Efficient and smooth functioning takeover market plays an important role in economic development of the country. Takeover market serves as a monitor for managers of a public company, who are endowed with the duty of efficient working of the company, and inefficient working of public company, will be faced with the reduction in value of the share and will make it vulnerable for takeover and change in control. Substantial Acquisition of shares or takeover of a listed company impacts a host of stakeholders, such as the acquirer, the target company, the management and the public shareholder. Thus Takeover Code is meant to ensure fair and equal treatment of all shareholders in relation to substantial acquisition of shares and takeovers and that the process does not take place in clandestine manner without protecting the interest of the shareholder. Takeover regulation in India does not prohibit acquisition™s rather it only regulates the acquisition process and facilitates the takeover market by providing fair and equal opportunity to every interested party. Underlying idea for any acquisition under Take Regulation is to make an transparent and informed acquisition, and hence acquisition which carries substantial shareholding can only be made through open offer, so that shareholder who want to exercise their exit option and discontinue with the new control can do it as their right. However it is difficult to frame an exhaustive regulation as takeovers are always complex and interrelated to the dynamics of the market place.
With a View to facilitate and regulated SEBI Notified Securities and Exchange Board of India (Substantial Acquisition of Share and Takeover) Regulation, 2011(hereinafter SEBI (SAST) Regulation 2011) Open offer has been classified under two heads i.e. Mandatory Open Offer (MOO) and Voluntary Open Offer (VOO). MOO is situation where the obligation is imposed on the acquirer along with person acting in concert to make open offer to the remaining shareholder, so that they can exercise their exit option, if they are desirous of doing so. MOO is applicable in case of Acquisition of share which crosses initial threshold limit under Regulation 3, Creeping Acquisition Acquisition of Control and Indirect Acquisition of shares or control under any of the above whereas separate provision is made under Regulation 6 for VOO.
MAKING VOLUNTARY OPEN OFFER
Voluntary Open offer means the open offer given by the acquirer voluntarily without triggering the MOO obligations as envisaged under the SEBI (SAST) Regulation 2011 for substantial shareholders to consolidate their stake. Provision relating to VOO is indirectly provided under Regulation 11 (2A) of the SEBI (SAST) Regulation 1997, which provides that the acquirer who holds the shares or Voting Rights between 55%-75% and who is desirous of consolidating its shareholding can do so by making an open offer. In 1997 Regulation provision related to consolidation of holding as mentioned above were inserted by 2006 on the recommendation of Bhagwati Committee Report with some modification. Committee recommended that person(s) holding not less than 10% but more than 75% may acquire upto 2% shares in any period of twelve months, without attracting the mandatory public offer requirement. Recommendation of the committee was based on the observation that existing regulation [SEBI (SAST) Regulation 1997] do not give any scope for consolidation of holding by person(s) who already hold more than 10% of the shares or voting rights of the company without attracting the mandatory public offer. The committee appreciated the fact that in a competitive environment, it may become necessary for person(s) in control of the Company to consolidate their holding either suo moto or to build their defences against takeover threats.
The concept of voluntary open offer has been separately dealt with in SEBI (SAST) Regulation 2011 on the recommendation of Achuthan Committee Report. Wherein it was recommended to have a separate provision for the VOO outside the mandatory public offer as with the proposed increase in open offer size to 100% of the voting capital there is need to provide for flexibility to acquirer to make voluntarily make open offer outside the mandatory public offer requirements. Hence the committee™s recommendation accepted on Voluntary Open Offer and separate provision for such offer were provided in Regulation 6.
It has been provided that for making a voluntary open offer, the acquirer (along with person acting in concert) must hold 25% or more but less then maximum permissible non- public shareholding share or voting rights in a target company and acquirer cannot exceed the maximum permissible non-shareholding even post-completion of the Open Offer. Thus a benchmark of 25% is set under this regulation crossing which only a person will be entitled to exercise right of VOO. Further for an acquirer eligible to make VOO it is provided that any such offer shall be for such number of share as would entitle the acquirer to exercise at least 10% additional voting rights and shall not exceed maximum permissible non-public shareholding applicable to the target company. The limit of minimum 10% additional voting rights is aimed to discourage the non serious voluntary offer. But with this lower limit of additional voting rights in an offer, an ambiguity regarding an acquirer, whose shareholding in a target company is already less than 10% shares from the maximum permissible non-public shareholding, and an offer in terms of Regulation 7(2) will breach the maximum permissible non-public shareholding limit. It has to be noticed that, a listed company is in continuous requirement of maintaining the public shareholding at least 25%. Since this requirement is continuous in nature, and even if public shareholding of a listed company fall below 25% at any time, such company shall bring the public shareholding of 25% within a maximum period of twelve months from the date of such fall in the manner specified by the SEBI. Thus in the event of VOO by an acquirer whose post acquisition shareholding breaches maximum permissible non-public shareholding limit shall have to bring the public shareholding to minimum and continuous level allowed by the SCRA Rules within 12 month from the date of such fall.
