Key Takeaways: Takeover provisions notified under Companies Act, 2013 Recent amendments in SEBI Takeover Regulations

1. CS Meenakshi Jayaraman
What are the recent changes in
takeover provisions?

2. 2
Credits and Acknowledgments
Sundar Rajan S

3. 3
Legends used in the Presentation
Act Companies Act, 2013
CAA Rules Companies (Compromises, Arrangements and Amalgamations)
Rules, 2016
NCLT Rules National Company Law Tribunal Rules, 2016
Reg. Regulation
SAST Substantial Acquisition of Shares and Takeovers
SEBI Securities and Exchange Board of India
Sec Section
Tribunal National Company Law Tribunal

4. 4
Presentation Schema
Overview
Takeover provisions
under the Act
Compliance
procedures
Alternative provisions
under the Act with
respect to takeover
Key definitions under
SEBI (SAST)
Regulations, 2011
Recent amendments
under SEBI (SAST)
Regulations, 2011

5. 5
Overview
Sec 230 of the Act deals with compromise or arrangement made by a Company
with its creditors and/or members
Sec 230 (11) and 230 (12) deals with provisions for takeover by unlisted Companies
The same were notified with effect from 3rd February, 2020
Takeover provisions are also enshrined under Sec 235 and Sec 236 of the Act

6. Takeover provisions under the Act – Sec 230
(11) and (12) of the Act
6
Sec 230 (11)
•Any compromise or arrangement may include takeover offer made in such
manner as prescribed in Rule 3 of CAA Rules
•In case of listed companies, takeover offer shall be as per the regulations
framed by SEBI
Sec 230 (12)
•An aggrieved party may make an application to the Tribunal in the event of
any grievances with respect to the takeover offer of companies other than
listed companies in such manner as prescribed in Rule 80A of NCLT Rules
•Tribunal may, on application, pass such order as it may deem fit
The above provisions are notified with effect from 3rd February, 2020
Company shall comply with complete set of provisions stipulated under Sec 230 since takeover is a
compromise or arrangement

7. Compliance procedures
7
Rule 3 of CAA Rules
A member of the Company shall make an application for takeover offer in
terms of Sec 230 (11),
when such member along with any other member holds at least 75% of
the shares in the Company, and
such application has been filed for acquiring any part of the remaining
shares of the Company
Rule 3(5)
Shares means the equity shares of the Company carrying voting rights, and includes any
securities, such as depository receipts, which entitles the holder thereof to exercise voting rights
The above provision shall not apply to any transfer or transmission of shares through a contract,
arrangement or succession, as the case may be, or any transfer made in pursuance of any
statutory or regulatory requirement
Fee for making application for takeover offer before NCLT is Rs. 5,000

8. Contd.
8
Rule 3(6)
1. Report of a registered valuer disclosing the details of the valuation of the shares proposed to be
acquired by the member after taking into account the following factors: -
•highest price paid by any person or group of persons for acquisition of shares during last 12
months;
•fair price of shares of the Company to be determined by the registered valuer after taking into
account valuation parameters including return on net worth, book value of shares, earning per
share, price earning multiple vis-a-vis the industry average, and such other parameters as are
customary for valuation of shares of such companies
2. Details of a bank account, to be opened separately, by the member wherein at least 50% of total
consideration of the takeover offer is deposited
An application of arrangement for takeover offer shall contain the following:-

9. Contd.
9
Rule 80A of NCLT Rules
An application under Sec 230 (12) may be made in Form NCLT-1 and shall be accompanied
with following documents:
Affidavit verifying the petition
Memorandum of appearance with copy of the Board's Resolution or the executed
vakalatnama, as the case may be
Documents in support of the grievance against the takeover
Any other relevant document
Fee for making application in Form NCLT-1 is Rs. 5,000

