This article is written by Aswathy, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from LawSikho. The article has been edited by Ruchika Mohapatra (Associate, LawSikho).


The takeover means gaining control or ownership, either through shares or voting rights, of a target entity. Acquisition or takeover of unlisted companies is not substantially regulated as such takeover only affects a limited number of private persons involved in the companies, and such transactions are mostly confined to contractual arrangements between the acquirer and the target. This is however not the case when it comes to the acquisition of listed entities. Listed entities have the larger public as their members in the form of shareholders, and such membership itself is constantly changing owing to ease of transferability of shares. A large number of people in various capacities may be affected by such a move, and therefore it is important to ensure investor protection when the change in control of a listed company takes place, that is, the takeover of a listed entity. 

The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (hereinafter referred to as the “Takeover Code”) was introduced with this in view. The Takeover Code covers within its framework matters relating to the acquisition of shares, voting rights, or control over a listed entity, and applies to both direct and indirect takeover/acquisition of control in a listed company. However, it is to be noted that it does not apply to the acquisition of a company that has been listed but has not made a public issue on the institutional trading platform of the stock exchange.

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Understanding the parties to a takeover 


The term is specifically defined in Regulation 2(1)(a) of the Takeover Code as “A person who, directly or indirectly, acquires or agrees to acquire, whether by himself or through or with persons acting in concert with him, shares or voting rights in, or control over a target company.” Therefore to be an ‘acquirer’ there has to be a clear intention to acquire shares, voting rights or control over a target company. Acquirer need not necessarily be one person; if a group of persons set themselves out to acquire shares voting rights or control in a company, they will be considered acquirers or persons acting in concert.

Persons Acting in Concert (PAC)

Persons acting in concert refers to those persons who share the common goal of acquiring shares in the company and who cooperate for the acquisition of such shares, voting rights or control in the company. Certain persons are deemed to be PAC in the eyes of law, such as holding and subsidiary companies, companies with common management, directors and key managerial personnel, and promoters and persons belonging to the promoter group. Other categories of persons who shall be deemed to be PAC are laid down in Regulation 2(1)(q)(2).


The target or target company, in terms of Regulation 2(1)(z) of the Takeover Code refers to a company or body corporate including a statutory corporation whose shares are listed on a stock exchange which the acquirer seeks to take over. It is pertinent to note here that the Takeover Code applies only to listed entities, and therefore the requirement for target companies would be to have their shares listed on a stock exchange. This is simply because a change in ownership of shares would result in a change in persons exercising voting rights in the company, and hence, a change in control. 

The open offer process 

One of the most important steps in the process of takeover as per the regulations laid down in the Takeover Code is the obligation to make an open offer. An ‘open offer’ is an offer by the acquirers to buy shares from the shareholders of the target company. The intent behind such a mandatory requirement to make an open offer is to provide an exit opportunity to those shareholders of the target company who do not wish to continue with the company post takeover, owing to a change in control. When a person seeks to acquire up to 15% of the shares of a listed company, this triggers the requirement to make an open offer. The open offer must be then made to purchase an additional 20% of the company’s shares from the existing shareholders. 

Following are the definitive steps of the Open Offer process:

i) Appointment of a merchant banker and opening a depository account for shares tendered. 

ii) A public announcement has to be made specifying the details of the proposed acquisition transaction, and therefore the intention to acquire shares of the target company by means of an open offer.

iii) Further, a detailed public statement is to be made containing all relevant details of the open offer, in a bid to enable the shareholders to make an informed decision about the offer made to them. The detailed statement has to be made within five working days of the initial public announcement. 

iv)  Lastly, the letter of open offer is made to the identified shareholders of the target company by the acquirers in order to purchase their shares. The acquirer is required to submit a draft of the same to SEBI first for its comments and must be dispatched only after incorporating the SEBI’s comments if any. This is to be done within five working days from the date of the detailed public statement. 

v) A due diligence certificate needs to be submitted to SEBI along with the above draft letter of the open offer. 

vi) A schedule of the upcoming events pertaining to tendering must then be advertised, one working day before the commencement of the tendering period. 

vii) Not later than twelve working days from the date of receipt of the comments on the draft letter of open offer from SEBI, the tendering period shall commence. 

viii) Tendering period shall close after ten working days.

ix) Immediately after the closing tendering period, an escrow account is opened wherein the acquirer shall deposit the consideration to be paid to the shareholders. 

x) All remaining obligations are to be completed by the acquirer within 10 working days, including payment of consideration. 

Unsuccessful open offers

Sometimes, open offers may not be successful. Failure of an open offer takes place when shareholders do not surrender their shares in response to the open offer. Such a failure can happen in the wake of competing offers when such competing offers are for a higher price. The original offer is then likely to fail. Withdrawals of open offers is another instance that may occur. Such an instance will lead to unique consequences as laid down in the Takeover Code, as it provides very limited circumstances allowing withdrawal of an open offer. Only exceptional circumstances such as the death of an acquirer or refusal of statutory approvals are recognised grounds for the same.

An announcement is to be made by the acquirer, in the same newspaper used for public announcement, about such proposed withdrawal, citing the grounds and reasons for doing so. Such announcement is to be made within two working days, and the stock exchanges are also to be intimated about such withdrawal. The target company and the public shall be informed of this development by such stock exchanges. 

Penalties for non-compliance with the regulations 

The Takeover Code has laid down certain mandatory obligations to be met by the acquirer, the target company, as well as the manager to the open offer. However, non-compliance with these requirements or failure to comply shall attract certain penalties as laid down by SEBI. SEBI may be direct as  follows:

  1. The acquired shares may be directed to be divested,
  2. An investor protection fund may be set up wherein the proceeds of a directed sale of shares will be transferred,
  3. The target company may be asked not to give effect to any transfer of shares, 
  4. The acquirer will not be permitted to exercise his rights such as voting rights which comes with the acquisition of shares,
  5. Persons can be debarred from dealing in securities or accessing capital markets.
  6. SEBI may determine the open offer price in accordance with the Takeover Code, on which the acquirer will have to make the offer,
  7. Any disposal of assets of the target company or its subsidiaries will be directed to be put on hold unless so mentioned in the letter of offer,
  8. If the acquirer has failed to make an offer or made a delayed open offer, he may be asked to pay interest on the offer price.
  9. In the event that the acquirer fails to carry out the payment of the open offer consideration, he can be directed not to make such an offer or not to enter into a transaction that shall trigger an open offer in the first place.
  10. The person who has control over any target company may be directed to cease and desist such control.
  11. Shareholding of acquirers and persons acting in concert may be brought down to the maximum permissible non-public shareholding limit by ordering divestiture that shall result in the same. 


Shareholding of firms and business owners has a huge influence on today’s corporate world. In a progressive country, good corporate governance is critical. Again, the idea of control has become a multifarious problem in recent years and as a result, the SEBI has chosen various approaches and established laws that would appeal to investors and ensure seamless functioning in a country’s corporate governance, and the Takeover Code is one such commendable and successful move in this direction. 


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