Analysis on Foreign Portfolio Investor under NDI Rules, 2019

Introduction

The Finance Act, 2015 amended Section 6 (Capital Account Transaction), Section 46 (Power of Central Government to make rules) and section 47 (Power of RBI to make regulations) of the Foreign Exchange Management Act, 1999 (FEMA, 1999). These amendments have the effect of altering the powers of the Central Government and Reserve Bank of India (RBI).

In terms of  amended provisions of FEMA, the Central Government has made Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 ("NDI Rules") on October 17, 2019 superseding the erstwhile Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations, 2017 ("TISPRO") and the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2018, whereas RBI has notified Foreign Exchange Management (Debt Instruments) Regulations, 2019 superseding TISPRO, and the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, which provides for reporting requirements in relation to any investment made under the NDI Rules.

The foreign investments allowed to be received from different types of investors including Foreign Portfolio Investors registered with the SEBI under SEBI (FPI) Regulations, 2014

In this article we have encapsulated provisions dealing with investment by Foreign Portfolio Investors under the NDI rules.  

Acquisition of equity instruments/other securities/units by FPI

“FPI” or “Foreign Portfolio Investor” means a person registered in accordance with the provisions of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014.

Under Rule 10 read with Schedule II of NDI Rules permit FPIs to invest in listed entities in equity instruments as well as other identified securities. The provisions regulating the investment by FPI have been captured under Chapter IV of NDI Rules which inter-alia prescribed that FPI may:

1. Purchase equity instruments of an Indian company which is listed or to be listed on a recognised Stok exchange.
2. Purchase units of domestic mutual funds or Category III Alternative Investment Fund or offshore fund for which no objection is issued in accordance with the SEBI (Mutual Fund) Regulations, 1996, which in turn invest more than 50 percent in equity instruments on repatriation basis subject to the terms and conditions specified by the SEBI and the Reserve Bank.
3. Trade or invest in all exchange traded derivative contracts approved by SEBI from time to time subject to the limits specified by SEBI and in compliance of conditions prescribed in Schedule II of NDI Rules.
4. Purchase, hold, or sell Indian Depository Receipts (IDRs) of companies’ resident outside India and issued in the Indian capital market, in the manner and subject to the terms and conditions as prescribed in Schedule X of the NDI Rules.
5. Purchase equity instruments of an Indian company through public offer or private placement, subject to prescribed limit and in compliance of pricing conditions as prescribed under Schedule II.

Permitted Aggregate Holding by a FPIs

The pertinent change in NDI Rules, regulating investment by FPIs is that the default aggregate investment limits in an Indian company is the applicable sectoral cap, as laid out in Schedule I. Unlike the erstwhile the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, where the aggregate limit of FPI was upto 24%, with the company being provided the option of enhancing the limits to the applicable sectoral cap.

Ø  Until March 31,2020 the total holdings of all FPIs put together (including any other direct and indirect foreign investments in the Indian Company permitted under the NDI Rules) in an Indian Company is not permitted to exceed 24% of the paid up equity capital on a fully diluted basis or paid up value of each series of debentures or preference shares or share warrants (except if the ceiling has been raised to sectoral cap or statutory ceiling by the board or shareholders of the company).This is in line with the framework that was prescribed under FEMA.

Ø   Under the NDI Rules, from April 01, 2020 the aggregate limit will automatically be deemed to be the sectoral cap as contained in the NDI Rules without the requirement to pass any board or shareholders resolutions. The aggregate limit can be decreased by the Indian company to a lower limit of 24%, 49% or 74% as deemed fit, with the approval of its board and shareholders (by way of a special resolution) before March 31,2020.Similarly, where an Indian company has decreased its aggregate limit as mentioned above ,it may increase such aggregate limit to 49% or 74% or the sectoral cap or statutory ceiling as deemed fit, with the approval of its board or shareholders(by way of a special resolution).However, once the aggregate limit has been increased the Indian company cannot reduce it to a lower threshold.

