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

4. UNDERSTANDING SHARES Reg 2 (k) 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 ISSUE What is the status of partly paid shares under SAST Regulations, 1997? The partly paid up shares are also shares under Takeover Code as voting rights is embedded in partly paid up shares.

6. 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)]

7. 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)]

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

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

11. DETAILED ANALYSIS

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

16. 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….

17. Category III – Promoters… contd Firm or HUF in which P/R is partner or coparcener ;stake not < 50% Any company controlled by P/R His relatives as Defined u/s 6 of Co. Act 1956. When person is individual Firm or HUF in which P/R is partner or coparcener ; stake not < 50% Any company controlled by P/R Holding & Subsidiary When person is body corporate

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

19. Pre- Conditions for availing Inter- se transfer. N Y N N ii. 3 yrs holding of shares by transferee & transferor. Y Y Y Y iii. Compliance of Regulation 6, 7 & 8. Y Y N N i. Transfer is at a price > 25% of the price determined in terms of Reg 20(4) & 20(5) of SEBI (SAST) Regs, 1997. Category IV (Acquirer & PAC) Category III (Qualifying Promoter) Category II (Relative) Category I (Group) Conditions

20. Checks & Balances

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

22. 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)

23. Taxation Issues STT vs. LTCG/STCG

25. INTER- SE TRANSFER : A STRATEGICAL MOVE Good means for consolidation of holdings in a Company.

26. 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

27. I SSUES

28. MATTER OF DEBATE: 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 Whether Reporting under Regulation 3(4) is one time reporting?

29. MATTER OF DEBATE: 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 Whether the belated filing of report should not be considered as commission of offence when there is no substantial loss to the investors?

31. PREFERENTIAL ALLOTMENT OF SECURITIES

32. An issue by a company 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. Of

34. The Companies Act, 1956 SEBI (Disclosure and Investor Protection) Guidelines, 2000 (Chapter – XIII & XIIIA) Unlisted Public Companies (Preferential Allotment) Rules, 2003 SEBI (SAST) Regulations, 1997 Listing Agreement GOVERNING LAW

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

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

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

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

39. 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

41. Preferential Allotment viz-a-viz Takeover Code

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

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

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

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

46. Example: Expanded Capital=11764700 Present Capital= 1 cr 1764700 (14.99% of the Expanded Capital) 14.99% 0 Non- Promoter Shares & % of Expanded Capital Maximum Allotment in Preferential allotment. Existing shares & % Category

47. 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? Queries 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 Query 1 Query 2

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

49. 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? Query 4 Queries

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