10. Alternative provisions under the Act with
respect to takeover
10

11. Power to Acquire Shares of Shareholders Dissenting from
Scheme or Contract Approved by Majority – Sec 235
11
In case of a Company
(transferee Company)
intending to acquire the
shares of another Company
(transferor Company) by
way of a scheme or contract,
such plan has to be
approved by *shareholders*
holding at least 90% of the
shares of the transferor
Company
within 4 months of
making an offer of
acquisition by the
transferee
Company
*Shareholders does not include the transferee Company, nominee of the transferee
Company or its subsidiary companies
Once an approval from the
shareholders is obtained as
stated above,
the transferee Company
may, at any time within 2
months after the expiry of
the said 4 months,
give notice in Form No. CAA.
14 to any dissenting
shareholder that it desires to
acquire his shares
Dissenting shareholder includes a shareholder who has not assented to the scheme or
contract and any shareholder who has failed or refused to transfer his shares to the
transferee Company in accordance with the scheme or contract

12. Contd.
12
the transferor Company shall—
pay or transfer to the transferor Company the amount or other consideration representing the price
payable by the transferee Company for the shares which the Company is entitled to acquire, and
the transferee Company shall send a copy of the notice to the transferor Company together with an
instrument of transfer, to be executed on behalf of the shareholder and
if the Tribunal disposes of the application made by the dissenting shareholder, then
If the dissenting shareholder does not make an application to the Tribunal within one month from the
date on which the notice was given or
thereupon register the transferee Company as the holder of those shares; and
within one month of the date of such registration, inform the dissenting shareholders of the
fact of such registration and of the receipt of the amount or other consideration representing
the price payable to them by the transferee Company
Money received by the transferor Company shall be paid into a separate bank account and shall
be disbursed to the entitled shareholders within 60 days

13. Purchase of Minority Shareholding – Sec 236
13
In the event of an acquirer, or a person acting in concert (PAC) with such
acquirer, becoming registered holder of at least 90% of the issued equity
share capital of a Company, or
in the event of any person or group of persons becoming 90% majority or
holding 90% of the issued equity share capital of a Company,
by virtue of an amalgamation, share exchange, conversion of securities
or for any other reason,
such acquirer, person or group of persons, as the case may be, shall notify
the Company of their intention to buy the remaining equity shares
“Acquirer” and “PAC” shall have same meaning as provided under SEBI (SAST) Regulations

14. Contd.
14
2. Minority shareholders of the Company may offer to the majority shareholders
suo moto to purchase the minority equity shareholding of the Company at a price
determined on the basis of valuation by a registered valuer
Majority shareholders
shall deposit an
amount equal to the
value of shares to be
acquired by them in
(1) or (2) above
in a separate bank
account to be
operated by Company
whose shares are
being transferred
for at least one year
for payment to the
minority shareholders
and
such amount shall be
disbursed to the
entitled shareholders
within 60 days
Company whose shares are being transferred shall act as a transfer agent for receiving
and paying the price to the minority shareholders and for taking delivery of the shares
and delivering such shares to the majority
1. Acquirer, person or group of persons shall offer to the minority shareholders of the
Company for buying the equity shares held by such shareholders at a price determined on
the basis of valuation by a registered valuer

15. Determination of price for purchase of minority
shareholding – Rule 27 of CAA Rules
15
•In the manner as may be specified by SEBIListed Company
•Highest price paid by the acquirer, person or group of persons for
acquisition during last 12 months
•Fair price of shares of the Company to be determined by the registered
valuer after taking into account valuation parameters
•Valuation parameters include return on net worth, book value of shares,
earning per share, price earning multiple vis-à-vis the industry average
Unlisted
Company and a
private Company
Determination of offer price
Registered valuer shall also provide a valuation report on the basis of valuation addressed
to the board of directors of the Company giving justification for such valuation

16. SEBI (SAST) Regulations, 2011
16

17. Key definitions
17
•Any 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
Acquirer
•A Company which includes a body corporate or corporation established
under a Central legislation, State legislation or Provincial legislation for
the time being in force, whose shares are listed on a stock exchange
Target
Company

18. Contd.
18
Persons acting in concert
Persons who, with a common
objective or purpose of
acquisition of shares or voting
rights in, or exercising control
over a target Company,
pursuant to an agreement or
understanding, formal or
informal, directly or indirectly
co-operate for
acquisition of shares or voting
rights in, or exercise of control
over the target Company
1.
Persons deemed to be acting in concert
A Company, its holding Company, subsidiary Company and any Company under the same management or
control
A Company, its directors, and any person entrusted with the management of the Company
Directors of companies referred above and associates of such directors
Promoters and members of the promoter group
Immediate relatives
A mutual fund, its sponsor, trustees, trustee Company, and asset management Company
2.

