Class Notes

Corporate Law II

Prof. (Dr.) Harpreet Kaur and Dr. Aprajita Bhatt

Semester VIII
Dr. Aprajita Bhatt

February 6, 2017
Happy: Both of us come to the class and we are in proper sync and we want you to be in
sync with us.

They are introducing themselves. So much fake laughter, awkwardness

We need to maintain the sanctity of the classroom

No serious business today.

Shit got deep over the use of mobile phones.

Course Outline:

Part I: Introduction to Securities and Exchange Board of India Act, 1992

A. Establishment, functions and powers of SEBI

B. Establishment, jurisdiction and authority of Securities Appellate Tribunal

Part II: Powers under the Companies Act that the SEBI has- covers 2003, 2008 and
2009 regulations

Part III: Derivative trading in India

Part IV, V, VI- missed

Part VII- M&A

Part VIII: Competition Law

Part XI- foreign exchange management- it will only be an overview so it will be easier

Project Submission Dates: 5 marks- class participation, project only for 20 marks. No
rough draft, synopsis- 7 marks. It will be a detailed synopsis including a detailed

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literature review. The remaining 14 marks will be divided between final draft and viva
presentation.

40 broad topics mentioned in the course module, pick a specific one within one of them.

Read the Economic Times. Even your question papers will be from there.

February 7, 2017

Corporate Law-I we studied the Companies Act, which tells us what a company is and
how it is different from other organizations. After knowing how a company is
incorporated, we then looked at how it raises capital (issue of securities), which is what
Corporate Law-II deals with. SEBI is the regulating authority for issue and exchange of
securities and the securities market in India.

India has a multi-sectoral regulator system. This is different from the US where the SEC
looks at everything, here we have the RBI, SEBI, IRDA which regulate different sectors.
SEBI regulates the product called securities, RBI regulates the product called money/
currency, IRDA regulates the product called insurance, Pension Authority regulates the
product called pension etc. None of these regulators supercede the other, we are multi-
sectoral regulatory system.

SEBI since its inception has been working towards making the securities market more
transparent, and we have one of the most transparent legislations, yet we have scams
like Satyam, Harshad Mehta etc. One of the aims of the SEBI has been to protect
investors by regulating intermediaries, issuers etc.

Here are 5 Is that we study in security law:

1. The Issuer (the companies)

2. The Investor (may be an individual, a body corporate, FDIs and FIIs)
3. The Intermediary (such as stock brokers, registrar to an issue,
depositaries, portfolio managers, underwriters, merchant bankers, investment
advisors, custodian of securities)
4. The Infrastructure (stock exchanges- platforms for trading in securities)
5. The Instruments (securities, mutual funds, hybrid funds etc.)

FDI vs. FII- FDI is a more long term investment, while FII is a short term investment in
stocks with an easier pull out option. There are strategic and non-strategic investors.
Strategic investors have a plan to come and control the market or company, non-

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strategic investors (FII) simply want returns. They get their returns and exit. Strategic
investors want control over the company which is why they enter into acquisition or
takeover deals. Which is why you have sectoral caps for FDI investment for different
sectors for the amount of foreign direct investment that is permitted.

Lakshman: How do you glean intention? Is it the amount you have invested, if an FII
invests a lot wont it get control?

Aparajita: I could invest hundreds of billions of rupees and still not want control. I have
just made this distinction for your understanding. FIIs are institutions, and FDIs are
not, they are usually companies.

Mohit: How does someone control an entire sector? They invest in a company and get
control over the company right?

Aparajita: That is one transaction, when you look at it as a whole there will be the total
FDI investment in the textile sector, for example.

Mohit: can you give an example of companies getting together and acquiring companies
in India.

Aparajita: Not together, acquisition is always individual.

SEBI says that no person can become an intermediary without authorization from SEBI.

The securities market is a secondary market. Where the shares are freshly issued for the
first time it is a primary market (like in an IPO). But if I own shares and then I sell it two
years later, and then the buyer sells it to another person later. This buying and selling is
a secondary market. The primary issue of shares is the subject matter of the Companies
Act regulated by the Ministry of Corporate Affairs (MCA), the secondary exchange of
securities is regulated by SEBI under the SEBI, Act.

There are certain gatekeepers in the securities market which ensure that everything is
line with corporate governance norms. Example, SEBI, RBI etc.

