Cross 25% and you owe every public shareholder an exit. Acquire "control" without a single extra share and you owe them the same. The second trigger is the one that catches people.
Two triggers: 25% of voting rights (Regulation 3(1)), or more than 5% in a financial year while holding 25–75% (Regulation 3(2)). Acquiring control triggers an open offer at any shareholding level (Regulation 4).
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 exist for one reason: when someone acquires a substantial stake or control of a listed company, public shareholders who invested under the old management should get a chance to exit at a fair price. The acquirer cannot simply buy the promoter's block at a premium and leave minority holders stranded with a new controller they never chose.
The 2011 Code replaced the 1997 regulations on the Achuthan Committee's recommendations, raising the initial trigger from 15% to 25% and the minimum open offer size from 20% to 26%. The logic of 25% is deliberate — it is the level at which a shareholder can block a special resolution.
Most enforcement, however, is not about deliberate raiders. It is about acquirers who crossed a threshold through a rights issue they under-thought, a family arrangement they assumed was exempt, or a shareholders' agreement whose veto rights amounted to control.
BOTTOM LINE
- Trigger 1 (Reg 3(1)): acquiring 25% or more of voting rights for the first time.
- Trigger 2 (Reg 3(2)): holding 25–75% and acquiring more than 5% in a financial year (creeping acquisition).
- Trigger 3 (Reg 4): acquiring control — irrespective of shares acquired.
- Offer size: minimum 26% of total shares (voluntary offers: minimum 10%).
- Consequence of getting it wrong: a directed open offer with 10% interest, plus penalty under Section 15H of the SEBI Act — minimum ₹10 lakh, up to ₹25 crore or 3× the profit.
The three triggers
Governs this section: Regulations 3 & 4, SEBI (SAST) Regulations, 2011
Regulation 3(1) — the initial threshold. An acquirer who, together with persons acting in concert (PACs), acquires shares or voting rights entitling them to 25% or more must make an open offer. This is a one-time crossing: it applies to whoever crosses 25% for the first time.
Regulation 3(2) — creeping acquisition. An acquirer already holding 25% or more but less than the maximum permissible non-public shareholding (generally 75%) may acquire up to 5% additional voting rights in a financial year (1 April – 31 March) without an open offer. Cross 5% in that year and the offer obligation triggers. Note the arithmetic is on gross acquisitions, and sales during the year do not simply net off against purchases for this purpose.
Regulation 4 — control. Irrespective of acquisition of any shares or voting rights, acquiring control over a target company triggers an open offer. This is the trigger that surprises people, because control can pass through a contract rather than a share purchase.
CAUTION — "control" is broader than a majority
Regulation 2(1)(e) defines control to include the right to appoint a majority of directors, or to control the management or policy decisions — exercisable directly or indirectly, individually or in concert, by virtue of shareholding, management rights, shareholders' agreements, voting agreements or in any other manner. Affirmative vote items in an investment agreement — veto rights over the business plan, budget, senior appointments, or change of business — have repeatedly been argued to constitute control. Structure investor protections carefully, and take advice before signing a shareholders' agreement in a listed target.
Persons acting in concert
Governs this section: Regulation 2(1)(q), SEBI (SAST) Regulations, 2011
Thresholds are computed for the acquirer together with PACs — persons who, with a common objective of acquiring shares or control, pursue that objective directly or indirectly. Certain relationships are deemed PACs unless the contrary is established: a company with its holding, subsidiary and associate companies; promoters with their immediate relatives; a mutual fund with its sponsor, trustees and asset management company; and similar clusters.
This is where quiet aggregation happens. Three family members each acquiring 9% are not three independent investors — as deemed PACs, they collectively crossed 25% and collectively owe an open offer.
The open offer mechanics
Governs this section: Regulations 7, 8, 13–18, SEBI (SAST) Regulations, 2011
Size (Reg 7): minimum 26% of the total shares of the target, calculated as of the tenth working day from the closure of the tendering period. A voluntary open offer (available to an acquirer already holding 25% or more) must be for a minimum of 10%.
Price (Reg 8): the offer price is the highest of a set of reference points — broadly, the negotiated price under the agreement triggering the offer; the average price (weighted by volume traded) of shares the acquirer and its concert parties bought in the 52 weeks before the public announcement; the highest price paid by them in the 26 weeks preceding; and the average market price over the 60 trading days before, where the shares are actively traded. The 2011 Code abolished the old non-compete fee that let promoters extract up to 25% extra over the public offer price — the price the promoter gets is now, in substance, the price the public gets.
Timeline: a public announcement on the day the obligation triggers, a detailed public statement within 5 working days, the draft letter of offer to SEBI within 5 working days of that, and the tendering period opening within 12 working days of SEBI's comments. The acquirer must set up an escrow account — money locked with a bank as security, proving it can actually pay for the shares it has offered to buy.
Committee of Independent Directors: the target's independent directors must give reasoned recommendations on the offer, published at least two working days before the tendering period opens.
