in certain jurisdictions
such as Australia, Singapore, Germany, US and UK, the acquirers are allowed to clearly specify
conditions to the offer, and to withdraw the offer if these conditions are not met, and if the
triggering agreement was not acted upon.
The Committee believes that it is important to permit withdrawal of the open offer in such
circumstances. To build safeguards, the Committee recommends that the conditions subject to
which the triggering agreement was executed, the failure of which would result in such
agreement not being acted upon, ought to be fully and fairly disclosed upfront when the detailed
public statement is made. Besides, the non attainment of such a condition ought to be for reasons
outside the control of the acquirer. Moreover, the acquisition triggering the open offer ought not
to be effected in order to be eligible for withdrawal.

29
Committee Recommendation:
The Committee recommends that, in addition to the grounds currently existing, an open offer
may be withdrawn where any condition stipulated in the agreement for acquisition attracting the
obligation to make the open offer is not met for reasons outside the reasonable control of the
acquirer, and such agreement is rescinded, subject to such conditions having been disclosed in
the detailed public statement and the letter of offer.31

Competing Offers

Current Provisions:
The Takeover Regulations currently provide the opportunity to any person other than the
acquirer to make a competing offer within 21 days of the public announcement of the first offer.
The Takeover Regulations also provide that any competitive offer by an acquirer shall be for
such number of shares which, when taken together with shares held by him shall be at least equal
to the holding of the first bidder including the number of shares for which the present offer by
the first bidder has been made.
Committee Deliberations:
The concept of competing offers, (current Takeover Regulations term these as―competitive
bids‖), was deliberated at length by the Committee. The discussions focused on a number of
areas relevant to competing offers like timelines, offer size, reasonable obligations and
restrictions on the competing acquirers and on the target company, parameters of the open offers
that may be revised, a cut-off time for such revisions, withdrawal of competing offers, and inter
se transfer of shares among the bidders after completion of the competing offers.
- The Committee recognized that the intent behind such provisions is to achieve orderly
competition between acquirers vying for the same target company. The Committee was clear that
competing offers if undertaken in a fair, transparent and equitable manner would be in the
interests of the shareholders at large and therefore need be facilitated. However, it was also felt
that certain reasonable restrictions should be placed on the target company as well as on the
bidders so as to make the process more robust.

31
See Regulation 23 of the Proposed Takeover Regulations

30
-The Committee is of the view that the present period of 21 days for making a competitive bid is
short. One should also ensure that the permitted time period is not so long as to result in
prolonged uncertainty. Further, after the expiry of the period within which a competing offer
may be made, no person should be permitted to either make an open offer or enter into a
transaction that would trigger an open offer until expiry of the offer period.
-The Committee recommends that the general rule on offer size should be applicable to
competing offers as well. The Committee however considered whether any deviation is
warranted where the first offer were a voluntary offer with restrictions on the offer size, i.e. a
maximum of such number of shares as would keep the acquirer within the maximum permissible
non-public shareholding. If there were a competing offer after a voluntary offer is made, the
acquirer who has made a voluntary offer ought to be given a chance to enhance the size of his
open offer to a full offer and stand released from the restrictions on market purchases so that he
could effectively compete with the competing acquirer.
-The question of whether intermediate offer sizes need be permitted for defensive counter offers
was considered by the Committee. However, the Committee felt that such a position would lead
to differential treatment of competing offers with no rationale therefore. It was also considered
important to ensure that an open offer made in response to an existing open offer ought not to be
considered as a voluntary offer.
Therefore, once an open offer is made for a target company, an acquirer making a competing
offer ought not to be able to make a smaller-sized open offer, and should be required to compete
on even terms.
-The Committee discussed the possibility of allowing an acquirer to withdraw an open offer
made to shareholders of the target company, upon a competing offer being made. The Committee
felt that it is in best interests of the shareholders of the target company that they get to decide the
controlling acquirer from amongst the competing acquirers and therefore the Committee decided
that existing open offers should continue to be valid. At the same time, the Committee also
observed that in case of a split decision by shareholders of the target company, for efficient and
smooth future running of business operations, it is in best interests of the target company that
competing acquirers be given an opportunity to exit in favour of any one competing acquirer
within certain time limitations. Shares held by one of the competing acquirers can be tendered in
the offer made by the other competing acquirer. However, shares acquired by such competing