Purchase or sale of securities other than equity instruments by FPIs

FPI can now invest in:

1. Units of domestic mutual funds Category III Alternative Investment Funds offshore fund for which no objection is issued under the SEBI (Mutual Fund) Regulations, 1996 and which in turn invests more than 50% in equity instruments on repatriation basis. 
2. Units of real estate investment trusts and infrastructure investment trusts on repatriation basis subject to the terms and conditions specified by SEBI.

Transfer of equity instruments of an Indian company by FPI (Automatic route)

FPI may transfer equity instrument/s of Indian company or unit in compliance of conditions as prescribed by SEBI and those as specified in the schedules under NDI Rules. However, the government approval would be required in case:

•  Transfer of equity instruments of company engaged in a sector which requires the Government approval.
• Acquisition of equity instruments by FPI made under Schedule II of these rules has resulted in a breach of the applicable aggregate FPI limits or sectoral limits.

Closing Note:

• In case, two or more FPI’s including foreign Governments/their related entities are having common ownership, directly or indirectly, of more than fifty percent or common control, all such FPI’s shall be treated as forming part of an investor group. Control includes the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner.
• If FPI’s investment breach the prescribed limits as discussed above, FPI shall have an option to of divesting their holdings within 5 trading days from the date of settlement of the trades causing the breach, failing which the entire investment by FPI and its investor group would be considered as the FDI and they will not be allowed to make investment in concerned entity as a FPI.
• The FPI, through its designated custodian, shall bring the same to the notice of the     depositories as well as the concerned company for effecting necessary changes in their records, within -seven trading days from the date of settlement of the trades causing the breach .
• In case of breach of investment limits by an FPI, the divestment of holdings by the FPI and the reclassification of FPI investment as foreign direct investment shall be subject to further conditions, if any, specified by the Securities and Exchange Board of India and RBI, in this regard.

This Article has been Compiled by Deepika Sharma (Senior Associate)

 Disclaimer-

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.

 

ANALYSIS OF SUPREME COURT JUDGEMENT IN THE MATTER OF BABU LAL VARDHARJI GURJAR VS VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD & ANR.

Case Name	BABU LAL VARDHARJI GURJAR VS VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD & ANR. Case Citation – 6347 of 2019
Corporate Debtor	Veer Gurjar Aluminium Industries Pvt Ltd
Appellant	Babu Lal Vardharji Gurjar
Respondent	Veer Gurjar Aluminium Industries Pvt. Ltd & Anr.
Respondent No. 2	JM Financial Assets Reconstruction Company Pvt. Ltd.
Date of Judgement	14th August,2020

ISSUE OF THE CASE

Whether the application made by respondent under Section 7 of the Code is within limitation ?

FACTS OF THE CASE

On 22.12.2007, the lender banks viz., Corporation Bank, Indian Overseas Bank and Bank of India sanctioned and extended various loans, advances and facilities to the corporate debtor. The corporate debtor executed various security documents in favour of the lender banks in the years 2008 and 2009, including those of equitable mortgage against the facilities obtained. The Corporation Bank proceeded to rephrase/enhance the facilities to the corporate debtor from time to time and lastly on 27.08.2010 where for, various additional security documents were executed by the corporate debtor. The corporate debtor having defaulted in payment of the amount due against such loans, advances and facilities, its account with Corporation Bank was classified as Non Performing Asset on 08.07.2011 and that with Indian Overseas Bank was classified as NPA on 05.08.2011. Then, on 15.11.2011, demand notice under Section 13(2) of the SARFAESI Act, 2002 was issued by Indian Overseas Bank to the corporate debtor and its guarantors. These steps were followed up with recovery proceedings against the corporate debtor by the consortium of lenders and respondent No. 2 before the Debts Recovery Tribunal, Aurangabad under Section 19 of the Recovery of Debts Due to the Banks and Financial Institution Act, 1993.

Even when the aforesaid proceedings were pending before DRT, on or about 21.03.2018, the respondent No. 2 moved an application before the Adjudicating Authority under Section 7 of the Code.

