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This article is written by Aman Gupta, who is pursuing a Diploma in M&A, Institution Finance & Investment Laws (PE & VC Transactions) from Lawsikho.


Mergers & Acquisition (M&A) is a corporate tool that warrants the companies to expand, contract and diversify their area of business. The M&A transaction is regulated by various statutes and regulations and among one of them is Securities Exchange Board of India (Substantial Acquisition of Shares and Takeover) Regulations, 2011 (as amended on July 29, 2019) also known as “SAST Regulations, 2011.” However, the requirement of a code was realized post the period of economic liberalization i.e. the period when India opened its economy to the world. M&A activities flourished and soon became a preferred mode of corporate restructuring. The first Regulation i.e. SAST Regulations, 1997 did not prove to be effective, and therefore to review the same SEBI formed a Takeover Regulations Advisory Committee (TRAC) in September 2009 under the chairmanship of Late Shri. C. Achuthan. The report of this committee led to the genesis of SAST Regulations, 2011. These regulations govern any direct or indirect acquisition of shares or voting rights or control over a target company. This Code specifies rules guiding “Open offers” and its two facets namely “Mandatory Offer” and “Voluntary Offer.” The former is covered under Regulation 3 that deals with ‘Substantial Acquisition of shares or voting rights’ and Regulation 4 which deals with ‘Acquisition of Control’ whereas the latter is covered under Regulation 5 that deals with Indirect Acquisition of Share and Control as well as Regulation 6. 

As defined under Draft for Discussion Papers released by SEBI, an open offer is an offer made by the acquirer to the shareholders of the target company inviting them to tender their shares in the target company at a particular price. An open offer provides an exit to the shareholders from the company. Open offers are one of the initial means to the successful completion of an M&A transaction. When such a situation occurs where an acquirer has agreed to take control over the entity beyond the threshold mentioned under the SAST Regulations, 2011, an open offer is required to be made to the shareholders of the target company. This article primarily focuses on the scenarios where both of these offers get triggered and the legal implications surrounding these triggering events.

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What is a mandatory offer?

Unlike various other jurisdictions, the Indian jurisdiction has adopted the combined approach i.e. both qualitative and quantitative, to gauge ‘control’ over the target in shareholding percentage terms. Such an approach is aimed to provide a treatment of equality to the minority shareholders of the target company. Mandatory Offer or also named as Mandatory Tender Offer/Mandatory Open Offer is an offer made to the existing shareholders of the target company in a scenario where the acquirer or any Person Acting in Concert (PAC) aims to acquire at least 26% (15% during SAST Regulations, 1997) of the shares of the respective target company. 

Recently, Blackstone Group, a leading global investment business, has committed to buy a 75% stake of Mphasis, an IT outsourcing service provider, for which they would launch a Mandatory Open Offer soon to acquire an additional 26% stake from the minority shareholders. Section 2(q) of the SAST Regulation 2011 defines a PAC as an individual or an entity that shares a common objective to acquire voting rights or control over the target company via entering into an agreement or understanding with the target company. There are four triggers to which it becomes an obligation for an existing shareholder to give a mandatory offer:

Initial trigger 

In a situation where an existing shareholder of a target company exercise shares or voting rights of less than 25% of the share capital of the target company and desires to acquire 25% or more of shares or voting rights of the respective company along with the PAC, if any, is required to make a Mandatory Offer to the target shareholders. Such an offer is made keeping in view the interests of those shareholders which would get diluted because of this transaction and by virtue of natural justice such shareholders must be entitled an opportunity to exit from the target company.

Consolidation trigger 

In a situation where an existing shareholder along with PAC, if any, exercise 25% or more of control over the target company but less than the maximum permissible non-public shareholding in a target company then in such case the acquirer is prohibited to acquire more than 5% of the voting rights in the same target company unless a mandatory open offer is given to the shareholders with the objective of protecting the interests of other fellow shareholders. Rule 19A of the Securities Contracts (Regulations) Rules 1957 specifies a minimum public shareholding at 25%, therefore, by deduction the maximum non-public shareholding, which is generally held by promoters of the company, stands to be 75% of the share capital.  The limit of 5% is calculated by aggregating gross acquisitions, i.e., without taking into account any intermediate dilution in shareholding or voting rights.

Focussing on the notion of control trigger

Regulation 2(e) of SAST Regulations, 2011 defines “Control” as an authoritative definition. It includes two rights upon a person who has undertaken control of the company. First, the power to appoint a majority of the directors and Secondly, to control the management or policy decisions either directly or indirectly by such person or a PAC by virtue of their shareholding. Control includes both de facto and de jure control. 

