This document discusses key concepts related to takeover code in India. It begins by defining key terms like acquirer, target company, control, shares etc. It then explains the various thresholds defined for compliance and open offer under takeover regulations. Inter-se transfer between promoters, relatives and group companies are exempted from open offer requirements. The document also discusses taxation issues related to inter-se transfers, preferential allotment of shares and compares preferential allotment with takeover code. It concludes by addressing some common queries related to calculation of shareholding post preferential allotment and compliance requirements.

1. DEMYSTIFYING TAKEOVER CODE Pavan Kumar Vijay :

2. KEYWORDS IN TAKEOVER CODE When an "acquirer" takes over the “shares” or “control” of the "target company", it is termed as Takeover. When an acquirer acquires "substantial quantity of shares or voting rights" of the Target Company, it results into substantial acquisition of shares.

3. LIFTING THE VEIL T SHARES Acquisition CONTROL BOTH SHARES & CONTROL AKEOVER

4. UNDERSTANDING SHARES Reg 2 (k) Shares carrying voting rights & any security which would entitle to receive shares with voting rights in future But shall not include PREFERNCE SHARES REG 2(k) What is the status of partly paid shares under SAST Regulations, 1997? ISSUE The partly paid up shares are also shares under Takeover Code as voting rights is embedded in partly paid up shares.

6. To control the management

7. Control the policy decisionsBy virtue ofShareholding or Management rights or Shareholders Agreements or Voting Agreements or in any other manner. REG 2(c)

8. THRESHOLDS DEFINED FOR COMPLIANCE Acquisition of more than 5%, 10%, 14%, 54% & 74% [Regulation 7] Persons, who are holding between 15% - 55%, acquisition/ sale aggregating more than 2% or more voting rights [Regulation 7(1A)]

9. THRESHOLDS DEFINED FOR OPEN OFFER Acquisition more than 15% or more voting rights [Regulation 10] Persons, who are holding between 15% - 55%, acquisition more than 5% or more voting rights in a financial year.[Regulation 11(1)] Persons, who are holding more than 55%, acquisition of single share or voting right [Regulation 11(2)]

10. Reg 3(1)(e) INTER – SE TRANSFER An Insight

12. Categories for Inter-se transfer Qualifying Promoters Group under MRTP Act, 1969 Categories Relatives under Companies Act, 1956 Acquirer & Persons acting in concert

13. DETAILED ANALYSIS

16. Associated persons such as relatives of director of a company, partner of a firm & any trustee in relation to a trust.

17. Any associated person in relation to associated person.Two or more Individuals, AOI, firms, trusts, body corporates who are in theposition to exercise control , whether directly & indirectly over any body corporate, firm or trust.

19. Spouse

20. Members of HUF

21. Relative mentioned in Schedule 1A.

22. Schedule 1A gives a list of 22 persons. Main Features

23. Category III – Promoters… contd Category III – Inter-se transfer for Qualifying Promoters Qualifying Indian Promoter & Foreign Collaborators, who are shareholders. Qualifying Promoters

24. Category III – Promoters… contd Qualifying Promoters - Defined Any person who DIRECTLY OR INDIRECTLY is in control of the company Who is named as Promoter in any Offer Document OR Shareholding Disclosure, Whichever is later & includes….

25. Category III – Promoters… contd

26. Category III – Promoters… contd Category IV – Acquirer and Persons acting in concert. PAC Reg2(e) ACQUIRER Reg 2(b) Exemption available only after 3 years from the date of closure of open offer made under these Regulations.

27. Pre- Conditions for availing Inter- se transfer.

28. Checks & Balances

29. Checks & Balances under Regulation 3 C O M P L I A N C E Stock Exchange SEBI SEBI Advance Intimation (4 days in Advance) Report (21 days of acquisition) Fees to be accompanied with Report (Rs 10000 25000) Reg 3(3) Reg 3(4) Reg 3(5)

30. Checks & Balances under Regulation 7 Acquirer : Compliance of regulation 7(1) or 7(1A) Seller: Compliance of regulation 7(1A) Target Company:Compliance of Regulation 7(3)

31. Taxation Issues STT vs. LTCG/STCG

36. INTER- SE TRANSFER: Clause 40A Regulation 3(1A) “Nothing contained in sub-regulation (1) shall affect the applicability of the listing requirements.” Effect of Regulation 3(1A) The above-mentioned regulation is giving the effect that the exemption under regulation cannot exceed the provisions of listing agreement,i.e.the minimum public holding of 25% cannot be exceeded by the exemption of Inter- se Transfer