SEBI- Securities Exchange Board of India - was established in 1988. It was non-
statutory and was merely an advisory body. Gradually the need for a body like SEBI kept
growing, so in 1992 SEBI became a statutory body through the SEBI, 1992 Act. So now it
governs the entire securities market. We have had multiple amendments to the Act.
2014 amendment amends the SEBI Act, FCRA and Depositories Act. FMC has been

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merged with SEBI so they now have the same website. Please visit their website, its
awesome.

Appeals go to SAT, and then to the Supreme Court, so civil courts have no role here.

Corporation sole has nothing to with corporate law which refers to offices such as the
office of president, prime minister etc. Corporation aggregate is a group of companies
that engage in business. What is a body corporate? A company is an entity incorporated
under the Companies Act. A body corporate is a corporation which has a juristic
personality but it is not necessary that it is incorporated under any other legislation in
the world (including other Indian legislations). For example, LIC. Even a PSU may be a
body corporate, but not a company. Body corporates may still have to follow certain
provisions of the Companies Act, even though they are not incorporated under the
Companies Act. Their specific legislations will mention what provisions are applicable.
SEBI is a body corporate.

February 8, 2017
Section 3- Establishment and incorporation of Board. 3. (1) With effect from such date
as the Central Government may, by notification, appoint, there shall be established, for
the purposes of this Act, a Board by the name of the Securities and Exchange Board of
India. (2) The Board shall be a body corporate by the name aforesaid, having
perpetual succession and a common seal, with power subject to the provisions of this
Act, to acquire, hold and dispose of property, both movable and immovable, and to
contract, and shall, by the said name, sue or be sued. (3) The head office of the Board
shall be at Bombay. (4) The Board may establish offices at other places in India.

Section 4- Management of the Board

4. (1) The Board shall consist of the following members, namely: (a) a Chairman; (b)
two members from amongst the officials of the 5[Ministry] of the Central Government
dealing with Finance 6[and administration of the Companies Act, 1956 (1 of 1956)]; (c)
one member from amongst the officials of 7[the Reserve Bank]; 8[(d) five other
members of whom at least three shall be the whole-time members,] to be appointed by
the Central Government.

(2) The general superintendence, direction and management of the affairs of the Board
shall vest in a Board of members, which may exercise all powers and do all acts and
things which may be exercised or done by the Board.

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(3) Save as otherwise determined by regulations, the Chairman shall also have powers of
general superintendence and direction of the affairs of the Board and may also exercise
all powers and do all acts and things which may be exercised or done by that Board.

(4) The Chairman and members referred to in clauses (a) and (d) of sub-section (1) shall
be appointed by the Central Government and the members referred to in clauses (b) and
(c) of that sub-section shall be nominated by the Central Government and the 9[Reserve
Bank] respectively.

(5) The Chairman and the other members referred to in clauses (a) and (d) of sub-
section (1) shall be persons of ability, integrity and standing who have shown capacity in
dealing with problems relating to securities market or have special knowledge or
experience of law, finance, economics, accountancy, administration or in any other
discipline which, in the opinion of the Central Government, shall be useful to the Board

Section 5- Term of office and conditions of service of Chairman and members of the
Board. 5. (1) The term of office and other conditions of service of the Chairman and the
members referred to in clause (d) of sub-section (1) of section 4 shall be such as may be
prescribed. (2) Notwithstanding anything contained in sub-section (1), the Central
Government shall have the right to terminate the services of the Chairman or a member
appointed under clause (d) of sub-section (1) of section 4, at any time before the expiry
of the period prescribed under subsection (1), by giving him notice of not less than three
months in writing or three months salary and allowances in lieu thereof, and the
Chairman or a member, as the case may be, shall also have the right to relinquish his
office, at any time before the expiry of the period prescribed under sub-section (1), by
giving to the Central Government notice of not less than three months in writing.

Section 6- Removal of member from office. 6. The Central Government shall remove a
member from office if he (a) is, or at any time has been, adjudicated as insolvent; (b) is
of unsound mind and stands so declared by a competent court; (c) has been convicted of
an offence which, in the opinion of the Central Government, involves a moral turpitude;
(e) has, in the opinion of the Central Government, so abused his position as to render
his continuation in office detrimental to the public interest : Provided that no member
shall be removed under this clause unless he has been given a reasonable opportunity of
being heard in the matter.

