SEBI
Topic51 SAST Exemptions Open Offer Regulation 10
Exemptions from Open Offer Obligation under SAST 2011
Topic 51 — Regulation 10: Complete List of Exemptions, Conditions & SEBI Waiver Power | SEBI Law Officer
Regulation 10 of the SAST Regulations, 2011 lists the transactions that are exempt from the mandatory open offer obligation under Regulations 3 and 4. Not every acquisition that crosses the 25% threshold or changes 'control' requires a public offer — certain transactions are structured differently, involve government acquisitions, or are purely intra-group reorganisations where the public shareholders are not disadvantaged. The list of exemptions is comprehensive and frequently tested in SEBI Law Officer examinations — both as MCQ options and as descriptive questions.
1. Regulation 10 — Exempt Transactions (Complete List)
Regulation 10 Provision | Exempt Transaction | Conditions / Key Points |
|---|---|---|
Reg 10(1)(a) | Inter-se transfer between qualifying persons | Transfer between promoters; transfer between members of promoter group; parties must have held shares for 3 years; no cash consideration from non-qualifying person |
Reg 10(1)(b) | Acquisition pursuant to a scheme of arrangement under Companies Act (merger/demerger) | Court/NCLT-approved scheme; allotment of shares to shareholders — not an open market acquisition |
Reg 10(1)(c) | Acquisition pursuant to a scheme of reconstruction/amalgamation under court/NCLT | Same as (b) — court-approved amalgamation scheme |
Reg 10(1)(d) | Acquisition of shares by a company from its promoters pursuant to SEBI buyback regulations | Share buyback — issuer buying from promoters within SEBI (Buyback) Regulations framework |
Reg 10(1)(e) | Acquisition of shares from state financial institutions after a recall of loans | SFIs enforcing security on default by pledgor — involuntary transfer; SFI is not a strategic acquirer |
Reg 10(1)(f) | Acquisition in pursuance of statutory obligations | Compulsory acquisition under law — e.g., nationalisation; acquisition under Companies Act 2013 (compulsory acquisition of minority shares) |
Reg 10(1)(g) | Acquisition pursuant to a scheme of arrangement specifically under SEBI (Delisting) Regulations | Delisting offer is separate from open offer — governed by its own regulations |
Reg 10(1)(h) | Conversion of convertible instruments into shares | Shares issued upon conversion of debentures/warrants/preference shares — no new economic acquisition |
Reg 10(1)(i) | Subscription to rights issue — to maintain % or to the extent of entitlement | Subscribing to rights issue to maintain existing proportion is not a fresh acquisition; may subscribe up to entitlement |
Reg 10(1)(j) | Acquisition from financial institutions or banks in terms of reconstruction/restructuring scheme | Bank/FI acquiring shares as part of debt restructuring (CDR/IBC-related); involuntary/institutional in nature |
Reg 10(1)(k) | Acquisition pursuant to scheme sanctioned by court/NCLT involving the target company itself | Broad catch-all for court/NCLT-approved restructuring schemes |
Reg 10(4) | Acquisition pursuant to SEBI Takeover Panel (TRAC) exemption order | SEBI's Takeover Regulations Advisory Committee can grant specific exemptions on application |
2. Regulation 10(1)(a) — Inter-Se Transfer (Most Tested Exemption)
Regulation 10(1)(a): Acquisition of shares or voting rights by a person acting in concert with the acquirer as inter-se transfer between the acquirer and persons acting in concert with him — subject to conditions. |
The inter-se transfer exemption — transfer among promoters or promoter group — is the most frequently tested exemption. Key conditions:
- Qualifying persons: Transfer must be between qualifying persons — (i) immediate relatives; (ii) persons named as PAC in all prior disclosures; (iii) persons who are promoters of the target company as per shareholding pattern.
- 3-year holding period: The seller must have held the shares for at least 3 years before the transfer.
- No cash from non-qualifying: No consideration can flow from non-qualifying persons as part of the arrangement.
- Disclosure still required: Even if exempt from open offer, the inter-se transfer must be disclosed to exchanges within 2 WD — Regulation 29 applies.
3. Regulation 10(1)(b)/(c) — Court/NCLT Scheme Exemption
Acquisitions pursuant to schemes of arrangement (merger, demerger, amalgamation) sanctioned by a court or NCLT are exempt from open offer. The rationale:
- Court/NCLT scrutiny substitutes for the open offer protection — shareholders' interests are protected through the judicial approval process.