31
acquirer in the open offer can not be tendered during the offer period and hence the Committee
felt that a mechanism should be provided to enable the competing acquirer to sell such shares to
the other competing acquirer within certain specified time without triggering further open offer
obligations.
Committee Recommendation:
1. Therefore, with a view to rationalize the time lines for making a competing offer, the
Committee recommends that a competing offer may be made within 15 business days
from the date of the original detailed public statement instead of 21 calendar days from
the date of the original public announcement. No further offer should be allowed to be
made after the expiry of the said period of 15 business days until the completion of all the
competing offers.
2. An open offer made by a competing acquirer shall not be regarded as a voluntary open
offer and therefore all provisions of Takeover Regulations, including relating to offer
size, shall apply accordingly.
3. The Committee also recommends that an acquirer, who has made a competing offer, shall
be entitled to acquire the shares acquired by the other competing acquirers in their
respective competing open offers within 21 business days of the expiry of the offer period
without attracting an obligation to make another open offer. However, such an acquisition
shall not be made at a price exceeding the offer price in the competing offer made by the
acquirer who buys shares in such transaction. Moreover, such an acquisition ought not to
take the shareholding of the acquirer beyond the maximum permissible non-public
shareholding limit.
4. The Committee also considered certain other conditions specific to competing offers and
recommended the following:
a. During the pendency of competing offers, no appointment of additional directors ought to be
made on the board of directors of the target company.
b. The ability of an acquirer to proportionately reduce his acquisitions such that the holding does
not exceed the maximum permissible non-public shareholding ought not to be available where
competing offers are underway. This is critical to ensure that competing acquirers compete on an
identical end-objective and shareholders are truly able to compare them on the offer price.

32
c. Unless the open offer first made is an open offer conditional as to the minimum level of
acceptances, no open offer made by a competing acquirer may be conditional as to the minimum
level of acceptances.
d. The schedule of activities and the tendering period for all competing offers shall be carried out
with identical timelines and the dates for tendering shares shall be revised to the dates for
tendering shares in acceptance of the competing offer last made.

33
 CONCLUSION

This project has attempted to analyze the various aspects the Takeover Laws in India. In
conclusion apart from a few loopholes the Code which has been addressed by amendments made
by Securities and Exchange Board of India the Takeover Code has effectively managed to
regulate the practice of Takeovers of companies by ensuring that there are substantial disclosures
and compliances so that investors are shielded from being prejudicially effected by the takeovers
by companies which in the modern corporate era has become the most effective medium of
market capitalization and diversification.

In recent years, a common shareholder view has evolved that defenses are management-
entrenchment tools that create barriers to increasing corporate value. Having a takeover defense
in place can reduce the playing field of potential acquirers. So it limits the type of premium
they’ll be paid. Shareholders are growing to be unhappy with takeover defenses of poison pill
and staggered board.

Takeover defenses however play an important role in corporate restructuring. Most of the
takeover defenses that are frequently used by target companies in the US are restricted by the
regulations and acts in India. This kind of corporate synergy requires that the legal paradigm so
adjust itself, so that it is in a position to optimize the benefits that accrue from such restructuring.
Such need has nowhere been more evident than in the case of regulation of takeovers. The
legislature realising this, has entrusted the job of doing the same to SEBI.

SEBI has endeavored to keep abreast with the market in this regard, as can be seen from the
Bhagwati Committee’s scope of reference. But the time has come for the other substantive law,
i.e., Companies Act to be a more accommodative towards such defenses. As this would enable
takeovers to facilitate the removal of incompetent management and/or traditionally family owned
companies and increase efficiency in a more competitive global market.

34
 BIBLIOGRAPHY

1. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research%20Papers/Mergers__
_Acquisitions_in_India.pdf
2. http://www.legalserviceindia.com/article/l183-Takeovers
3. http://indiacorplaw.blogspot.in/2014/03/withdrawal-of-takeover-offer.html
4. http://www.sebi.gov.in/commreport/tracreport.pdf
5. http://indianlegalspace.blogspot.in/2012/04/withdrawal-of-voluntary-offer-takeover.html
6. http://vinodkothari.com/wp-content/uploads/2014/01/Decoding-the-Takeover-Code.pdf
7. http://indialawjournal.com/volume1/issue_1/m_a_regulations.html

35