2025 (7) TMI 490 - Board - SEBI

Substantial Acquisition of Shares and Takeovers - requirements of Regulations 4 and 5 (1) of the Takeover Regulations 2011 - proposed direct and indirect acquisition of shares and voting rights in the Target Company by the Acquirer Trusts - obligation to make a public announcement of an open offer - Acquisition of control - Indirect acquisition of shares or control - HELD THAT - As per the powers conferred upon under Section 19 read with Section 11(1) and Section 11(2)(h) of the SEBI Act 1992 and regulation 11(5) of the Takeover Regulations 2011 hereby grant exemption to the Proposed Acquirers viz. Hazelnut Family Trust and Cream Cookies Family Trust from complying with the requirements of Regulations 4 and 5 (1) of the Takeover Regulations 2011 with respect to the proposed direct and indirect acquisition in the Target Company by way of the proposed transactions as mentioned in the Application. The exemption so granted is subject to the following conditions (a) The proposed acquisition shall be in accordance with the relevant provisions of the Companies Act 2013 and other applicable laws. (b) On completion of the proposed acquisition the Proposed Acquirers shall file a report with SEBI within a period of 21 days from the date of such acquisition as provided in the Takeover Regulations 2011. (c) The statements / averments made or facts and figures mentioned in the Application and other submissions by the Proposed Acquirers are true and correct. (d) The Proposed Acquirers shall ensure compliance with the statements disclosures and undertakings made in the Application. (e) The Proposed Acquirers shall also ensure compliance with the provisions of the SEBI Master Circular dated February 16 2023. (f) The Proposed Acquirers shall also ensure that the covenants in the Trust Deeds are not contrary to the above conditions and undertakings. In such case the Trust Deeds shall be suitably modified and expeditiously reported to SEBI. The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations 2015 Listing Agreement / SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 or any other applicable Acts Rules and Regulations. The exemption granted above from making an open offer in respect of the proposed acquisition shall remain valid for a period of one (1) year from the date of this Order and the Applicants shall complete the implementation of the proposed acquisition within such period failing which the granted exemption shall lapse and cease to exist.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this matter include:

• Whether the proposed direct and indirect acquisition of shares and voting rights in the Target Company by the Acquirer Trusts attracts the obligation to make a public announcement of an open offer under Regulation 3(2), Regulation 4, and Regulation 5(1) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Regulations, 2011");
• Whether exemption from the obligation to make an open offer can be granted in respect of the proposed transactions involving transfer of shares by way of gift to family trusts;
• Whether the proposed transactions result in any change in control or management of the Target Company;
• Whether the proposed transactions comply with the conditions stipulated in the SEBI Master Circular dated February 16, 2023, particularly Chapter 8 concerning acquisitions by trusts;
• Whether the proposed acquisition would adversely affect the interests of public shareholders or compliance with minimum public shareholding norms;
• The conditions under which such exemption, if granted, should be subject to regulatory oversight and compliance;
• Whether the exemption from the open offer requirement affects other regulatory obligations such as disclosure requirements and insider trading regulations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Applicability of Takeover Regulations and Obligation to Make an Open Offer

Relevant legal framework and precedents: Regulation 3(2) prohibits acquisition of control over a target company without making a public announcement of an open offer. Regulation 4 states that no acquirer shall acquire control without such an open offer. Regulation 5(1) extends this to indirect acquisitions through entities or persons acting in concert. The Court referred to these provisions verbatim to establish the legal threshold for triggering open offer obligations.

Court's interpretation and reasoning: The Tribunal observed that the proposed acquisition by the Acquirer Trusts constitutes both direct and indirect acquisition of shares and voting rights in the Target Company. Hence, prima facie, the provisions of Regulations 4 and 5(1) are attracted.

Key evidence and findings: The shareholding pattern before and after the proposed transactions showed that shares held by promoters Monica Davar and Jayant Davar in the Target Company and in promoter group companies (SIPL, YEPL, JFIL, SEPL) would be transferred by way of gift to the Acquirer Trusts. The total promoter and promoter group shareholding percentage remains unchanged at 70.38%. The Acquirer Trusts do not hold any shares prior to the transaction.

Application of law to facts: The Tribunal noted that while the acquisition technically attracts the open offer provisions, the nature of the transaction (transfer to family trusts) and the absence of change in control or management warranted consideration of exemption.

Treatment of competing arguments: The Tribunal considered the Applicants' submission that these are non-commercial transactions with no change in ownership or control, and that the public shareholders' interests remain unaffected. The Tribunal balanced the strict regulatory intent of the Takeover Regulations with the practical realities of intra-family transfers via trusts.

Conclusions: The Tribunal concluded that although the acquisition attracts the open offer provisions, exemption from these requirements could be considered subject to compliance with specified conditions.

Issue 2: Whether the Proposed Transactions Result in Change of Control or Management

Relevant legal framework: Regulation 4 prohibits acquisition of control without an open offer. Control is understood as the ability to direct the management or policy decisions of the company.

Court's interpretation and reasoning: The Tribunal found that the proposed transactions do not result in any change in control or management of the Target Company. The promoters continue to hold the same aggregate shareholding, and the Acquirer Trusts are essentially mirror images of the existing promoters' holdings.

Key evidence and findings: The trust deeds showed that the trustees and beneficiaries are promoters or their immediate relatives and lineal descendants. The shareholding pattern remains substantially the same pre- and post-transaction.

Application of law to facts: Since control is not changing hands and the promoter group continues to exercise the same level of control, the Tribunal held that the transactions do not violate the prohibition on acquisition of control without an open offer.