Meetings. 7. (1) The Board shall meet at such times and places, and shall observe such
rules of procedure in regard to the transaction of business at its meetings (including
quorum at such meetings) as may be provided by regulations. (2) The Chairman or, if
for any reason, he is unable to attend a meeting of the Board, any other member chosen
by the members present from amongst themselves at the meeting shall preside at the
meeting. (3) All questions which come up before any meeting of the Board shall be
decided by a majority votes of the members present and voting, and, in the event of an

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equality of votes, the Chairman, or in his absence, the person presiding, shall have a
second or casting vote.

Section 7A- [Member not to participate in meetings in certain cases. 7A.Any member,
who is a director of a company and who as such director has any direct or indirect
pecuniary interest in any matter coming up for consideration at a meeting of the Board,
shall, as soon as possible after relevant circumstances have come to his knowledge,
disclose the nature of his interest at such meeting and such disclosure shall be recorded
in the proceedings of the Board, and the member shall not take any part in any
deliberation or decision of the Board with respect to that matter.]

This section is important because it is based on the principles of natural justice- no

person shall be judge in her own cause.

Section 11- powers and functions of the board- 11. (1) Subject to the provisions of this
Act, it shall be the duty of the Board to protect the interests of investors in securities and
to promote the development of, and to regulate the securities market, by such measures
as it thinks fit.

(2) Without prejudice to the generality of the foregoing provisions, the measures
referred to therein may provide for (a) regulating the business in stock exchanges and
any other securities markets; (b) registering and regulating the working of stock
brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds,
registrars to an issue, merchant bankers, underwriters, portfolio managers, investment
advisers and such other intermediaries who may be associated with securities markets
in any manner; 13[(ba) registering and regulating the working of the depositories,
14[participants], custodians of securities, foreign institutional investors, credit rating
agencies and such other intermediaries as the Board may, by notification, specify in this
behalf;] (c) registering and regulating the working of 15[venture capital funds and
collective investment schemes], including mutual funds; (d) promoting and regulating
self-regulatory organisations; (e) prohibiting fraudulent and unfair trade practices
relating to securities markets; (f) promoting investors education and training of
intermediaries of securities markets; (g) prohibiting insider trading in securities; (h)
regulating substantial acquisition of shares and take over of companies; (i) calling for
information from, undertaking inspection, conducting inquiries and audits of the
16[stock exchanges, mutual funds, other persons associated with the securities market],
intermediaries and self-regulatory organisations in the securities market; [(ia) calling
for information and records from any person including any bank or any other authority
or board or corporation established or constituted by or under any Central or State Act
which, in the opinion of the Board, shall be relevant to any investigation or inquiry by
the Board in respect of any transaction in securities;] 18[(ib) calling for information
from, or furnishing information to, other authorities, whether in India or outside India,
having functions similar to those of the Board, in the matters relating to the prevention

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or detection of violations in respect of securities laws, subject to the provisions of other
laws for the time being in force in this regard: Provided that the Board, for the purpose
of furnishing any information to any authority outside India, may enter into an
arrangement or agreement or understanding with such authority with the prior approval
of the Central Government;] (j) performing such functions and exercising such powers
under the provisions of 19[* * *] the Securities Contracts (Regulation) Act, 1956 (42 of
1956), as may be delegated to it by the Central Government; (k) levying fees or other
charges for carrying out the purposes of this section; (l) conducting research for the
above purposes; 20[(la) calling from or furnishing to any such agencies, as may be
specified by the Board, such information as may be considered necessary by it for the
efficient discharge of its functions;] (m) performing such other functions as may be
prescribed. 21[(2A) Without prejudice to the provisions contained in sub-section (2), the
Board may take measures to undertake inspection of any book, or register, or other
document or record of any listed public company or a public company (not being
intermediaries referred to in section 12) which intends to get its securities listed on any
recognised stock exchange where the Board has reasonable grounds to believe that such
company has been indulging in insider trading or fraudulent and unfair trade practices
relating to securities market.]

The most important measure taken has been to regulate the stock market and
exchanges. All intermediaries are mentioned in 2(b) and (ba), which is why you have
section 12 which deals with their registration and regulation. Think of the 5 Is we
discussed yesterday and how they are regulated.

Ashtha: what are these self-regulatory organisations?

Aparajita: They have their own regulations, but SEBI does not want to leave them
unregulated, so it regulates them.

Happy: Examples may be smaller transfer exchanges, brokers, mutual funds etc.
Happy: The powers under sub-section i(a), i(b) are very wide which is why companies
are now scared of them. They can even tap phones. No other regulatory body has such
extensive powers.

