LISTING AGREEMENTS

OF BSE AND NSE

Clause 40 A and 40 B
There was no legislation that governed takeover bids

Govt. incorporated clause 40

Clause provided making – Public offer to shareholders by any individual

to acquire 25% or more of the voting rights of a company.

The need to lower the percentage to 10% in 1990 clause 40 was replaced
by 40A & 40B

HISTORY
ORIGINAL CLAUSE 40 A
When any person acquire or agrees to acquire shares in a company and when the total nominal value of
such shares, together with the shares already held by him exceeds or shall exceed 5% of the total
voting capital of the company, the acquirer as also the company should notify the stock exchange of
such acquisition within two days.

Any person holding shares less than 10% of the nominal value of shares in a company, shall not
acquire any shares, when taken together with the shares already held shall carry 10% or more of the
voting rights unless he notifies the stock exchange and fulfils the conditions specified in clause 40B
ORIGINAL CLAUSE 40 B

In case of an acquisition of shares exceeding 10% of the voting capital of any company, the person so
acquiring the shares shall make open offer to acquire at least 20% shares from the public through an
open offer.
OBJECTIONS TO THE CLAUSES
The clauses didn’t have a statutory force behind them. The listing agreement being a contract between
a company and a stock exchange, it could be enforced upon an acquirer only if it was a listed company.

The only remedy for non-compliance with these clauses was delisting the shares of the target company.
However, this was contrary to the very object of investor protection for which it was meant.
AMENDMENTS TO CLAUSE 40 A
According to the SEBI (Substantial Acquisition of Shares Takeovers) Regulations, 1997

(these are not applicable for government companies)

All listed companies are required to ensure a 25% minimum public shareholding except:

A) companies which offered shares to the public less than 25% but not less than 10%

B) companies that have reached or are yet to reach a size of 2 crores or more in number of shares and 1000
crores or more in terms of market capitalization

Companies that were non-compliant of these conditions before 1 may 2006, were required to make themselves
compliant by increasing public shareholding to 25%.
AMENDMENTS TO CLAUSE 40 B

New clause 40B simply says that it is a condition for a continued listing that whenever a takeover offer
is made or there is a change in the management of a company, the person who secures the control of
the management and the company whose shares have been acquired shall comply with the relevant
provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.