DECISION BY NATIONAL COMPANY LAW TRIBUNAL (NCLT) ORDER DATED 09.08.2018

The Adjudicating Authority, dealt with the submissions of the parties and, while rejecting the objections of corporate debtor in relation to the frame of application and the correctness of loan accounts, the Hon’ble NCLT held that the applicant was entitled to initiate CIRP under Section 7 of the Code when there was a debt and there was default; and that being a statutory remedy available to the financial creditor, the corporate debtor cannot question its maintainability only for the applicant having adopted other proceedings under other enactments.

Accordingly, the Adjudicating Authority (NCLT) admitted the application for consideration; passed necessary order of moratorium; and appointed the interim resolution professional.

DECISION BY NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT) ORDER DATED 14.05.2019

In the impugned order dated 14.05.2019, the Appellate Tribunal has observed that the Code having come into force on 01.12.2016, the application made in the year 2018 is within limitation. The Appellate Tribunal stated  that mortgage security having been provided by the corporate debtor, the limitation period of twelve years is available for the claim made by the financial creditor as per Article 61 (b) of the Limitation Act, 1963 and hence, the application is within limitation. The substance of the relevant factual and background aspects, as emanating from the contents of the application under Section 7 moved by the respondent No. 2.

The Appellate Tribunal has rejected the plea of bar of limitation essentially on two major considerations:

1.      That the right to apply under Section 7 of the Code accrued to the respondent financial creditor only on 01.12.2016 when the Code came into force; and

2.      That the period of limitation for recovery of possession of the Mortgaged property is twelve years.

 DECISION BY SUPREME COURT

The application made by the respondent No. 2 under Section 7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application.

Also the observations in this judgment are relevant only in regard to the issue determined that the application under Section 7 of the Code is barred by limitation and not beyond. In other words, nothing in this judgment shall have bearing on any other proceeding that shall be dealt with on its own merits and in accordance with law.

CONCLUSION

The Court held that in view of the above, this appeal is allowed to the extent indicated and with the observations foregoing. The impugned orders dated 14.05.2019 as passed by the National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) Insolvency No. 549 of 2018 and dated 09.08.2018 as passed by the National Company Law Tribunal, Mumbai Bench in CP(IB)-488/I&BP/MB/2018 are set aside; and the application made by the respondent No. 2 under Section 7 of the Code, seeking initiation of Corporate Insolvency Resolution Process in respect of respondent No. 1 is rejected for being barred by limitation. Consequently, all the proceedings undertaken in the said application under Section 7 of the Code, including appointment of IRP, stand annulled. No costs.

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This Article has been Compiled by Richa Singh 

Disclaimer-

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.

BUY BACK OF SHARES BY UNLISTED COMPANIES

Buyback of shares is the repurchase of its outstanding shares by a company. Companies generally buyback shares in order to reorganise its capital structure, return cash to shareholders and enhance overall shareholders’ value. Buyback leads to reduction in outstanding number of equity shares, which may lead to improvement in earnings per equity share and enhance return on net worth and create long term value for continuing shareholder.

SOURCES OF FUNDS WHICH CAN BE UTILISED FOR BUYBACK

A company may purchase its own shares or other specified securities out of –

1. free reserves; or
2. Securities premium account; or
3. The proceeds of any shares or other specified securities

A company intending to buy its shares/other securities must have at the time of buyback, balance in any one or more of these accounts, which is sufficient to accommodate the total value of buy back. Buyback of shares out of free reserves/securities premium  account does not mean that amount in the reserve  or premium account is represented by equivalent cash in hand or invested so that the company draw requisite amount of cash from it for the purpose of payment to the shareholders whose shares are bought back. It will be noted that reserve is not a fund; it is only an account created by appropriation of profits by book entry. So far as premium is concerned, though at the time of issue of shares it is received in cash (or kind), it does not remain in that form forever or invested in securities, since it is used by the company for its business and thus used up. Therefore, a company which buys its securities by debiting to free reserves or premium account must have liquid cash sufficient to meet its obligation of payment to the shareholders whose securities are bought.