Apparjaita: Look at the scope of the functions of SEBI. OS its the gatekeeper, its the
watchdog of the entire securities market.

Section 11 (3)- Notwithstanding anything contained in any other law for the time being
in force while exercising the powers under 23[clause (i) or clause (ia) of sub-section (2)
or sub- section (2A)], the Board shall have the same powers as are vested in a civil court
under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the
following matters, namely : (i) the discovery and production of books of account and
other documents, at such place and such time as may be specified by the Board; (ii)
summoning and enforcing the attendance of persons and examining them on oath; (iii)

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inspection of any books, registers and other documents of any person referred to in
section 12, at any place;] [(iv) inspection of any book, or register, or other document or
record of the company referred to in sub-section (2A); (v) issuing commissions for the
examination of witnesses or documents.]

Powers vested with a civil court vest with SEBI.

11 (4)- Without prejudice to the provisions contained in sub-sections (1), (2), (2A) and
(3) and section 11B, the Board may, by an order, for reasons to be recorded in writing, in
the interests of investors or securities market, take any of the following measures, either
pending investigation or inquiry or on completion of such investigation or inquiry,
namely: (a) suspend the trading of any security in a recognised stock exchange; (b)
restrain persons from accessing the securities market and prohibit any person
associated with securities market to buy, sell or deal in securities; (c) suspend any office-
bearer of any stock exchange or self-regulatory organisation from holding such position;
(d) impound and retain the proceeds or securities in respect of any transaction which is
under investigation; (e) attach, after passing of an order on an application made for
approval by the Judicial Magistrate of the first class having jurisdiction, for a period not
exceeding one month, one or more bank account or accounts of any intermediary or any
person associated with the securities market in any manner involved in violation of any
of the provisions of this Act, or the rules or the regulations made thereunder : Provided
that only the bank account or accounts or any transaction entered therein, so far as it
relates to the proceeds actually involved in violation of any of the provisions of this Act,
or the rules or the regulations made thereunder shall be allowed to be attached; (f)
direct any intermediary or any person associated with the securities market in any
manner not to dispose of or alienate an asset forming part of any transaction which is
under investigation

Happy: Recently there have been certain board members from accessing the securities
market by SEBI. Mallya and his board have been restricted. Sahara also.

6[(5) The amount disgorged, pursuant to a direction issued, under section 11B of this
Act or section 12A of the Securities Contracts (Regulation) Act, 1956 or section 19 of the
Depositories Act, 1996, as the case may be, shall be credited to the Investor Protection
and Education Fund established by the Board and such amount shall be utilised by the
Board in accordance with the regulations made under this Act.]

February 9, 2017

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Establishment of Securities Appellate Tribunals. 15K.(1) The Central Government shall
by notification, establish one or more Appellate Tribunals to be known as the Securities
Appellate Tribunal to exercise the jurisdiction, powers and authority conferred on such
Tribunal by or under this Act 91[or any other law for the time being in force]. (2) The
Central Government shall also specify in the notification referred to in sub-section (1)
the matters and places in relation to which the Securities Appellate Tribunal may
exercise jurisdiction.

[Composition of Securities Appellate Tribunal. 15L. A Securities Appellate Tribunal shall

consist of a Presiding Officer and two other members, to be appointed, by notification,
by the Central Government
Qualification for appointment as Presiding Officer or Member of Securities Appellate
Tribunal. 15M. 93[(1) A person shall not be qualified for appointment as the Presiding
Officer of the Securities Appellate Tribunal unless he - (a) is a sitting or retired Judge of
the Supreme Court or a sitting or retired Chief Justice of a High Court; or (b) is a sitting
or retired Judge of a High Court who has completed not less than seven years of service
as a Judge in a High Court. (1A) The Presiding Officer of the Securities Appellate
Tribunal shall be appointed by the Central Government in consultation with the Chief
Justice of India or his nominee.] (2) A person shall not be qualified for appointment as
member of a Securities Appellate Tribunal unless he is a person of ability, integrity and
standing who has shown capacity in dealing with problems relating to securities market
and has qualification and experience of corporate law, securities laws, finance,
economics or accountancy

Go through section 15 Q- not that important

Orders constituting Appellate Tribunal to be final and not to invalidate its proceedings.
15R. No order of the Central Government appointing any person as the 103[Presiding
Officer or a Member] of a Securities Appellate Tribunal shall be called in question in any
manner, and no act or proceeding before a Securities Appellate Tribunal shall be called
in question in any manner on the ground merely of any defect in the constitution of a
Securities Appellate Tribunal.