The restriction on offer size of at least 10% additional voting rights is applicable only to acquirer holding 25% or more shares, but what will be the status of an acquirer holding below 25% of shares or voting rights? SEBI (SAST) Regulation 2011 is only attracted on substantial shareholding, which according to scheme of the regulation will applicable only when the shareholding is 25% or more, hence a person can acquire up to 24.99% of share without attracting Takeover Regulation. However if any person interested in announcing the offer whose shareholding is below 25% or an outsider but post acquisition entitle him to exercise 25% or more voting rights, such an acquisition will fall under Regulation 3(1) which provides that if an acquisition leads to entitlement of 25% or more of voting rights acquirer shall announce an open offer for acquiring shares of such target company. But if the person wants to cross initial threshold limit triggering open offer, he has to do that in accordance with the Regulations. Starting line of Regulation 3(1) says that no acquirer shall acquire shares or voting rights in a target company which taken together with shares or voting rights, if any, held by him or person acting in concert¦ Phrase ˜taken together™ suggest that the acquirer is holding some share or voting rights in the target company and when post acquisition share or voting rights are taken together acquirer will be entitle to exercise 25% or more voting rights. On the other hand phrase ˜if any™ suggest that even if the acquirer is not holding any share (outsider), and post acquisition he will be entitled to exercise 25% or more voting rights. However when the case falls in Regulation 3(1) it will be Mandatory Open Offer. And the offer size for such an open offer will be dealt in accordance with Regulation 7(1) wherein the offer size shall be for minimum 26% of the total share of the target company.
It is further provided in the Regulation 6 as a proviso that, the acquirer shall become ineligible to make a VOO if during the preceding 52 weeks the acquirer has acquired shares of the target company without attracting the obligation to make a public announcement of an open offer. As far as general principles on construction of proviso is concerned, broadly the function of proviso is to limit the main part of the section and carve out something which but for the proviso would have been within the operative part. Obligation to make an open offer is attracted in case of acquisition where initial threshold limit is crossed, in creeping acquisition or in case acquisition control. However in reference to the present proviso, creeping acquisition is relevant as the both provision are based on the common element that an acquirer holds share or voting rights entitling him to exercise 25% or more voting rights. In creeping acquisition an acquirer is under obligation to make an MOO if in a financial year his acquisition of shares or voting rights makes him entitled to exercise more than 5% of voting rights in a target company. But if an acquirer has acquired 5% or less voting rights exercisable shares or voting rights of the target company, then in this case no VOO cannot be made in next 52 weeks. As the VOO are permitted as an exception to the general rule on the offer size, the ability to voluntarily make an offer should not be available if in the proximate past, any of such persons have made acquisition within the creeping acquisition limits permitted under the Regulations.
If once the acquirer had announced an offer for acquisition of share or voting rights under the VOO he shall be prohibited from making any acquisition outside the open offer during the offer period and shall also be prohibited from acquisition for six months after the open offer. However such restriction will not be applicable for making a competing offer upon any other person making an open offer for acquiring shares of the target company. Any prohibition as mentioned above will not be applicable to share acquired through bonus issue or stock splits shall not create any dis-entitlement of any kind as mentioned above.
Offer-size, as already being discussed above, for an VOO shall be for such number of share as would entitle the acquirer to exercise 10% additional votes and shall not exceed the maximum permissible non-public shareholding. The offer once made will not be changed or modified in terms of offer size during the offer period, however in a case where competing offer are made, the acquirer through primary offer (first offer on time line) will be entitled to increase his offer size to an extent as he deems fit. Achuthan Committee recognised the intent behind such provision is to achieve orderly competition between acquirers vying for the same target company. Such a revised offer will be deemed to be an offer under Regulation 3(2) and provision related to these regulations will apply accordingly. Any such revised offer has to be made within 15 days from the announcement of the competing offer. Thus any such revised offer will be deemed as a mandatory offer, and provision thereof will be applicable.