CONDITIONS FOR BUY-BACK

1. Buy-back is authorized by its Articles of Association;
2. Special resolution is passed by the company authorizing buy-back. However, if the buy-back is 10% or less of the total paid-up equity capital and free reserves, board resolution, in this regard, will suffice;
3. Buy-back is 25% or less of the aggregate of paid up capital and free reserves of the company;
4. The Ratio of debt (secured and unsecured) owed by the company is not more than twice the paid up capital and its free reserves after such buy-back;
5. All the shares or other specified securities for buy-back are fully paid up;
6. No offer of buy-back shall be made within a period of one year from the date of the closure of the preceding offer of buy-back, if any.

TIME LIMIT FOR COMPLETION OF BUY BACK

Within a period of one year from the date of passing of the special resolution, or board resolution, as the case may be, buy-back shall be completed

OPTIONS FOR BUY BACK

The buy-back can be from:

1. from the existing shareholders or security holders on a proportionate basis;
2. from the open market;
3. by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity

TAXATION ON BUY BACK OF SHARES

In case of a domestic company, Section 115QA of the Income Tax Act, 1961 provides for the levy of tax on account of buy-back of shares, at an effective rate of 23.296% (20% + 12% SC + 4% H&EC).    

Buy-Back Tax has to be paid by the company on the distributed income which is nothing but the consideration paid by the company on buy back of shares, as reduced by the amount received by the company on issue of such shares, determined in the manner prescribed under Rule 40BB of the Income Tax Rules, 1962. Also, such Buy Back Tax has to be paid by the company over and above the tax paid by it, if any, on its total income.

Back Tax is levied at the level of company, the consequential income arising in the hands of shareholders is exempt from tax, as per Section 10(34A) of the Income Tax Act, 1961.

For the purpose of Section 115QA, ‘Buy-Back’ means purchase by the company of its own shares, in accordance with the provisions of any law for the time being in force relating to companies.

APPLICABILITY OF STAMP DUTY

No Stamp Duty is payable in case of buy back of shares as company is buying back its own shares and hence, the same does not result in any transfer.

PROHIBITIONS ON BUY BACK

1. No company shall directly or indirectly purchase its own shares:-
2. through any subsidiary company including its own subsidiary companies;
3. through any investment company or group of investment companies; or
4. if a default, is made by the company, in the repayment of deposits accepted either before or after the commencement of this Act, interest payment thereon, redemption of debentures or preference shares or payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any financial institution or banking company.

 However, the buy-back is not prohibited, if the default is remedied and a period of three years has lapsed after such default ceased to subsist.

The Company shall not buy-back its shares if the company has not complied with the provisions of 92 (Annual Return), 123 (Declaration of Dividend), 127 (punishment for failure to distribute dividends) and section 129 (Financial Statement).

PENALTY

If a company makes any default in complying with the applicable provisions of the Companies Act, 2018 (i.e. Section 68 of the Companies Act, 2013) the company shall be punishable with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than one lakh rupees but which may extend to three lakh rupees, or with both.   

This Article has been Compiled by Swati Garg (Senior Associate)

You can direct your queries or comments to the author at swati@factumlegal.com

Disclaimer-

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.

PREFERENTIAL ISSUE

Preferential issue is one of the fastest ways of raising capital by the company. As per Regulation 2(1)(nn) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, (hereinafter referred as ‘ICDR Regulations’) Preferential Issue means an issue of specified securities by a listed issuer to any select person or group of persons on a private placement basis and does not include an offer of specified securities made through employee stock option scheme, employee stock purchase scheme or an issue of sweat equity shares or depository receipts issued in a country outside India or foreign securities.

 Requirements for Preferential Issue

As per Regulation 160 of ICDR Regulations, listed entity making a preferential issue of specified securities shall ensure that:

1. Equity shares allotted by way of preferential issue shall be made fully paid up at the time of the allotment;
2. Special resolution has been passed by its shareholders;
3. Equity shares by the proposed allottees are in dematerialised form;
4. Permanent Account Numbers of the proposed allottees has been obtained
5. Listed Entity is in compliance with the conditions for continuous listing of equity shares

Lock-in Period

Promoters: Locked-in period for specified securities allotted on preferential basis to promoter or promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis to promoter or promoter group, shall be three years from date of trading approval granted for the specified securities or equity shares allotted pursuant to exercise of the option attached to warrant, as the case may be.