Treatment of competing arguments: The Tribunal considered the possibility of indirect control changes but found no evidence of dilution or transfer of control outside the promoter group.

Conclusions: No change in control or management arises from the proposed transactions.

Issue 3: Compliance with SEBI Master Circular Conditions for Trust Acquisitions

Relevant legal framework: Chapter 8 of the SEBI Master Circular dated February 16, 2023, sets out conditions for acquisitions by trusts, including restrictions on trustees, beneficiaries, transfer of beneficial interest, disclosure requirements, and compliance certifications.

Court's interpretation and reasoning: The Tribunal examined the trust deeds and the Applicants' compliance confirmations. It noted that:

• The trusts are irrevocable and discretionary private family trusts;
• Trustees and beneficiaries are promoters or their immediate family;
• Beneficial interests have not been and will not be transferred or encumbered;
• The trusts comply with disclosure and reporting requirements;
• The trust deeds do not contain any limitation of liability inconsistent with SEBI regulations;
• The trusts confirm annual compliance and auditor certification.

Key evidence and findings: The trust deeds, shareholding patterns, and declarations submitted by the Applicants demonstrated adherence to the Master Circular's conditions.

Application of law to facts: The Tribunal held that compliance with these conditions supports the grant of exemption from open offer requirements.

Treatment of competing arguments: The Tribunal ensured that the trusts do not act as vehicles for circumventing regulatory safeguards and that there is transparency and accountability.

Conclusions: The proposed acquisition by the trusts meets the conditions prescribed by the SEBI Master Circular, justifying exemption.

Issue 4: Impact on Public Shareholders and Minimum Public Shareholding Norms

Relevant legal framework: The Takeover Regulations and the Securities Contracts Regulation Rules, 1957, along with SEBI Listing Obligations, require maintenance of minimum public shareholding and protection of public shareholders' interests.

Court's interpretation and reasoning: The Tribunal noted that the public shareholding remains unchanged at 29.62% post-transaction. There is no dilution or prejudice to public shareholders.

Key evidence and findings: Shareholding tables before and after the transaction confirm no change in public shareholding percentage.

Application of law to facts: Since minimum public shareholding norms continue to be met and public shareholders' interests are not adversely affected, the Tribunal found no regulatory impediment.

Treatment of competing arguments: No competing arguments were raised against this point.

Conclusions: The transactions do not violate public shareholding requirements or prejudice public shareholders.

Issue 5: Conditions and Limitations on the Exemption

Relevant legal framework: Section 19 read with Sections 11(1) and 11(2)(h) of the SEBI Act, 1992 empower SEBI to grant exemptions subject to conditions. Regulation 11(5) of the Takeover Regulations allows exemption from open offer requirements.

Court's interpretation and reasoning: The Tribunal granted exemption subject to conditions including compliance with Companies Act, filing of reports within 21 days of acquisition, truthfulness of statements, adherence to SEBI Master Circular, and modification of trust deeds if inconsistent with conditions.

Key evidence and findings: The Tribunal emphasized that the exemption does not absolve the Acquirers from other regulatory obligations such as disclosure requirements under Chapter V of the Takeover Regulations, SEBI (Prohibition of Insider Trading) Regulations, and Listing Obligations.

Application of law to facts: The conditions imposed ensure regulatory oversight and prevent misuse of the exemption.

Treatment of competing arguments: The Tribunal balanced the need for regulatory flexibility in family trust transactions with protection of market integrity.

Conclusions: The exemption is granted with safeguards and a validity period of one year, after which it lapses if the acquisition is not completed.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning includes the following verbatim excerpts and principles:

"Irrespective of acquisition or holding of shares or voting rights in a target company, no acquirer shall acquire, directly or indirectly, control over such target company unless the acquirer makes a public announcement of an open offer for acquiring shares of such target company in accordance with these regulations."

"The Trust is in substance, only a mirror image of the promoters' holdings and consequently, there is no change of ownership or control of the shares or voting rights in the target company."

"The proposed acquisition as detailed above, which is to be undertaken by the Acquirers, shall attract the provisions of Regulations 4 and 5(1) of the Takeover Regulations, 2011."

"The proposed direct and indirect acquisition would not affect or prejudice the interests of the public shareholders of the Target Company in any manner."

"The exemption granted above is limited to the requirements of making open offer under the Takeover Regulations, 2011 and shall not be construed as exemption from the disclosure requirements under Chapter V of the aforesaid Regulations; compliance with the SEBI (Prohibition of Insider Trading) Regulations, 2015, Listing Agreement / SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 or any other applicable Acts, Rules and Regulations."

Core principles established include:

• Transfers of shares to family trusts that are mirror images of promoter holdings, with no change in control or management, may be exempted from open offer requirements subject to strict compliance with prescribed conditions;
• Compliance with the SEBI Master Circular's conditions for trusts is essential to maintain transparency and regulatory oversight;
• Such exemptions do not absolve parties from other disclosure and regulatory obligations;
• Exemptions are granted for a limited period and contingent on timely completion of transactions;
• Protection of public shareholders and adherence to minimum public shareholding norms remain paramount considerations.

Final determinations on each issue are as follows:

• The proposed acquisition attracts open offer provisions but exemption is granted due to the nature of the transaction;
• No change in control or management arises from the proposed acquisition;
• The Acquirer Trusts comply with the SEBI Master Circular conditions;
• The transactions do not adversely impact public shareholders or minimum public shareholding requirements;
• Exemption is granted subject to conditions including compliance with laws, disclosures, and reporting;
• The exemption is valid for one year and limited to open offer obligations only.