Indirect Acquisition of Shares of Target Co. via Share Transfer in Promoter Entity Triggers Open Offer Obligations: SEBI

Informal Guidance No. SEBI/HO/CFD/PoD-2/OW/P/2023/25677/1, Dated: 23.06.2023

The SEBI, in its reply to an Informal Guidance has stated that an indirect acquisition of shares/voting rights of the target company via transfer of shares in the promoter entity of the target company shall trigger open offer obligations and would not be eligible for any automatic exemption under Regulation 10 of SEBI (SAST) Regulations, 2011 (Takeover Regulations).

Query raised by the Applicant Company

The applicant company sought informal guidance on the following queries:

(a) Whether the indirect acquisition of shares of the Target Company through share transfer in a promoter entity triggers an open offer obligation?

(b) Whether the transaction is eligible for exemption under Regulation 10 of Takeover Regulations from an obligation to make an open offer?

Main Concern of the Applicant Company

The main concern of the applicant company was that Kamats Worldwide Food Services Limited, one of the promoters of the Target Company, is a wholly owned subsidiary of VITS Hotels Worldwide Private Limited, another promoter entity of the Target Company.

A shareholder of Hotels Worldwide Private Limited transferred her shares to her spouse’s account (Dr. Vikram V. Kamat), who is also an existing shareholder of the company) by way of a gift, which constitutes more than 25% of the total paid-up capital of the target company. As a result, he indirectly acquired control over the Target Company.

The applicant company sought informal guidance from SEBI regarding whether Dr. Vikram V. Kamat is required to make an open offer as prescribed under the SEBI Takeover Regulation or not.

Provisions specified in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Regulation 3(1) of the regulation specifies that no acquirer shall acquire shares/voting rights in a target company, which, when taken together with the shares/voting rights already held by him and by persons acting in concert with him in such target company, entitle them to exercise 25% or more of the voting rights in such target company, unless the acquirer makes a public announcement of an open offer for acquiring such shares of the target company.

Further, Regulation 10(1)(a) of the takeover regulations specifies that the acquisition of shares pursuant to the transfer of shares among immediate relatives is exempt from the condition of an open offer as specified in the regulation.

The SEBI’s Observations

SEBI was of the view that, as per the SEBI Takeover Regulations, Dr. Vikram V. Kamat, as an immediate relative of the transferor, would also be a promoter in the target company and would not be eligible for any exemption from the condition of an open offer.

Further, the shares/voting rights of the target company are being indirectly acquired through the transfer of shares in the promoter entity of the target company. The proposed transaction does not involve the transfer of shares of the target company.

SEBI Reply

In response to the query, SEBI clarified that an indirect acquisition of shares/voting rights of the target company via the transfer of shares in the promoter entity triggers open offer obligations and the company needs to provide an open offer as prescribed under the SEBI Takeover Regulations.

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