Other than Promoters: Locked-in period for specified securities allotted on preferential basis to persons other than promoter and promoter group and the equity shares allotted pursuant to exercise of options attached to warrants issued on preferential basis to such persons shall be one year from the date of trading approval.

Time Period for Completion of Allotment for Listed Entities

Within a period of fifteen days of passing special resolution allotment shall be completed.

However, if within fifteen days from the date of special resolution, allotment of the specified securities is not completed then a fresh special resolution shall be passed and the relevant date for determining the price of specified securities shall be taken with reference to the date of the latter special resolution.

Communications to Stock Exchange

As per Regulation 29(1) (d) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the listed entity shall give prior intimation to stock exchanges, at least two working days in advance, excluding the date of the intimation and date of the meeting, about the meeting of the board of directors in which proposal for fund raising by way of Preferential Issue and for determination of issue price is to be considered.

As per Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, read with Para A of Part A of Schedule III, the listed entity shall intimate outcome of board meeting to stock exchange within 30 minutes of the closure of the meeting in which decision with respect to fund raising has be taken.

Approvals/Application to Stock Exchange

As per Regulation 28(1) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, listed entity shall obtain In-Principle approval from stock exchanges before issuing securities of preferential basis (i.e. before allotment of securities on preferential basis).

As per Regulation 108(2) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, issuer company shall, make an application for listing, within twenty days from the date of allotment, to stock exchange(s) along with the documents specified by stock exchange(s) from time to time.

Penalty for delay in making listing application

As per Regulation 108(3) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, where there is a delay in making listing application beyond twenty days from the date of allotment, the issuer company shall pay penal interest to allottees for each day of delay at the rate of at least 10% per annum from the expiry of thirty days from date of allotment till the listing of such securities to the allottees

Trading Approval: The securities shall be listed and traded on the Stock Exchange after the grant of trading approval from the Stock Exchange(s).

Preferential Issue under Companies Act, 2013 (‘the Act’)

Under the Act, Section 62(1)(c) needs to be complied with in case of preferential issue. 

Applicability of Section 42 of the Act: As per Section 62(1)(c) read with Rule 13(1) of the Companies (Share Capital and Debentures) Rules, 2014, if authorised by a special resolution passed in a general meeting, shares may be issued in any manner whatsoever, including by way of a preferential offer, to any persons whether or not those persons include the equity shareholders or the employees (under ESOP) and such issue on preferential basis should also comply with conditions laid down in Section 42 of the Act.

Thus, in case of issue of shares on preferential basis Section 42 also becomes applicable.

Time Period for Completion of Allotment for Unlisted Entities

The allotment of securities on a preferential basis made pursuant to the special resolution shall be completed within a period of twelve months from the date of passing of the special resolution.

However, if the allotment of securities is not completed within twelve months from the date of passing of the special resolution, then another special resolution shall be passed for the company to complete such allotment thereafter.

Offence

Section 62 (i.e. Further Issue of Share Capital) of the Companies Act, 2013, does not prescribe any penal provision for contravention of the said section. However section 450 of the Companies Act, 2013 will be applicable. Accordingly, the punishment for contravention, the company and every offer of the company who is in default shall be punishable with a fine upto Rs.10,000, if the contravention continues then the fine shall be Rs. 1,000 every day after the first during which the contravention continues.

This Article has been Compiled by Swati Garg (Senior Associate)

You can direct your queries or comments to the author at swati@factumlegal.com

Disclaimer-

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.

