Guest Post: Regulations by SEBI under the Companies Act, 2013 for Promoter Acquisitions

following post is contributed by Yogesh
, who is a Consultant with Economic Laws Practice, Advocates &
Solicitors. Views of the author are personal]
terms of section 13(8) of the Companies Act, 2013 (Act), a company, which
has raised money from public through prospectus and has any unutilised amount
out of the money so raised, is not permitted to change its objects for which it
raised the money through prospectus unless a special resolution is passed by
the company and the dissenting shareholders are given an opportunity to exit by
the promoters and shareholders having control in accordance with regulation
to be specified by Securities and Exchange Board of India (SEBI).
Similarly, in terms of section 27 of
the Act, a company is not permitted, at any time, to vary the terms of a
contract referred to in the prospectus or objects for which the prospectus was
issued, except subject to the approval of, or except subject to an authority
given by the company in general meeting by way of special resolution and the
dissenting shareholders have been given an opportunity to exit by the promoters
or the controlling shareholders at such exit price, and in such manner and
conditions as may be prescribed by SEBI by making regulations in this behalf.
Acquisition by the promoters of the
nature mentioned above is likely to have an impact on the existing shareholding
of such promoters and therefore subject to the quantum of shares being
purchased by them, will have repercussions under the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 2011 (SEBI Takeover Regulations).
So far, SEBI has not issued any regulations
for such acquisitions and such purchases by the promoters are currently not
exempted under Regulation 10 of the SEBI Takeover Regulations. Assuming SEBI
does not amend the SEBI Takeover Regulations governing such acquisitions, any
such purchases exceeding 5% in a financial year[1]
will trigger an obligation on the promoters to make an open offer. An open
offer in such a situation may sound paradoxical, since the promoter will have
to make an open offer to the public shareholders of the target company as a
consequence of promoter purchasing another set of public shareholders of the
target company who are desirous of exiting the target company.
It will be possible for the promoters
to seek specific exemption of SEBI under Regulation 11 of the SEBI Takeover
Regulations for such acquisitions, prior to them making an offer to the
dissenting shareholders for acquiring their shares in terms of the Act.
In view of the above, it is fair to
expect that SEBI will issue regulations in this regard as envisaged under the
Act, including making necessary amendments to the SEBI Takeover Regulations.
Before concluding, it is pertinent to
mention that acquisitions by the promoters of the nature mentioned above may
also lead to an increase in the maximum permissible non-public shareholding
[i.e. promoter shareholding crossing 75%], thus the amendments to the SEBI
Takeover Regulations will have to, amongst other things, also take into
consideration such a scenario and clarify whether the same shall be permissible,
and its likely impact on the continuous listing requirement of maintaining the
minimum public shareholding of at least 25% in a listed company.

Yogesh Chande

Regulation 3(2) of the SEBI Takeover Regulations

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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