The effect will be that where an acquirer opting to increase the offer size, now instead of proximate past acquisition of share in last 52 weeks, ˜financial year™ preceding the revised offer will have to take in account. Also according to proviso the increase can be as the acquirer ˜deems fit™, in this regard Achuthan Committee observed that were a competing offer after a voluntary offer is made, the acquirer who has made a voluntary offer ought to be given chance to enhance the size of his open offer to a full offer and stand released from the restrictions on market purchase so that he could effectively compete with the competing acquirer. Therefore increase in an offer size a deviation is made in case of competing offer, as a general scheme of the regulation upper limit can be the maximum permissible non-public shareholding. But in case of competing offer regulation provides that an increase can be to an extent as acquirer deems fit, which suggest that in a revised offer acquirer can go upto 100%. But since, any such revised offer will be deemed to be an offer under Regulation 3(2), hence the restriction as to mandatory offer as given in Regulation 7 be applicable and the any such revised offer shall be for minimum 26% but cannot exceed maximum permissible non-public shareholding. This seems to be not of much rationale in competing offer, as if the later offer entitles the acquirer to exercise maximum permissible non-public shareholding, and the upper limit to increase the share is also maximum permissible non-public shareholding, then the primary acquirer will not be having any option revise his offer to such an extent to compete effectively. Therefore to decide the increase in offer size shall be completely left over to the acquirer to decide as he deems fit, as much he wants upto 100% depending upon his resources and ability to compete effectively.
WITHDRAWAL OF VOLUNTARY OFFER
Once an offer is made, then even if it is Voluntary offer, acquirer is not free to withdraw it at any point of time and on any circumstance. The new Takeover Regulations contains the provision relating to withdrawal of an open offer which is modification from the older provision in 1997 Takeover Regulation as to make it more specific. Regulation 23 starts with a negative command, that as a general rule, a public offer once made shall not be allowed to withdrawn, but in exceptional circumstances it can be withdrawn. Achuthan Committee on withdrawal of an open offer had observed that,
¦once an open offer is made, its inexorable conclusion ought to be the completion of the open offer. However, there could be circumstances where the open offer cannot be completed. These circumstances can be classified into two types viz. (a) where it is rendered impossible for the open offer to continue for example, death of an acquirer who is an individual, or rejection of any statutory approval required for the offer (as provided for currently); and (b) non-attainment of any condition stipulated in the agreement that attracted the open offer obligation for reasons beyond the control of the acquirer, resulting in the agreement itself not being acted upon.
In the above proposition, point (b) is based on the rules followed in other jurisdiction regarding such as Australia, Singapore, Germany, US and UK, where the acquirers are allowed to clearly specify conditions to the offer, and to withdraw the offer if these conditions are not met, and if the triggering agreement was not acted upon. In new Regulation this additional ground have been added by which person can withdraw his offer for any condition stipulated in the agreement for the acquisition attracting obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is rescinded, subject to such conditions having been specifically disclosed in the public statement. However in the above provision will only be applicable for acquisition attracting the obligation to make open offer, which means Mandatory offer under the new code hence it will not apply to Voluntary offer and in this case option for withdrawal for the voluntary offer will be same as before 2011. Therefore a VOO can be withdrawn only when (i) Statutory refusal (ii) Death of the acquirer and (iii) Circumstances meriting the withdrawal.
These provision as are same as contained in Regulation 27 of the 1997 Takeover Regulation. In statutory refusal and death of the acquirer, SEBI will allow withdrawing the offer on the proof of above fact, however in case of circumstances meriting withdrawal, SEBI has discretion whether the grounds as mentioned by the applicant are sufficient to withdraw the offer or not. While explaining the corresponding provision in the old law in Nirma™s case Securities Appellate Tribunal had held that Regulation 27(b) to (d) have to be construed strictly and the phrase such circumstances had to be construed ejusdem generis. The common element in all the three condition of withdrawal is ˜impossibility of offer to continue™ as under statutory refusal and death of the acquirer it becomes impossible to continue the offer, similarly the circumstances which is taken as ground of withdrawal shall also be of such nature which makes the offer impossible to continue. Opinion of SEBI on any such circumstances shall be of merit to withdraw an offer, as unchecked automatic withdrawal of offer being capable of misuse, to put check and control through the requirement of obtaining SEBI approval. Opinion of the board permitting withdrawal shall be based on reason and it shall be hosted by the board on its official website.
