On July 1, 2020 the Securities and Exchange Board of India (“SEBI”) issued the SEBI (Substantial Acquisition of Shares and Takeovers) (Third Amendment) Regulations, 2020 (“Amendment Regulations”) to amend the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”).

The Amendment Regulations, inter alia, make the following changes:

1. A new proviso has been inserted after regulation 17(1) of the Takeover Regulations that prescribes the amount to be deposited in an escrow account as security for performance. The new proviso states that in case of indirect acquisitions where public announcement has been made in terms of regulation 13(2)(e) of the Takeover Regulations i.e. for indirect acquisition of shares or voting rights in, or control over the target company where none of the parameters referred to in regulation 5(2) of the Takeover Regulations (relating to indirect acquisitions that are regarded as direct acquisitions for the purpose of the Takeover Regulations) are met, an amount equivalent to 100% (one hundred percent) of the consideration payable in the open offer shall be deposited in the escrow account.
2. A new proviso has been inserted after existing proviso to regulation 17(3)(c) of the Takeover Regulations that provides that the deposit of frequently traded and freely transferable equity shares or other freely transferable securities with appropriate margin may be a form in which the escrow account under regulation 17(1) of the Takeover Regulations is maintained. The new proviso provides that the deposit of securities shall not be permitted in respect of indirect acquisitions where public announcement has been made in terms of regulation 13(2)(e) of the Takeover Regulations.

3. A new sub-regulation 11A has been inserted after regulation 18(11) of the Takeover Regulations. The new sub-regulation 11A provides that in case the acquirer is unable to make payment to the shareholders who have accepted the open offer within such period, the acquirer shall pay interest for the period of delay to all such shareholders whose shares have been accepted in the open offer, at the rate of 10% (ten percent) per annum. The payment of interest would be without prejudice to SEBI taking any action under regulation 32 of the Takeover Regulations (power to issue directions) or under the SEBI Act, 1992. Further, in case the delay was not attributable to any act of omission or commission of the acquirer, or due to the reasons or circumstances beyond the control of acquirer, SEBI may grant waiver from the payment of interest.

4. Regulation 22(1) of the Takeover Regulations provides that an acquirer  cannot  complete  the  acquisition  of  shares  or  voting  rights  in,  or control over, the target company,  whether by way  of subscription to shares or a purchase  of  shares  attracting  the  obligation  to  make  an  open  offer  for  acquiring shares, until the expiry of the offer period. However, regulation 22(2A) of the Takeover Regulations, inter alia, provided that notwithstanding what is contained in regulation 22(1), an acquirer could acquire shares of a target company through preferential issue or through the stock exchange settlement process, other than through bulk deals or block deals, subject to: (i) such shares being kept in an escrow account; and (ii) the acquirer not exercising any voting rights over such shares kept in the escrow account. Pursuant to the Amendment Regulations, the restriction on bulk deals or block deals have been removed from regulation 22(2A) of the Takeover Regulations.

The Amendment Regulations are available at the following link:

https://www.sebi.gov.in/web/?file=https://www.sebi.gov.in/sebi_data/attachdocs/jul-2020/1593666345453.pdf#page=1&zoom=page-width,-16,800

This update has been contributed by Adity Chaudhury (Partner) and Deeya Ray (Associate).