Appeal to the Securities Appellate Tribunal. 15T. 104[(1) Save as provided in sub-section
(2), any person aggrieved, (a) by an order of the Board made, on and after the
commencement of the Securities Laws (Second Amendment) Act, 1999, under this Act,
or the rules or regulations made thereunder; or (b) by an order made by an adjudicating
officer under this Act, may prefer an appeal to a Securities Appellate Tribunal having
jurisdiction in the matter.

What is the difference between an order made by the AO and the Board- the Board
appoints the AO. In both cases where the order is made by the AO or the board, appeal
to the SAT lies.

15 (3) Every appeal under sub-section (1) shall be filed within a period of forty-five days
from the date on which a copy of the order made by the 106[Board or the Adjudicating

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Officer, as the case may be,] is received by him and it shall be in such form and be
accompanied by such fee as may be prescribed : Provided that the Securities Appellate
Tribunal may entertain an appeal after the expiry of the said period of forty-five days if
it is satisfied that there was sufficient cause for not filing it within that period. (4) On
receipt of an appeal under sub-section (1), the Securities Appellate Tribunal may, after
giving the parties to the appeal, an opportunity of being heard, pass such orders thereon
as it thinks fit, confirming, modifying or setting aside the order appealed against. (5)
The Securities Appellate Tribunal shall send a copy of every order made by it to the
107[Board, the] parties to the appeal and to the concerned Adjudicating Officer. (6) The
appeal filed before the Securities Appellate Tribunal under sub-section (1) shall be dealt
with by it as expeditiously as possible and endeavour shall be made by it to dispose of
the appeal finally within six months from the date of receipt of the appeal.

Procedure and powers of the Securities Appellate Tribunal. 15U.(1) The Securities
Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil
Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and,
subject to the other provisions of this Act, and of any rules, the Securities Appellate
Tribunal shall have powers to regulate their own procedure including the places at
which they shall have their sittings. (2) The Securities Appellate Tribunal shall have, for
the purposes of discharging their functions under this Act, the same powers as are
vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a
suit, in respect of the following matters, namely : (a) summoning and enforcing the
attendance of any person and examining him on oath; (b) requiring the discovery and
production of documents; (c) receiving evidence on affidavits; (d) issuing commissions
for the examination of witnesses or documents; (e) reviewing its decisions; (f)
dismissing an application for default or deciding it ex parte ; (g) setting aside any order
of dismissal of any application for default or any order passed by it ex parte ; (h) any
other matter which may be prescribed.

It has the powers of that of a civil court.

Appeal to Supreme Court. 15Z. Any person aggrieved by any decision or order of the
Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days
from the date of communication of the decision or order of the Securities Appellate
Tribunal to him on any question of law arising out of such order : Provided that the
Supreme Court may, if it is satisfied that the applicant was prevented by sufficient cause
from filing the appeal within the said period, allow it to be filed within a further period
not exceeding sixty days

Civil courts and high courts have no role.

This class is pointless, they literally read out the entire Act.
Read section 28A- Recovery of amounts

Collective Investment Schemes

Collective investment scheme. 11AA. (1) Any scheme or arrangement which satisfies the
conditions referred to in sub-section (2) 29[or sub-section (2A)] shall be a collective

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investment scheme: 30[Provided that any pooling of funds under any scheme or
arrangement, which is not registered with the Board or is not covered under sub-section
(3), involving a corpus amount of one hundred crore rupees or more shall be deemed to
be a collective investment scheme.] (2) Any scheme or arrangement made or offered by
any 31[person] under which, (i) the contributions, or payments made by the investors,
by whatever name called, are pooled and utilized for the purposes of the scheme or
arrangement; (ii) the contributions or payments are made to such scheme or
arrangement by the investors with a view to receive profits, income, produce or
property, whether movable or immovable, from such scheme or arrangement; (iii) the
property, contribution or investment forming part of scheme or arrangement, whether
identifiable or not, is managed on behalf of the investors; (iv) the investors do not have
day-to-day control over the management and operation of the scheme or arrangement.