37. I SSUES

38. MATTER OF DEBATE: Whether Reporting under Regulation 3(4) is one time reporting? HELD: Regulation 3(4) is applicable to all cases wherever the acquisition exceeds the limit prescribed in the regulations irrespective of the existing holding of the acquirer. NAAGRAJ GANESHMAL JAIN V P.SRI SAI RAM, THE SAT

39. MATTER OF DEBATE: Whether the belated filing of report should not be considered as commission of offence when there is no substantial loss to the investors? HELD: It was held that when the belated filing of the report under 3(4) does not resulted in any gain to the appellant & also no loss to the invested, the imposition of the penalty is not justified. SAMRAT HOLDINGS V SEBI

40. Inter-se transfer is a good tool for consolidation of holdings………….. However,the exemption is available subject to strict compliance of Regulation 3(3),3(4) & 3(5). Concluding Remarks

41. PREFERENTIAL ALLOTMENT OF SECURITIES

42. An issue by a company Of Equity shares / Securities convertible into equity/FCDs/Warrants/PCDs/Convertible Preference Shares pursuant to a resolution u/s. 81(1A) of Act, to any select group of persons by way of private placement.

44. No need to appoint Merchant Banker.

45. Economical way to raise capital.

47. Proposed Allottees Chapter – XIIIA of SEBI (DIP) Guidelines Chapter – XIII of SEBI (DIP) Guidelines Allotment to QIBs (not in Promoter Group) by companies listed on NSE / BSE OTHERS

48. Time Line- Preferential Allotment 15 days (12 months in case of QIBs) 30 days 25 days Shareholders’ Resolution must be implemented within 15 days (12 months in case of QIBs)except in case of pending regulatory approvals Despatch of Individual Notices Filing of application of in-principal approval Board Meeting General Meeting Relevant Date Allotment of Shares

49. Pricing Schedule 6 months 30 days 2 weeks Relevant Date General Meeting

50. Lock-in Requirement Others QIBs Existing Holding Preferential Allotment Existing Holding Preferential Allotment PROMOTERS – 20% of Total Capital - for 3 Years Remaining – for one Year No Lock in For One Year, except in case of Trading through Stock Exchange For Six Months OTHERS – For One Year

51. Currency of Security Convertible into Equity Shares QIBs OTHERS FCDs/ PCDs/ any other convertible Security –60 Months from the date of allotment Warrants convertible into Equity Shares – can’t be issued to QIBs FCDs/ PCDs/ any other convertible Security –No time prescribed for conversion Warrants convertible into Equity Shares - 18 months from the date of allotment

53. Bank Statements

55. Change in Management/ControlRVATIONS BSE

56. Preferential Allotment viz-a-viz Takeover Code

57. Limit for Preferential Allotment Limits are calculated taking into account the EXPANDED CAPITALof the Company & not the EXISTING CAPITAL of the Company.

58. Illustration I Acquirer (holding 20%) Through Preferential Allotment Acquirer’s holding cannot exceed 24.99% of Expanded Capital.

59. Illustration II Acquirer (holding 5 %) Through Preferential Allotment Acquirer’s holding cannot exceed 14.99% of Expanded Capital.

60. Illustration III Acquirer (holding 0%) Through Preferential Allotment Acquirer’s holding cannot exceed 14.99% of Expanded Capital.

61. Example:

62. Queries Query 1 What is the exact formula for calculating the % of shareholding, in case of issue of warrants? At what point of time, the number of warrants would be taken into account – on the day of issuing warrants or on the date of conversion of warrants into shares? Query 2 Suppose the present holding of a promoter is 54% and after preferential allotment the holdings of the promoter remains same as that of 54% of the expanded capital. The question is whether any disclosure or compliance required in the present situation

63. Queries Query 3 What is the maximum limit of preferential allotment? Can a Company through preferential allotment expand its capital without any limit?

64. Queries Query 4 Suppose the present holding of a promoter is 54% and after preferential allotment the holdings of the promoter remains same as that of 54% of the expanded capital. The question is whether any disclosure or compliance required in the present situation? What, if, the same question arises in case the promoter is holding 60%? The issue is as there is acquisition of shares but such acquisition has not change the voting rights. The question is what is relevant in terms of takeover code, acquisition or voting rights?

65. Conclusion To sum up… preferential allotment is becoming a buzz word these days… However, it is subject to various checks & balances.