Under 1997 Takeover Regulation voluntary offer is governed by the same provisions as a mandatory offer. However in the new code separate provision is made for Mandatory Open MOO and VOO, but provision related to Open Offer Process is governed under chapter III (for the withdrawal of open offer is governed by regulation 23 under Chapter III). In a request made to SEBI for withdrawal of open offer (under the 1997 Regulation) applicant had argued that since in a VOO trigger/mandate of the of the Takeover Regulation will not apply The VOO made by the acquirer does not give any vested right to the shareholder like in the case of triggered offer. This case therefore shall not be accorded the same treatment as the case of a triggered offer and withdrawal of open offer should be permitted under Regulation 27(1) (d) of the 1997 Takeover Regulation. Contradistinction was drawn with the Nirma™s Case where open offer was triggered and the offer was mandatory. However SEBI had denied the application holding that applicant was not having sufficient ground for withdrawing the offer. Thus, either offer shall be governed on same principle or there shall be different treatment with the two, is in question after the new takeover code came into existence. As old takeover regulation does not have separate provision for offer, but the new Takeover Regulation differentiate MOO and VOO, but the process of both is similar. Eligibility to make offer is different from the process of the offer, eligibility is dependent upon statutory requirement as to when the person will be having right to make an offer, while the process (how to make offer?) of the offer is completely a procedural aspect. Having common process for both kinds offer shows intention of the SEBI that differential treatment is not required for the two. Recently, SEBI has held that that a voluntary offer once made under the takeover code can only be withdrawn under exceptional circumstances and a mere delay in the public offer coupled with fall in market price or devaluation of Earning Per Share cannot be reasons to permit the withdrawal of a public offer.
Voluntary open offer is one of the good channel for consolidating the holding and make stronger hold in the target company. Separate provision for such offers had made it more explicit and clear as to scope of such offer, without getting into to the complex intricacies of the obligation attracting open offer. One can comfortably according to his convenience, but subject to the provision of the regulation consolidate his holding. Offer size of such voluntary offer are fixed rationally so to avoid non-serious offers and is not set to high so as to devoid person from exercising his option for offer. Such a limit is just as a exception to the general rule as to offer size and mere facilitative to the substantial shareholder.
Though the new Takeover Regulation, at some places involve some complex provision wherein either the true intention is lacking or the regulation is silent. Takeover Regulation is a special law to regulate substantial acquisition of shares and takeover in target companies, which consist of all the substantive and procedural requirements for an open offer. Unless the regulation is salient on some issues and any further interpretation is not permitted, general law relating to contracts cannot be applied. It is suggestive to note observation made by Bhagwati Committee Report that it is difficult to devise regulations in such detail as to cover the entire range of situation which could arise in the process of substantial acquisition of shares and takeovers. Instead there should be a set of general principles which should guide the interpretation and operation of the Regulations, especially in the circumstances which are not explicitly covered by the regulation.
 Repealed The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 [hereinafter 1997 Takeover Regulation] See Regulation
 SEBI (SAST) Regulation, 2011: Regulation 2(1)(a) defines acquirer means any person who, directly or indirectly , acquires or agrees to acquire whether by himself, or through, or with person acting in concert with him, shares or voting rights in, or control over a target company. Hereinafter word acquirer referred anywhere will include ˜acquirer along with person acting in concert™
 SEBI (SAST) Regulation 2011, Regulation 3(1) provides initial threshold limit triggering open offer is 25%.
 Regulation 3(2) Provides for more than 5% acquisition in a financial year attract obligation to make mandatory open offer.
 Regulation 4
 Regulation 5
 Report of the Takeover Regulation Advisory Committee, July 19, 2010 available at http://www.sebi.gov.in/commreport/tracreport.pdf last visited 7/11/2012
 Justice P.N. Bhagwati Committee Report on Takeovers. Available at http://www.sebi.gov.in/commreport/bagawati-report.html#PREFACE last visited on 8/11/2012
 Ibid Part II of the Report- Regulation 11
 supra note 6
 TRAC Report recommended that the offer size shall be for 100%. See para 1.14 of the report, Recommendation for full fledge open offer was not accepted rather open offer with a minimum 26% offer were accepted in case of mandatory open offer. See Regulation 7 (1)
 SEBI (SAST) Regulation, 2011, Regulation 2(1) (0) defines maximum permissible non-public shareholding means such percentage shareholding in the target company excluding the minimum public shareholding required under the Securities Contracts (Regulation) Rules, 1957 (Hereinafter SCRA Rules); Under the SCRA Rules(as amended in 2010) Rule 19(2)(b) provides for two types of minimum public shareholding (i) 25% of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document; or (ii) 10% of each class or kind of equity shares or debentures convertible into equity shares issued by the company was offered and allotted to public in terms of an offer document if the post issue capital of the company calculated at offer price is more than four thousand crore rupees; Also see Clause 40 A of the listing agreement.