Mutual fund are not collective investment schemes, they are collective investment
vehicles. CIS can invest into any other assets other than securities. Though the features
of CIS and mutual funds seems the same, the difference is that mutual funds deal with
securities while CIS are not allowed to deal with securities.
All such schemes have to be registered with SEBI. SEBI governs such schemes because
there are investors interests at stakes and there will be many investors, so even if they
dont deal with securities, investors must be protected. 2014 amendment says that even
if a CIS is not registered with SEBI and has a corpus over a 100 crores it will be covered
by the SEBI.
CIS have to be incorporated as a CIMC (Collective Investment Management Company)
and be registered under the SEBI Act.
There is relationship of trust. Investors do not have day to day control. See the four
points under 11AA (2).

11AA(3) Notwithstanding anything contained in sub-section (2) 33[or sub-section (2A)],

any scheme or arrangement (i) made or offered by a co-operative society registered
under the Co-operative Societies Act, 1912 (2 of 1912) or a society being a society
registered or deemed to be registered under any law relating to co-operative societies for
the time being in force in any State; (ii) under which deposits are accepted by non-
banking financial companies as defined in clause (f) of section 45-I of the Reserve Bank
of India Act, 1934 (2 of 1934); (iii) being a contract of insurance to which the Insurance
Act, 1938 (4 of 1938), applies; (iv) providing for any Scheme, Pension Scheme or the
Insurance Scheme framed under the Employees Provident Fund and Miscellaneous
Provisions Act, 1952 (19 of 1952); (v) under which deposits are accepted under section
58A of the Companies Act, 1956 (1 of 1956); (vi) under which deposits are accepted by a
company declared as a Nidhi or a mutual benefit society under section 620A of the
Companies Act, 1956 (1 of 1956); (vii) falling within the meaning of Chit business as
defined in clause (d) of section 2 of the Chit Fund Act, 1982 (40 of 1982); (viii) under
which contributions made are in the nature of subscription to a mutual fund; 34[(ix)
such other scheme or arrangement which the Central Government may, in consultation
with the Board, notify,] shall not be a collective investment scheme.

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detailed , comprehensive SEBI Collective Scheme Investment Regulations 1999 deals
with CIS. It defines what a CIMC is:
(h)Collective Investment Management Company means a company incorporated
under the Companies Act, 1956 (1 of 1956) and registered with the Board under these
regulations, whose object is to organise, operate and manage a collective investment
scheme

Requirements for a CIS:

1. Has to be registered under the Companies Act
2. Specify in its MOA that its objective is to be a CIS
3. Net worth should be less than Rs.5 crores at the time of registration with
SEBI
4. Applicant must be a fit and proper person- to know what is fit and proper
we must look at the definition of intermediary (regulation 9A)
5. Adequate infrastructure
6. The directors or key personnel must be people of integrity, honesty and
must have professional experience
7. At least 50% of the directors should be independent directors
8. No person connected with the applicant has been refused registration by
the board in the past

Also look at regulation 13 - 13. The Collective Investment Management Company shall
not : a) undertake any activity other than that of managing the 19[collective investment
scheme];

Akshat: Can a CIS be a holding company?

Aparajita: No direct provision that deals with this. You would have to look at whether
its investing in a company that deals with business that the CIS has been restricted from
entering into. So it depends what the subsidiary does.

What are the powers enjoyed by SEBI under the Companies Act?
The custodian of the Companies Act is the MCA, but the SEBi also has some powers
under section 24. It says that with respect to everything else MCA has the power to
regulate corporate India, but with respect to chapters 3 and 4 which deal with issue and
transfer of securities and payment of dividends (section 127), SEBI will have the power
to administer.

Whether SEBI can exercise its powers over unlisted companies?

SEBI can only exercise powers over listed companies or those companies with the
intention of getting itself listed. Merger provisions are given under the companies Act,
but when it involves takeover and acquisition of listed companies then SEBI will have
powers.

SEBI Regulations, 2009 (Issue of Capital and Disclosure Regulations, 2009)

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What are the various ways a company can raise money?- issue of shares, take loans etc.
Do you think it is easy to go for an IPO or a fresh issue of shares. No, it takes a lot of
time, about two years. There are a lot of intermediaries involved like underwriters etc.
Company has to think of a lot of things, how many shares, earnings per share (EPS),
what are the various disclosure requirements, has it been debarred or restricted by SEBI
in the past etc. The entire drafting of the prospectus, Offer letter, IPO etc.involves many
procedures and takes time. After all this, if the IPO fails (under-subscription), the entire
money put in will go waste.