Exemptions — the ones people misread
Governs this section: Regulations 10 & 11, SEBI (SAST) Regulations, 2011
Regulation 10 — automatic exemptions, subject to conditions and disclosure: transfers among qualifying insiders (immediate relatives, promoters named in the offer document for at least three years, a company and its group entities); acquisitions in the ordinary course of business by SEBI-registered underwriters, stock brokers, merchant bankers acting as stabilising agents, and scheduled commercial banks acting as escrow agents; acquisitions by way of transmission, succession or inheritance; increases in voting rights from a buyback (subject to conditions); rights issues, subject to limits; and acquisitions under an approved scheme of arrangement or an insolvency resolution plan under the IBC.
Regulation 11 — case-specific exemptions, granted by SEBI on application with reasons, typically for genuine restructurings that fall outside Regulation 10's shape.
PRACTITIONER'S NOTE — exemptions have conditions, not just categories
A transaction can be the right type and still lose the exemption. Transfers among qualifying insiders require both the seller and the buyer to have been named as promoters for the qualifying period and disclosed appropriately; rights-issue exemptions require the acquirer not to renounce entitlements and to observe pricing limits. Practitioners regularly see acquirers assume "it's a family transfer, so it's exempt" and discover the conditions were never satisfied. Check the conditions before closing, not after.
Disclosure obligations — the separate track
Governs this section: Regulations 29 & 30, SEBI (SAST) Regulations, 2011
Distinct from open-offer duties, and independently enforceable:
- Regulation 29(1): an acquirer whose aggregate shareholding crosses 5% must disclose to the target and the exchanges within 2 working days.
- Regulation 29(2): thereafter, any acquisition or disposal of 2% or more must be disclosed within 2 working days.
- Regulation 30: annual disclosure by persons holding 25% or more, and by promoters, as at 31 March each year.
Failure to disclose is a standalone contravention attracting penalty under Section 15A(b) of the SEBI Act, and a very large share of SEBI's SAST adjudication orders concern precisely these missed filings rather than missed open offers.
Wrongful acquisitions — what happens when you get it wrong
Governs this section: Regulation 32, SEBI (SAST) Regulations, 2011; Sections 11, 11B, 15A & 15H, SEBI Act, 1992
SEBI's response to a triggered-but-unmade open offer is not merely a fine. Under Section 11B read with Regulation 32, SEBI can:
- Direct the acquirer to make the open offer — even years later — at the price that would have applied on the original trigger date, together with interest (commonly 10% per annum) for the period of delay, compensating shareholders for the exit they were denied.
- Direct the sale of shares acquired in breach, and order any gains to be handed back ("disgorgement").
- Prohibit the acquirer from exercising voting rights on the shares in question, or from accessing the securities market.
- Impose penalty under Section 15H — for failure to make a mandatory open offer or disclosure, not less than ₹10 lakh, extending to ₹25 crore or three times the profit made, whichever is higher.
- Impose penalty under Section 15A(b) for disclosure failures under Regulations 29 and 30.
The delayed-open-offer-with-interest remedy is the one with real bite. An acquirer who crossed a threshold in 2019 and is directed in 2026 to open an offer at 2019 prices plus seven years of interest faces a liability that dwarfs any penalty — and cannot be settled by simply selling down.
The case law
Governs this section: judicial and appellate treatment of the Takeover Code
Swedish Match AB v SEBI (Supreme Court, 2004). The Court examined the interplay between the takeover regulations and a scheme where control passed through structured acquisitions. It established that the takeover code is beneficial legislation for public shareholders and must be construed to advance that protective purpose — an interpretive stance that has coloured every subsequent dispute about whether a transaction "really" triggered an offer.
Technip SA v SMS Holding (P) Ltd (Supreme Court, 2005). The leading Indian authority on when control changes. Technip acquired a French parent, which indirectly held a stake in an Indian listed company. The Court held that the question of whether control passed must be assessed on who actually controlled the company at the relevant date, examining shareholding, board composition and the reality of decision-making rather than form alone. It remains the starting point for every indirect-acquisition analysis.
Subhkam Ventures v SEBI (SAT, 2010). The most consequential decision on investor veto rights. SAT held that ordinary protective affirmative rights held by a private-equity investor — designed to safeguard its investment rather than to run the company — did not amount to "control", drawing the distinction between the power to direct the company (control) and the power to block certain actions (protection). SEBI appealed; the Supreme Court disposed of the matter without treating SAT's ruling as a binding precedent, leaving the question formally open. The practical consequence: the reasoning of Subhkam is widely relied on when structuring investment agreements, but it cannot be cited as settled law, and heavily-negotiated veto packages remain a live open-offer risk.
Daiichi Sankyo v Jayaram Chigurupati (Supreme Court, 2010). On persons acting in concert, the Court held that PAC status requires a shared common objective of acquiring shares or control at the relevant time — it is not established merely by a pre-existing relationship. Parties must be shown to have come together with that purpose. This narrowed SEBI's ability to aggregate holdings on the basis of association alone.
Delayed open offer directions. SEBI's adjudication and 11B orders routinely direct acquirers who breached Regulation 3 or 4 years earlier to make a delayed open offer at the historical price plus 10% interest, sometimes alongside disgorgement and voting restrictions. These orders — not the headline appellate judgments — are where practitioners should calibrate real-world exposure.
