SAT decision contradicts new takeover regulations

Under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended, a practice developed whereby promoters of listed companies approached the Securities and Exchange Board of India (SEBI) to seek exemption from making an open offer on account of increase in their voting rights pursuant to a buyback.

SEBI granted such exemptions on a case-by-case basis where, among other things, the increase in voting rights of the acquirers was only incidental to the buyback, the acquirers did not intend to participate in the buyback and the buyback did not result in either change of control or breach of the minimum public shareholding threshold in the target company.

In October 2008, SEBI amended the 1997 regulations to permit a shareholder holding between 55% and below 75% of the share capital of a listed company to acquire up to an additional 5% in any financial year on account of a buyback, provided the company’s minimum public shareholding threshold was not breached. If the buyback exceeded these limits, market practice was for promoters to apply to SEBI for an exemption.

Puja Sondhi (puja.sondhi@amarchand.com) is a partner and Rahul Singh (rahul.singh@amarchand.com) is a senior associate at Amarchand & Mangaldas & Suresh A Shroff & Co. The views expressed in this article are those of the authors and do not reflect those of the firm.