SEBI proposes to relax open offer obligations (resulting from Forfeiture of shares) under takeover code

SEBI PROPOSES TO RELAX OPEN OFFER OBLIGATIONS (RESULTING FROM FORFEITURE OF SHARES) UNDER TAKEOVER CODE

Forfeiture of shares is a process specified under Table-F (Articles of Association of a Company Limited by Shares) of Schedule I of the Companies Act, 2013.

Forfeiture is undertaken by the company as per the provisions of the Companies Act 2013 where the company is at full liberty to undertake this to remove defaulting shareholders from the Register of Members.

Regulation 10 of the Takeover Regulations, 2011 provides general exemption from the obligations to make an open offer for certain acquisitions, subject to fulfillment of the conditions specified therein.

Increase in voting rights arising out of actions undertaken by the companies under the Companies Act 2013 such as Right issues, Buybacks and schemes of arrangement are exempt from the open offer obligations under regulation 10 of the Takeover Regulations, 2011.

Further, accrual of voting rights on preference shares where dividend has not been paid for two years or more as per sub-section (2) of section 47 of the Companies Act 2013 are exempted from the open offer obligations under regulation 10 of the Takeover Regulations, 2011.

Currently, there is no provision for increase in the voting rights of a shareholder due to the expiry of call notice period and forfeiture of partly paid-up shares to be exempt under regulation 10 of the Takeover Regulations, 2011 and an application needs to be filed with SEBI for seeking exemption from the open offer obligations in this regard under regulation 11 of the Takeover Regulations, 2011.

It may be noted that the facts of these cases with respect to these applications are quite similar. However, a reasoned order must be passed by SEBI in each such case which may take enormous amount of time and effort.

Further, increase in the voting rights of a shareholder due to the expiry of call notice period and forfeiture of partly paid-up shares is undertaken under the Companies Act 2013 and is passive in nature.

Therefore, it is proposed that the Takeover Regulations, 2011 may be amended suitably for providing general exemption from the open offer obligations in the cases of increase in voting rights as a result of the expiry of call notice period and the forfeiture of shares in line with general exemptions available with respect to rights issues, buybacks etc.

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