Prof. (Dr.) Harpreet Kaur

February 10, 2017

Page 9 of module. Section 24 of Companies ACt gives SEBI the power to regulate all
activities relating to security. The Sahara case reiterates this position and categorically
states SEBI has power all things securities related.

What are the various types of companies? Majorly, private and public, though we do
have other types. Public company means it can raise funds from the public and there is
no maximum cap on the number of shareholders. Minimum number of shareholders is
7. Private company cannot raise funds from the public, has to raise money privately.
Maximum number of members is 200 and minimum is 2. Exception is one member
company. 200 does not include present and past employees of the company.

How many types of share capital can a company have? Equity and preference. If it is
equity shares we say equity share capital and if they are preference shares we say it is

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preference share capital. Companies Act says that all that is not preference share capital
will be equity share capital. Preference share capital is composed of preference shares,
they have two preferences over other shareholders- they will be given preferred dividend
and at the time of winding up they will get preference for repayment. All profit is not
given to shareholders as dividend, the board will decide what they want to set aside for
dividend. Preference shareholders will be given a right (say 10%), and equity
shareholders get paid if anything is remaining. Another way it can be set aside for
preference shareholder is that per share a dividend of Rs. 100. Irrespective of whether
equity shareholders get dividend or not, preference shareholders will always get
dividend. At the time of winding up, all creditors and then preference shareholders will
get their share capital back. Or if the company decides to repay capital, then preference
shareholders get preference.

What are the different types of preference shares? Preference shares are always
redeemable except for certain infrastructure projects. Preference shares are always
redeemable at the end of 20 years, it may be more than 20 years for certain
infrastructure projects. In what situations can preference shares be converted to equity
shares? Only when the company has a loan from the central government can it convert
its debts to equity shares, convertibility is to do with debt instruments. It may convert
preference shares to equity shares only if it is not able to redeem the shares at the end of
20 years. Equity shareholders can be lifelong shareholders, preference shares have to be
repaid at the end of 20 years (redemption of preference shares). Other types are
cumulative and non-cumulative, and participating and nonparticipating preference
shares. Let us say you have a preferred dividend of 10%. In the FY 2013-14 dividend was
paid, in FY 2014-15 no dividend was paid because the company did not make enough
profit, but in 2015-16 they are able to pay dividend. If you can carry forward your
dividend not paid from 2014-15, then it is cumulative preference share, and you will get
20% in 2015-16. COmpany will specify the terms of the shares. You have to see up to
what extent (number of years and percentage) the dividend will be carried forward.
Redemption amount is determined at the time of issue. Redemption is calculated from
the date of issue. If it is participating preference shares, once the company has paid all
its shareholders including equity shareholders and there is still some money to pay
dividend, then participating preference shareholders can get more dividend, they have
the right to participate in surplus profit.

Types of issues- Chapter 3 of the Companies Act deals with prospectus and issues of
shares. Section 23 deals with public offer and private placement and section 42 deals
with private placement. Public offer is offer of securities to the public, which means it
has to be made by a public company. Public offers may be initial public offer (IPO),
Further public offer (FPO) and offer for sale. IPO is a public offer for the first time- the
company must be a public company and its securities should be listed on a stock
exchange. The company may have been a private company initially,it will convert itself
into a public company (or could have been an unlisted public company), get its
securities listed and then go for an IPO.

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February 13, 2017

A public offer can only be made by a public company that is listed. IPO is the first time
that a company makes a public offer for its securities. FPO (further public offer) means
that the company has already comeout with an IPO and now wants to raise its capital
further and is issuing securities again. FPO is referred to as further issue of capital
under the companies Act.

IPO is a fresh issue of securities, means the securities were not already part of the
capital of the company. FPO is also a fresh issue of securities. Lets say the company
wants to raise Rs. 1000 crore, so it decides to come up with a public issue of equity
shares. The face value of shares is Rs. 10 each so it will issue 100 crore shares. If all
shares are subscribed it will reach the desired 1000 crore amount. This is a fresh issue of
shares. New securities will be created by the company.