COMPETING OFFERS UNDER SEBI (SUBSTANTIAL ACQUISITION OF SHARES AND TAKEOVERS) REGULATIONS, 2011 (HEREINAFTER REFERRED AS ‘TAKEOVER REGULATIONS’)

The term ‘Competing Offer’ refers to an offer given by any other person (Competing Acquirer) after an offer has already been given by an Acquirer to the shareholders of the Target Company to acquire the shares held by them.  The Takeover Regulations permits all persons other than the original acquirer to make a competing offer and does not restrict even the Person Acting in Concert (PAC)  of the acquirer from making a competing offer.

Legal Provision

Regulation 20 of Takeover Regulations governs and deals with the concept of Competing Offer.

Size of Competing Offers

Competing offer shall be for such number of shares which, when taken together with shares held by the acquirer and the PAC, shall be at least equal to the aggregate holding of the acquirer who has made the first public announcement including the shares proposed to be acquired by such acquirer under the offer and thee agreement that has triggered the first open offer.

 In case of a competing offer, the subsisting mandatory offer’s size can be increased up to 1 working day prior to the commencement of the tendering period.

 In case of a competing offer, the subsisting voluntary offer’s size can be increased within a period of fifteen working days from the public announcement of a competing offer.

Timing of the Competing offer

Competing offer can be made within 15 working days from the date of Detailed Public Statement made by the acquirer who makes the first Public Announcement.

No person shall be entitled to make a public announcement of an open offer for acquiring shares, or enter into any transaction that would attract the obligation to make a public announcement of an open offer for acquiring shares under the Takeover regulations, after the period of fifteen working days from the date of first public announcement and until the expiry of the offer period for such open offer.

Number of Competing Offer

The Takeover Regulations does not impose any restriction on the number of competing offers provided all the offers are made within the timeframe prescribed.

Conditional Offer

Competing offer can be conditional as to the minimum level of acceptances only if the original open offer conditional as to the minimum level of acceptances.

Competing offer does not constitute as Voluntary Offer

Though a competing offer under the Takeover Regulations is made by the acquirer voluntarily, a competing offer shall not constitute voluntary offer under the Takeover Regulations. Therefore, the conditions applicable to a voluntary offer under the Takeover Regulation shall not be applicable to a competing offer.

Revision of offer

Acquirers who have made the first public announcement, as well as competing acquirers, shall be allowed to revise the terms of their offers as long as these revisions are favourable to the target shareholders.

Induction of new director

No induction of any new director to the board of directors of the target company during the pendency of competing offers, provided that in the event of death or incapacitation of any director, the vacancy arising therefrom may be filled by any person subject to approval of such appointment by shareholders of the target company by way of a postal ballot.

Prohibitions on Competing Offers in Certain Cases

In view of Takeover Regulation 20 (7), making a following competing offer, or entering into a transaction which would trigger an obligation to make a following competing offer is not permitted, until after the expiry of the offer period, in the following cases:

1.      where the original open offer is for the acquisition of shares pursuant to a disinvestment in terms of Regulation 13(2) (d); or

2.      where the open offer is pursuant to a relaxation granted by the SEBI pursuant to Regulation 11(2) from strict compliance with the various open offer obligations set out in Chapters III and IV under Regulation 11(2), SEBI may grant such a relaxation where the Central Government or a State Government or any regulatory authority has superseded and replaced the board of the target company or where it is otherwise satisfied that such a relaxation will be in the interests of the public, investors and the securities market.

Person Restricted from making competing offer

No person who is a fugitive economic offender can make a competing offer for acquiring any shares or voting rights or control of a target company.

Conclusion

The Takeover Regulations do not regulate or impose any restrictions on the target company from soliciting competitive bids from other potential bidders. The Regulations have been designed in such a manner which provides equal opportunity to all the shareholders to choose either to remain with the new promoter or to exit. Competing offers have a special feature of providing public shareholders an opportunity for accepting more favourable price as well as an opportunity to determine the controlling shareholders of the target company.

This Article has been Compiled by Swati Garg (Senior Associate)

You can direct your queries or comments to the author at swati@factumlegal.com

Disclaimer-

The contents of this article should not be construed as legal opinion. This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. We expressly disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this article.