- Shareholders typically receive shares of the merged/amalgamated entity — not an externally imposed acquisition.
- Cross-border mergers where a foreign acquirer gets Indian shares through court-approved merger — may be eligible for this exemption.
4. Regulation 10(1)(h) — Conversion of Convertible Instruments
When a shareholder's convertible debentures, preference shares, or warrants convert into equity shares — the resulting acquisition is exempt from open offer, subject to conditions:
- The conversion ratio and conditions must have been disclosed at the time of issuance of the convertible instruments.
- The conversion must be at the pre-agreed terms — not at modified terms that give the converter a benefit not disclosed originally.
- The rationale: there is no fresh economic acquisition — the holder already had a contractual right to the shares from the date of issuance of the convertible instrument.
5. SEBI's Exemption Power — Regulation 10(4) (TRAC)
Regulation 10(4): The Board may, subject to such terms and conditions as may be specified, grant exemption from the obligation to make a public announcement of an open offer on an application made to it by the acquirer. |
SEBI has constituted the Takeover Regulations Advisory Committee (TRAC) to examine exemption applications. SEBI/TRAC considers:
- Whether the acquisition serves a legitimate regulatory or public purpose.
- Whether there will be change of control that materially affects public shareholders.
- Whether the transaction is at a fair price — even without a mandatory open offer.
- The precedent implications of granting the exemption.
6. Exempt vs Non-Exempt — Common Exam Scenarios
Scenario | Exempt? (Y/N) | Applicable Provision |
|---|---|---|
Promoter A transfers 10% stake to promoter B (both holding for 3+ years) | YES | Reg 10(1)(a) — inter-se transfer |
Company merges with Target in NCLT-approved scheme; acquirer gets 30% | YES | Reg 10(1)(b)/(c) |
Warrant holder's warrants convert to 26% equity stake (terms disclosed at issuance) | YES | Reg 10(1)(h) |
Promoter A sells 20% to an unrelated strategic investor crossing 25% | NO | Regulation 3(1) mandatory open offer triggered |
Bank acquires 28% of Target as part of IBC resolution plan | Conditional YES | Reg 10(1)(j) — but subject to SEBI/NCLT conditions in IBC context |
Rights issue: existing 30% holder subscribes to full entitlement taking holding to 33% | YES | Reg 10(1)(i) — rights issue to extent of entitlement |
Acquirer already holds 60%; buys 5% from secondary market in one transaction | NO | Exceeds creeping acquisition limit; mandatory open offer triggered |
7. Model Examination Questions
Q1. List and explain any five exemptions from the mandatory open offer obligation under Regulation 10 of the SAST Regulations, 2011.
Five Key Exemptions — Regulation 10 SAST 2011 Model Answer — 1. INTER-SE TRANSFER [Reg 10(1)(a)]: Transfer between qualifying persons — promoters, promoter group members, immediate relatives — who have held shares for at least 3 years. No cash from non-qualifying persons. Disclosure under Regulation 29 still required even if exempt from open offer. 2. COURT/NCLT SCHEME [Reg 10(1)(b)/(c)]: Acquisition pursuant to a scheme of arrangement (merger, demerger, amalgamation) approved by a court or NCLT. Court scrutiny substitutes for open offer protection. 3. CONVERSION OF CONVERTIBLES [Reg 10(1)(h)]: Conversion of pre-issued convertible debentures, preference shares, or warrants into equity shares at pre-disclosed terms. No fresh economic acquisition — contractual right pre-existed. 4. RIGHTS ISSUE [Reg 10(1)(i)]: Subscription to rights issue to maintain existing proportionate holding — or up to the extent of entitlement. Not a new acquisition — maintenance of position. 5. SEBI EXEMPTION ORDER [Reg 10(4)]: SEBI (through TRAC) can grant a specific exemption on application where the transaction serves a legitimate purpose and public shareholders are not disadvantaged. The exempt list is comprehensive — Regulation 10 also covers statutory acquisitions, SFI enforcement, buybacks, and delisting schemes. |
🎯 EXAM POINTERS — Topic 51: Exemptions from Open Offer [Regulation 10]
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