listed companies

In this article Aishwarya Borgohain of University School of Law and Legal Studies, GGSIPU discusses Acquisition of a Listed Company – the Procedure as Laid Down in the Takeover Code.


The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as the “Takeover Code”), is the Code of regulations that has brought the Indian legal framework further in line with international jurisprudence, emphasizing as it does the interests of public shareholders and investors, as well as the operation of the Indian securities market in a fair, transparent and equitable manner.

Acquisition – new scope within the Code

  • Definition of ‘acquisition’:  referring to the purchase by a party of the controlling interest in the share capital or assets and liabilities of the target company, the definition has now been provided in the Code by SEBI, and means directly or indirectly, acquiring or agreeing to acquire shares or voting rights in, or control over, a target company.
  • Direct and indirect acquisition: While the former refers to a situation where the acquirer directly acquires shares/voting rights or control over the target company, the latter refers to any acquisition or control over any company/entity that would enable a person to exercise or direct exercise of such percentage of voting rights or control, as would otherwise attract obligations to make a public announcement of an open offer.

Listed Company as under the Takeover Code

Provisions of the Code pertain to the ‘target company’, which means a company, including a body corporate or Central/State/Provincial legislation corporation, whose shares are listed on a stock exchange. Reference may be drawn here to the Companies Act, which similarly defines listed companies as those having their securities listed on any recognized stock exchange.

The Open Offer Process as laid down in the Takeover Code

Appointment of Manager to the Open Offer

  • Done prior to making of the public announcement
  • Manager must be a merchant banker registered with the Board, and not an associate of the acquirer
  • Acquirer may appoint a registrar to the offer, and shall engage other legal and financial advisors.

Public Announcement of Open Offer (‘PA’)

  • Acquirer and persons acting in concert (‘PAC’), holding shares in target company entitling them to exercise 25% or more (but less than maximum permissible non-public shareholding) shall be entitled to make such announcement.
  • PA contains details as may be specified, including:- name of acquirer and PAC, sellers, nature of proposed acquisition, consideration, offer price, mode of payment, and the offer size.
  • Made on the date of agreeing to acquire shares or voting rights in, or control over the target company
  • Publication of PA to all stock exchanges on which the shares of the target company are listed, which shall then be disseminated by the latter to the public.
  • Copy of the PA to be sent to the Board and to the target company’s registered office

Creation of Escrow Account

  • No later than two working days prior to the date of the Detailed Public Statement of open offer (‘DPS’)
  • Account may be in the form of cash deposited in commercial bank, bank guarantee, or deposit of freely transferable securities or equity shares.

DPS of Open Offer made

  • Contains justification for any differential pricing
  • Published by acquirer through manager, not later than 5 working days of PA
  • Not required if acquirer doesn’t succeed in acquiring the ability to exercise or direct the exercise of voting rights in, or control over the target company.
  • Publication in all editions of one English, Hindi, and regional daily (at the place of registered office of the target company) with wide circulation, and simultaneous copy to be sent to the Board, all stock exchanges where the target company’s shares are listed, and to the target company itself, which shall circulate it to its Board members.

Filing of Letter of Offer with the Board (‘LOO’)

  • The LOO Contains justifications for offer price for equity shares, for differential pricing, and full disclosures of all subsequent stages of acquisition.
  • Draft LOO filed by acquirer within 5 working days from date of DPS. The Board is to give its comments on the draft not later than 15 working days of its receipt If no comments are issued within such period, it shall be deemed that the Board has no comments. Any changes specified by the Board shall be carried out by the acquirer before dispatching of LOO.
  • Simultaneous copy of draft LOO is to be sent to the target company at its registered office address, and to all stock exchanges where shares are listed.
  • Manager to open offer shall simultaneously furnish a due diligence certificate to the Board
  • Dispatch of Final LOO: The LOO shall be dispatched to shareholders not later than 7 working days from receipt of any Board comments. However, the LOO shall not be dispatched if where local laws or regulations of any jurisdiction outside India may expose the acquirer or the target company to material risk of civil, regulatory or criminal liabilities.

Revision of Open Offer

  • In such event, the acquirer shall make corresponding increases to amount in escrow account, make announcements in all newspapers where DPS was made, and simultaneously inform the Board and all the stock exchanges, as well as the target company itself, at its registered office.
  • Upward revisions may be made by acquirer at any time before the last 3 working days before the tendering period commences.
  • Fees payable on shall be paid within 5 working days from date of such revision.
  • Value of escrow amount shall be computed on revised consideration calculated, in the event of upward revision.

Tendering Period

  • It refers to the period within which shareholders may tender their shares in acceptance of an open offer to acquire shares.
  • Acquirer issues advertisement one day before the commencement of the tendering period the schedule of activities for open offer, statutory and other approvals, and procedure for tendering acceptances, among other such material details.
  • This Period starts not later than 12 working days from receipt of comments from Board, and remains open for 10 working days.

Disclosure of Acquisition during the Offer Period

  • Made within 2 working days of receipt of intimation of allotment/ acquisition of shares or voting rights in target company
  • Made by acquirer and PAC, whose total shares/voting rights aggregate to 5% or more of such shares in the target company.
  • Disclosed to every stock exchange where shares are listed, and to the target company at its registered office.
  • Chapter V further provides for continual disclosures -made by every person and PAC holding shares entitling them to exercise 25% or more of voting rights in the target company, as on the 31st of March– and disclosure of encumbered shares, made by the promoter of every target company.

Post-Offer Advertisement

  • Issued by acquirer within 5 working days of offer period (contains details of shares tendered, accepted, date of payment of consideration.)
  • Published in all newspapers where DPS was made, and simultaneously sent to the stock exchanges, to the Board, and the target company.

Completion of Acquirer’s Obligations

  • Within 10 working days of the last date of the tendering period, the acquirer shall complete all requirements (including payment of considerations) under these regulations, and applicable law.

Payment of Consideration and Completion of Acquisition

  • The acquirer opens special escrow account with a banker, for the amount of consideration payable in cash, and empowers the Manager to the Offer to operate the account on his behalf.
  • Acquirer shall complete payment of consideration to shareholders within 10 working days of the expiry of the tendering period. Any unclaimed balances lying in such account at the end of 7 years from date of deposit shall be transferred to the Investor Protection and Education Fund.
  • The acquirer shall complete the acquisitions within 26 weeks from the expiry of the offer period. However, an extension may be granted by the Board in the event of extraordinary and supervening circumstances rendering such completion impossible.

Withdrawal of Open Offer

  • While withdrawals are generally not made, the Code provides certain exceptions, such as refusal of statutory approvals required for open offer, death of the acquirer, any condition stipulated in the acquisition agreement.
  • Such a withdrawal has to be announced in all the newspapers in which the DPS was made, and duly disclosed to the Board, all the relevant stock exchanges, and to the targeted company.

Finally, the Board has been given power to issue directions in case of violation of any regulations. These include, among others:

  • Directing disvestment of shares acquired in violation of these regulations
  • Directing transfer of such shares to the IPEF
  • Directing any person to cease and desist from acquiring control over target company without complying with requirements
  • Debarring any person who has violated the Takeover Code from accessing the capital market or dealing in securities


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