The Securities Appellate Tribunal (SAT) in Subhkam Ventures Pvt. Ltd. v. Securities and Exchange Board of India discussed the notion of Control Trigger. The Tribunal observed that Control, according to the definition, is a proactive and not a reactive power. It is a power by which an acquirer can command the target company to do what he wants it to do. Control really means creating or controlling a situation by taking the initiative. Power by which an acquirer can only prevent a company from doing what the latter wants to do is by itself, not control. In that event, the acquirer is only reacting rather than taking the initiative. It is a positive power and not a negative power. As said, India has adopted a combined approach to deal with the issue of control. The quantitative, being the 25% shareholding requirement, and the Qualitative approach being the subjective manner in which the jurisprudential aspect of “control” is interpreted. Securities Exchange Board of India (“SEBI”) has been adamant to follow the approach of examining the specific contractual arrangement of investors by delineating the Magnus of control through microscopic clause-by-clause analysis of each such arrangement in order to pronounce on the trigger of control.

Therefore, there is a presence of subjective determination of control. It is evident from the recent investment from Etihad Airways into Jet Airways in a bid to acquire 24% of the shares or voting rights or control over the target, which was below the quantitative threshold prescribed under SAST Regulations, 2011. Still, the acquirer was subjected to multiple investigations by multiple regulators and minority shareholders’ interests before clearing the deal.

Trigger on an indirect acquisition 

In a situation where an acquirer or together with any PAC acquires voting rights or control over the target company, which is an unlisted company and such unlisted company, in turn, exercises control over a listed company, then the same would trigger a mandatory open offer. The SAST Regulations, 2011 has provided specific guidance in relation to the indirect acquisition of the target company. SEBI has provided an upper cap to the extent of indirect acquisition. In case, where the proportionate net asset value/sales turnover/market capitalization of the target company as a percentage of the consolidated net asset value/sales turnover/market capitalization exceeds 80% of the most recent audited financial statements, then such acquisition would be treated as direct acquisitions rather than indirect.

The principle of mandatory open offer has been recognized earlier in US Courts with an objective to control the controlling shareholders as in the case of Perlman v. Feldmann. Since then it is a recognized concept in numerous jurisdictions across the globe thereby allowing the benefit of equal opportunity to each class of shareholders and providing a flexible exit to the minority shareholders to enhance their interest. 

Voluntary offer or voluntary open offer

A voluntary offer or voluntary open offer is made by the shareholders via a public announcement when an acquirer along with PAC if any, exercise 25% or more of voting rights or control in the target company but less than the maximum permissible non-public shareholding then the acquirer has to make a voluntary offer to at least acquire an additional 10% of the shareholding in the target company. The Takeover Regulation Advisory Committee (“TRAC”) considers that the voluntary open offer might be helpful in the consolidation of the stake of substantial shareholders. The FAQ released by SEBI on December 12, 2011, clarified that even if the shareholding of an acquirer is less than 25% in the target company, they can still make a voluntary offer to acquire an additional 26% of the shares or voting rights over the target company. Voluntary offer demands certain eligibility:

  1. The acquirer or together with PAC, if any, shall not have acquired the voting rights or control over the target company in the preceding 52 weeks without attracting a mandatory open offer; 
  2. Apart from three exceptional scenarios i.e. another voluntary open offer, bonus issue, and split stocks or competing offer, the acquirer or together with PAC, if any, cannot acquire shares of the target company for a period of 6 months after completion of the open offer.

Nuances of a competing offer

Unlike mandatory open offers, there is no trigger event for the voluntary offer because as the name indicates, the offer is incidental at the discretion of the person making the offer or the shareholders. It is also pertinent to understand the nuances of competing offers in order to analyse the relationship between the mandatory offer and voluntary offer.   

A competing offer has to be made within 15 days of the public announcement of the original tender offer. There is no eligibility restriction for the same as any person (not only limited to the existing shareholders) can make a competing offer to the target company except the original acquirer. The jurisprudence behind this competing offer is to garner the best possible terms to exit from the company. It is evident from the takeover battle between Bharati Shipyard Limited and ABG Shipyard Limited where multiple revised offer prices were introduced by the bidders in order to sway one another from the competition and out of which public shareholders bagged a beneficial exit from the company. 

A prospective competing offer in the midst of a voluntary offer made by the existing shareholders turns the respective voluntary offer into a mandatory open offer. The reason being once a competing offer is made by a person or an entity, in lieu of it, a retaliatory offer is presented by the person or entity that made the respective voluntary offer. As a consequence, the minimum requirement of the offered size in such a situation should be a minimum of 26% of the shareholding of the target company.  


The mandatory offer and voluntary offer differ from each other in terms of eligibility of the offeror, trigger events, size of the offer, revision of the offered size, and other conditions but the aim and objective to present both the offer are to provide with equal opportunity to each class of shareholders and beneficial exit of the minority shareholders from the target company. These various kinds of offers including competing offers are means to achieve this positive end. Ultimately, it can be concluded that the SAST Regulations, 2011 facilitates in evolving public M&A rapidly and is at par with any foreign code governing such public transactions. 


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