 Regulation 7(2)
 SCRA Rules: Rule 19A (1)
 SCRA Rules: Rule 19A (2)
 Initial threshold limit for triggering open offer
 State of Rajasthan v. Leela Jain 1965 SCR (1) 276
 TRAC Report Para 2.20
 Regulation 2(1)(p): offer period means the period between the date of entering into an agreement, formal or informal, to an acquire shares, voting rights in, or control over a target company requiring a public announcement or date of the publication announcement, as the case may be, and the date on which payment of consideration to shareholders who have accepted the open offer is made, or the date on which open offer is withdrawn, as the case may be.
20(1) Upon a public announcement of an open offer for acquiring shares of target company being made, any person, other than the acquirer who has made such public announcement, shall be entitled to make a public announcement of an open offer within fifteen working days of the date of the detailed publication statement made by the acquirer who has made the first public announcement. Further Regulation 20 (4) says that, every open offer made under sub-regulation (1) and open offer first made shall be regarded as competing offer for the purpose of these regulations. 1997 Regulation termed it as Competitive Bids
 Proviso to Regulation 7(2)
 Supra Para 7.3
 Primary offer with increased offer size due to competing offer
 Ibid Para 7.5
 Regulation 23: An open offer for acquiring shares once made shall not be withdrawn except under any of the following circumstances,”
(a) statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer under these regulations having been finally refused, subject to such requirements for approval having been specifically disclosed in the detailed public statement and the letter of offer;
(b) the acquirer, being a natural person, has died;
(c) any condition stipulated in the agreement for acquisition attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, and such agreement is rescinded, subject to such conditions having been specifically disclosed in the detailed public statement and the letter of offer; or
(d) such circumstances as in the opinion of the Board, merit withdrawal.
 Regulation 23 (1) (a): Statutory approvals required for the open offer or for effecting the acquisitions attracting the obligation to make an open offer under these regulations having been finally refused, subject to such requirements for approval having been specifically disclosed in the detailed public statement and the letter of offer;
 Regulation 23 (1) (b) the acquirer, being a natural person, has died;
 Regulation 23 (1) (d) such circumstances as in the opinion of the Board, merit withdrawal
 Regulation 27 (1) (d) of Takeover Regulation 1997
 Nirma Industries Limited & Anr v. Securities and Exchange Board of India  90 SCL 23 (SAT)
 Luxottica Group SPA and Anr v. SEBI  47 SCL 1 (SAT)
 In the matter of request of Mr. Promod Jain and Pranidhi Holdings Private Limited (the Acquirers) along with J.P. Financial Services Private Limited (person acting in concert) to permit withdrawal of the public offer envisaged in the Public Announcement dated November 12, 2009 made by them to acquire shares of golden Tobacco Limited (the Target Company) WTM/RKA/CFD-DCR/12/2012
 Regulation 27. No Public Offer once made, shall be withdrawn except under the following circumstances:-
(b) the statutory approval(s) required have been refused;
(c) The sole acquirer, being a natural person, has died;
(d) such circumstances as in the opinion of the board merit withdrawal.
 Nirma Industries Limited & Anr v. Securities and Exchange Board of India  90 SCL 23 (SAT)
 Supra note 33. Also visit http://indianlegalspace.blogspot.in/2012/04/withdrawal-of-voluntary-offer-takeover.html Last visited on 7/11/2012
 These principles are: (i) Equality of treatment and opportunity to all shareholders; (ii)Protection of interests of shareholders ; (iii) Fair and truthful disclosure of all material information by the acquirer in all public announcements and offer documents; (iv) No information to be furnished by the acquirer and other parties to an offer exclusively to any one group of shareholders; (v)Availability of sufficient time to shareholders for making informed decisions; (vi) An offer to be announced only after most careful and responsible consideration; (vii)The acquirer and all other intermediaries professionally involved in the offer, to exercise highest standards of care and accuracy in preparing offer documents; (viii) Recognition by all persons connected with the process of substantial acquisition of shares that there are bound to be limitations on their freedom of action and on the manner in which the pursuit of their interests can be carried out during the offer period; (ix) All parties to an offer to refrain from creating a false market in securities of the target company; (x) No action to be taken by the target company to frustrate an offer without the approval of the shareholders. Also see Nirma™s Case