19. Contd.
19
A collective investment scheme and its collective investment management Company, trustees and trustee
Company
A venture capital fund and its sponsor, trustees, trustee Company and asset management Company
An alternative investment fund and its sponsor, trustees, trustee Company and manager
A merchant banker and its client, who is an acquirer
A portfolio manager and its client, who is an acquirer
Banks*, financial advisors and stock brokers of the acquirer, or of any Company which is a holding Company or
subsidiary of the acquirer, and where the acquirer is an individual, of the immediate relative of such individual
Investment Company or fund and any person who has an interest in such investment Company or fund as a
shareholder or unitholder having not less than 10% of the paid-up capital of the investment Company or
unit capital of the fund, and any other investment Company or fund in which such person or his associate
holds not less than 10% of the paid-up capital of that investment Company or unit capital of that fund**
* This provision shall not apply to a bank whose sole role is that of providing normal commercial
banking services or activities in relation to an open offer under SEBI (SAST) regulations
** This provision shall not apply to holding of units of mutual funds registered with SEBI

20. Contd.
20
Meaning of associate:
any immediate relative of such person;
trusts of which such person or his immediate relative is a trustee;
partnership firm in which such person or his immediate relative is a partner; and
members of Hindu undivided families of which such person is a coparcener
Associate of a person means,
Meaning of immediate relative:
Any spouse of a person, and includes parent, brother, sister or child of such person or of
the spouse

21. Recent amendments under SEBI (SAST)
Regulations, 2011
21

22. General exemptions – Reg. 10
22
An increase in the voting rights of any shareholder beyond the
threshold limits stipulated in Reg. 3(1) and 3(2), without the
acquisition of control,
pursuant to the conversion of equity shares with superior
voting rights into ordinary equity shares,
shall be exempted from the obligation to make an open offer
under Reg. 3
Below provision was inserted vide SEBI (SAST) (Second Amendment) Regulations, 2019
w.e.f. 29-07-2019
Reg. 3 deals with “substantial acquisition of shares or voting rights”

23. Disclosure related provisions – Reg. 28
23
The term “encumbrance” shall include,
(a) any restriction on the free and marketable title to shares, by whatever name called, whether executed
directly or indirectly;
(b) pledge, lien, *negative lien*, ^non-disposal undertaking^; or
(c) any covenant, transaction, condition or arrangement in the nature of encumbrance, by whatever name
called, whether executed directly or indirectly
Meaning of encumbrance – Reg. 28(3):
 Negative lien is the right held by the lender (by way of an undertaking obtained from borrower) to prevent
the borrower from creating any encumbrance on his/her assets or to dispose of the assets unless prior
permission is obtained by the borrower from the lender
 Non-disposal undertaking is an undertaking given by the borrower to the lender ensuring that the shares
given as collateral would not be transferred or encumbered
SEBI (SAST) (Second Amendment) Regulations, 2019 w.e.f. 29-07-2019
“Encumbrance” shall include a pledge, lien or any such transaction, by whatever name called
Before amendment

24. 24
Disclosure of encumbered shares – Reg. 31
directly or indirectly, other than those already disclosed during the financial year
he, along with persons acting in concert, has not made any encumbrance,
The promoter of every target Company shall declare on a yearly basis that
Such declaration shall be made within 7 working days from the end of each financial year
Such declaration shall be submitted to,
 every stock exchange where the shares of the target Company are listed; and
 the audit committee of the target Company
Below provisions were inserted vide SEBI (SAST) (Second Amendment) Regulations, 2019
w.e.f. 29-07-2019
Reg. 31(4):
Reg. 31(5):

25. 25
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