Worked example
Mini-case — the rights issue that triggered an offer
A promoter group holds 24.5% of a listed company. The company announces a rights issue; the promoters subscribe to their full entitlement and the unsubscribed portion renounced by other shareholders, taking them to 29%.
They assumed the rights-issue exemption in Regulation 10 covered them. It does not, on these facts: the exemption is conditional, and picking up renounced entitlements beyond the acquirer's own proportionate share, in a manner that takes them across 25%, falls outside its protection. They have crossed the Regulation 3(1) threshold.
Correct sequence: public announcement on the date the obligation triggered, detailed public statement within 5 working days, escrow funded, draft letter of offer to SEBI, and an open offer for a minimum 26% at the Regulation 8 price.
What happens if they miss it: SEBI, on discovering the breach during a routine examination two years later, can direct the open offer at the original trigger-date price plus 10% interest for two years, impose a Section 15H penalty (floor ₹10 lakh, ceiling ₹25 crore or 3× profit), and restrain the promoters from exercising voting rights on the excess shares in the interim. The rights issue raised ₹40 crore; the remediation costs a multiple of that.
Common mistakes
- Netting sales against purchases when computing the 5% creeping limit — the calculation is on gross acquisitions in the financial year.
- Treating veto rights as automatically safe. Subhkam is persuasive but not binding; a broad affirmative-rights package is a live control risk.
- Ignoring PAC aggregation. Deemed PACs — promoters and immediate relatives, group companies — are aggregated unless the contrary is shown.
- Assuming a transaction type is exempt without satisfying Regulation 10's conditions.
- Missing Regulation 29 disclosures. The 5% and subsequent 2% disclosures are independently penalised and are the most commonly breached provisions in the Code.
- Overlooking indirect acquisition. Acquiring an offshore parent that controls an Indian listed company triggers the Code (Technip).
- Forgetting the 52/26/60 price references and negotiating on the deal price alone.
- Believing selling down cures the breach. The remedy is the offer shareholders were denied, with interest — not restoration of the status quo.
Checklist
- Add up existing holdings of the acquirer and everyone acting with it, counting all shares that could come into existence from options and convertibles (the "fully diluted" basis), before signing.
- Test all three triggers: 25% initial, 5% creeping in the financial year, and acquisition of control.
- Review the shareholders' agreement for affirmative rights that could constitute control under Reg 2(1)(e).
- If claiming a Regulation 10 exemption, verify every condition is satisfied and disclosed.
- Model the Regulation 8 offer price across all reference points; the highest governs.
- Diarise Regulation 29(1) 5% and 29(2) 2% disclosures within 2 working days, and Regulation 30 annual disclosures.
- Where an offer is triggered: public announcement same day, DPS within 5 working days, escrow funded, merchant banker appointed.
- Ensure the target constitutes its Committee of Independent Directors and publishes recommendations on time.
- If a past breach is discovered, take advice immediately — voluntary disclosure materially affects the outcome.
FAQ
What triggers a mandatory open offer? Acquiring 25% or more of voting rights, acquiring more than 5% in a financial year while holding 25–75%, or acquiring control at any shareholding level.
What is the minimum open offer size? 26% of the target's total shares. A voluntary open offer must be for at least 10%.
Do veto rights amount to control? SAT in Subhkam Ventures held that protective rights are not control, but the Supreme Court disposed of the appeal without treating it as precedent — so the position is not settled. Broad affirmative rights carry real risk.
Can I avoid the offer by selling back down below the threshold? No. The obligation crystallises on crossing. SEBI's remedy is typically a directed delayed open offer at the original price with interest.
What is the penalty for not making an open offer? Section 15H — not less than ₹10 lakh, up to ₹25 crore or three times the profit made, whichever is higher — alongside directions to make the offer with interest, disgorgement, and possible market debarment.
Does inheriting shares trigger an offer? Acquisition by transmission, succession or inheritance is exempt under Regulation 10, subject to conditions and disclosure.
Are indirect acquisitions covered? Yes. Acquiring an entity that in turn controls an Indian listed company triggers the Code, with specific provisions on indirect acquisition pricing and timing.
Primary sources
- Regulations 2(1)(e), 2(1)(q), 3, 4, 7, 8, 10, 11, 29, 30 & 32, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- Sections 11, 11B, 15A(b) & 15H, SEBI Act, 1992
- Report of the Takeover Regulations Advisory Committee (Achuthan Committee), 2010
- Swedish Match AB v SEBI, (2004) 11 SCC 641; Technip SA v SMS Holding (P) Ltd, (2005) 5 SCC 465; Subhkam Ventures (I) (P) Ltd v SEBI (SAT, 15 January 2010); Daiichi Sankyo Co. Ltd v Jayaram Chigurupati, (2010) 7 SCC 449
Disclaimer: This article is general information on a fast-changing area of securities law, current at the time of writing. Thresholds, pricing rules and exemptions are amended periodically by SEBI, and case summaries are simplified for awareness. This is not legal advice — consult securities counsel and a SEBI-registered merchant banker before any acquisition in a listed company.