On the basis of recommendations of the Committee, the SEBI announced on Febuary20, 1997, the revised take over code as Securities and Exchange Board of India (Substantial Acquisitions of shares and Takeovers) Regulations, 1997. The objective of these regulations has been to provide an orderly framework within which substantial acquisitions and takeovers can take place. The salient features of this new takeover code (Regulations, 1997) may be enumerated as follows:
i.Any person, who holds more than 5% shares or voting rights in any company, shall within two months of notification of these Regulation disclose his aggregate shareholding in that company, to the company which in turn, shall disclose to all the stock exchanges on which the shares of the company are listed, the aggregate number of shares held by each such person.
ii.Any acquirer, who acquires shares or voting rights which (taken together with shares or voting rights, if any, held by him) would entitle him to more than 5% shares or voting rights in a company- (a) in pursuance of a public issue, or (b) by one or more transactions, or (c) in any other manner not covered by (a) and (b) above, shall disclose the aggregate of his shareholding or voting rights in that company, to the company within four working days of the acquisition of shares or voting rights, as the case may be.
iii.Every person, who holds more than 10% shares or voting rights in any company, shall, within 21 days from the end of the financial yea, make yearly disclosures to the company, in respect of his holdings as on 31st March each year.
iv.No acquirer shall agree to acquire, of acquire shares or voting rights which (taken together with shares or voting rights, if any, held by him or by persons acting in concert with him), entitle such acquirer to exercise 10% or more of the voting rights in a company, unless such acquirer makes a public announcement to acquire shares of such company in accordance with the Regulations.
v.No acquirer holding, not less than 10% but not more than 25% of the shares or voting rights in a company, shall acquire, additional shares or voting rights entitling him to exercise more than 2% of the voting rights, in any period of 12 months, unless such acquirer makes a public announcement to acquire shares in accordance with the Regulations.
vi.The minimum offer price shall be the highest of- (a) the negotiated price under the agreement ; (b) average price paid by the acquirer for acquisitions including by way of allotment in a public or rights issue, if any, during the twelve-month period prior to the date of public announcement; (c) the price paid by the acquirer under a preferential allotment made to him, at any time during the twelve month period up to the date of closure of the offer; (d) the average of the weekly high and low of the closing prices of the shares of the target company during the 26 weeks proceeding the date of public announcement.
vii.The public offer shall be made to the shareholders of the target company to acquire from them an aggregate minimum of 20% of the voting capital of the company provided that acquisition of shares from each of the shareholders shall not be less than the minimum marketable lot or the entire holding if it is less than the marketable lot.
viii.Within 14 days of the public announcement of the offer, the acquire must send a copy of the draft letter to the target company at its registered office address, for being placed before the Board of Directors and to all the stock exchanges where the shares of the company are listed.
ix.Any person other than the acquirer who had made the first public announcement, who is desirous of making any offer, shall, within 21 days of the public announcement of the first offer, make a public announcement of his offer for acquisition of some or all of the shares of the same target company. Such offer shall be deemed to be a competitive bid. No public announcement for an offer or competitive bid shall be made during the offer period except during 21-day period from the public announcement of the first offer.
x.Upon the public announcement of a competitive bid or bids, the acquirer(s) who had made the public announcement (s) of the earlier offer(s), shall have the option to make an announcement revising the offer or withdrawing the offer with the approval of the SEBI.
xi.Irrespective of whether or not there is competitive bid, the acquirer who has made the public announcement of offer, any make upward revisions in his offer in respect of the price and the number of shares to be acquired, at any time up to 3 working days prior to the date of the closure of the offer.
xii.No public offer, once made, shall be withdrawn except under the circumstances mentioned in this regulation, namely-(a) the withdrawals is consequent upon any competitive bid; (b) the offer did not receive the minimum level of acceptances, to which it was subject to; (c) the statutory approvals(s) required have been refused; (d) the sole acquirer, being a natural person has died, and (e) such circumstances as in the opinion of SEBI merits withdrawal.
xiii.The acquirer shall deposit in an Escrow Account a sum equivalent to at least 25% of the total consideration payable under the offer up to Rs, 100 crores and 10% of the consideration thereafter. Where the acquirer specifies a minimum level of acceptance and does not want to acquire a minimum 20%, the 50% of the consideration payable is to be deposited in Escrow Account.
xiv.In case, there is any upward revision of offer, consequent upon a competitive bid or otherwise, the value of the Escrow Account shall be increased to equal to at least 25% of the consideration payable upon such revision.
xv.In case of a substantial acquisition of shares in financially weak company not being a sick industrial company, the scheme prepared by a financial institutions may provide for acquisition of shares in the financially weak company in any of the following manner (a) outright purchase of shares, or (b) exchange of shares, or (c) a combination of both; provided that the scheme as far as possible may ensure that after the proposed acquisition, the erstwhile promoters do not own any shares in case such acquisition is made by the new promoters pursuant to such scheme.
xvi.The person acquiring shares from the promoters of the persons in- charge of the management of the affairs of the financially weak company or the financial institutions shall make a public announcement of his intention for acquisition of shares from the shareholders of the company. Such public announcement shall contain relevant details about the offer including the information about the identity and background of the person acquiring shares, number and percentages of shares proposed to be acquired, offer price, the specified date, the date of opening of the offer and the period for which the offer shall be kept open.
xvii.No person shall make a competitive bid for acquisition of shares of the financially weak company once the lead institution has evaluated the bid and accepted the bid of the acquirer who has made the public announcement of offer acquisition of shares from the shareholders other than the promoters.
An amendment to the Regulations, 1997 on substantial acquisition of shares and takeovers has been notified on 28, 1998. SEBI had decided to increase the creeping acquisition limited to 5% from the 25 and the thresh hold limit to 215% from 10%. The rationale for SEBI’s decision to increase the creeping limit and the threshold limit is difficult to understand. The decision to increase the creeping to 5% and thresh hold limit to 15% appears to be working against the basic spirit of the takeover code. The increase in creeping acquisition will bring in quiet acquisition without the trigger of making a minimum offer of 20%. In fact the 20% offer was to facilitate the market movements and competitive process and also to keep the management on their toes. The decision to increase the creeping acquisition from 2%to 5% disregards the objective of protection of small shareholders. The decision to increase the threshold limit from 10% to 15% is also difficult to be justified.