1. INTRODUCTION
In an informal guidance issued by the Securities and Exchange Board of India ("SEBI") on June 23, 2023, it has explained that the exemption available under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code") for an inter-se transfer of shares amongst a promoter and its immediate relatives. The informal guidance was sought by Vidli Restaurants Limited ("Target Company") in relation to the exemption available under regulation 10(1)(a)(i) of the Takeover Code regarding an inter-se transfer of shares amongst a promoter and its immediate relatives from the obligation of making an open offer under the Takeover Code.
2. PROPOSED TRANSACTION AND THE QUERIES
The Target Company is a listed company having three promoters namely, Dr. Vidhi V. Kamat, Kamats Worldwide Food Services Private Limited ("KWFSPL") and Vits Hotels Worldwide Private Limited ("VHWPL"). VHWPL holds 53.98% shareholding in the Target Company (directly and through its subsidiary KWFSPL).
The proposed transaction involved gifting of almost the entire shareholding of VHWPL by Dr. Vidhi V. Kamat (promoter) to her spouse Dr. Vikram V. Kamat (member of promoter group). The Target Company wanted to clarify whether (i) the proposed transaction is exempt from making an open offer under regulation 10(1)(a)(i) of the Takeover Code and (ii) Dr. Vikram V. Kamat would be regarded as a promoter or person acting in concert of the Target Company after the proposed transaction.
3. CLARIFICATIONS PROVIDED UNDER THE INTERPRETIVE LETTER TO THE QUERIES
An open offer obligation is triggered under the Takeover Code when an acquirer and persons acting in concert acquire direct as well as indirect control over the Target Company. SEBI in its informal guidance has stated that by acquisition of almost entire shareholding of VHWPL by Dr. Vikram V. Kamat, he would be able to indirectly exercise control over the Target Company, and hence trigger the open offer obligation under the Takeover Code. In relation to the exemption provided under regulation 10(1)(a)(i) of the Takeover Code, SEBI clarified that the exemption would not apply to the proposed transaction since it is not an inter-se transfer of shares of the Target Company, but that of its holding company (which is not an exemption provided under the Takeover Code). However, SEBI did indicate that an exemption application under regulation 11(1) of the Takeover Code may be filed for exemption from open offer obligations in the interests of investors in securities and the securities market. SEBI has granted exemption to the applicants in situations concerning the transfer of shares from promoters such as acquisition by trust whose trustees are promoters of the target company, acquisition pursuant to corporate debt restructuring, acquisition of shares by the companies controlled by promoters of the target company, etc.
Regarding the second query, SEBI confirmed that Dr. Vikram V. Kamat would be considered a 'promoter' in the Target Company post indirect acquisition of control in the Target Company. Further, SEBI also regarded Dr. Vikram V. Kamat as a "person acting in concert" since the definition includes members of the promoter group, which Dr. Vikram V. Kamat was, on account of being a spouse of the promoter.
4. CONCLUSION AND WAY FORWARD
With this informal guidance, SEBI has clarified the exemption from an obligation to make an open offer for the inter-se transfer of shares amongst immediate relatives. For the exemption to be applicable, an inter-se transfer of shares of Target Company is a must. In case of an indirect acquisition of shares of the target company by transfer of shares of the promoter entity that results in a change of control, one cannot seek an automatic exemption from an obligation to make an open offer. Although the acquisition of control of Target Company was an incidental consequence of the transfer of shares in the promoter entity yet, the proposed transaction cannot escape the obligation to make an open offer unless an express exemption from SEBI under regulation 11 is obtained.
This informal guidance by SEBI has created a differentiation between the transfer of shares between two shareholders of the holding company of the target company and the transfer of shares between any other shareholders of the Target Company. The shareholders of the holding company are already in control of the target company and thus, limiting the scope of inter-se exemption under regulation 10(1)(a)(i) of the Takeover Code will add to the administrative burden of SEBI. SEBI should therefore consider modifying the inter-se exemption to create a carve out for inter-se transfer amongst shareholders of the holding company of the target company.
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