Offer for sale- you can only sell that which already exists. Lets say the copany has a
capital of Rs. 1000 crore and the capital is owned through shares by different people. If I
own Rs. 100 crore worth of shares, I can either go to the secondary market through a
broker, or I can approach the company and offer to sell the securities back to the
company. The company will take a call on whether it wants to buy the shares or not. It
may decide that it wants the shareholder to go for a public issue of those shares, so these
existing shares would be sold in the public market. This is called offer for sale. The
company may not want you to sell it on the secondary market because they may not
want you to transfer it to someone with malafide intentions. With an offer for sale there
will be greater participation, the ownership will be spread over many people so one
person wont get much control and it may benefit the seller as well because they may not
get a good deal in the secondary market. Company can regulate the maximum and
minimum number of shares that can be subscribed to in the offer for sale so that no one
person has too much control over the shares. It is an agreement where through the
company (which acts as an intermediary/ facilitator) that the shareholder sells to the
public, you do not sell the shares back to the company. In the AGM it is the company
will offer to its shareholders that they can go in for an offer for sale and then an offer for
sale can be initiated. Company cannot coerce a shareholder to go for an offer for sale.

How can a company prevent its shareholder from transferring her shares to another
party that they dont want to have control (a person with malafide intentions)- you could
offer a buyback at an attractive price, or it could issue fresh capital to dilute the persons
shareholding.

Public company can make three types of offer- public offer, private placement and rights
issue or bonus issues. Private placement means an offer or invitation to subscribe to
securities privately (not to the public at large), to a maximum number of 50 persons.
Private means that there can be no advertisement of the offer or public invitation. How

15
is this different from preferential allotment? Preferential allotment is for unlisted
companies. Preferential issue will be the same as private placement.

Rights issues are issue of shares to existing shareholders. Under the pre-emptive rights
for increase of share capital, the shares will be offered to the existing shareholders
before being offered to the public. The number of shareholders will not increase but the
share capital will increase. Bonus issue of shares- suppose the company has a lot of
profit, it may convert the profit into capital, the process is known as capitalisation of
profit. The company cannot just do this, there are certain criteria in the companies Act.
Lets say the company has a profit of Rs. 10 crores. It will look at the number of
shareholders and calculate how many shares each shareholder will get- it may be on a
prorata basis or an equal distribution. The shareholder will thus get extra shares for
which she has to pay nothing. Pro rata means that it will be based on your individual
shareholding, so a shareholder with greater shareholding will get more bonus shares
than one with less shareholding.

Why would I want to convert profit to capital? What is the difference between the way I
can use capital and profit?- The way profit is used is strictly regulated by the Companies
Act. Okay I cannot explain the conversation between MOhit and Happy because she isnt
saying anything. Shes very stupid. Kuhuk has clarified that it is for reputation purposes.

Read the newspaper for the TATA case

The merger provisions under the new Companies Act have been notified. Missed this,
but something about section 230-233 and some other sections have been notified and
will come into effect from December 15, 2016.

February 14, 2017 (Happy Valentines Day Everyone :))

What are the types of issue that can be made by private company?- Private placement
and Rights/bonus issue. Rights issue comes under further issue of capital, section 62,
and bonus issue is section 63. FPO also falls under further issue of capital.

She wants us to do some class activity- she wants us to categorise the terms defined in
pages 9-11. Categories could be investor, processes etc., depending on what the
definition pertains to.

Categories:

16
 1. Types of issue - composite issue, initial public offer, further public offer,
preferential issue, public issue, rights issue
2. Investor - anchor investor, retail individual investor, qualified institutional
buyer, non-institutional investor, retail individual shareholder
3. Procedure - application supported by blocked amount, book building,
green shoe option,
4. Document/Instruments - offer document, convertible security, convertible
debt instrument
5. Stakeholder - Book runner, promoter, promoter group, unlisted issuer
6. Issuer- unlisted issuer, wilful defaulter
7. Miscellaneous (to understand issues)- Net worth, general corporate
purposes, net offer to public, issue size

She just asked us if we understand the difference between understanding and reading.

Composite issue- what does specified securities mean? We mean those issues that this
issue refers to and not all securities. Specified securities may be debt securities, may be
any other security that is specified. It s composite because it is not a simple issue- it has
two types of issues- both a public issue and a rights issue combined. Both issues will be
made simultaneously to the public and existing shareholders. Rights issue will go only to
the existing shareholder. Whereas the public issue can go to both existing shareholders
and the public at large.

FPO- already dealt with. It can be fresh issue or offer for sale. Please remember any
public issue has to be by a listed issuer. If an existing shareholder sells in the secondary
market is not an issue. If she enters into an agreement with the company through which
her shares will be issued to the public in a public offer that is an offer for sale, it will be
sold on the primary market.

Anything to do with securities, whether primary or secondary market, listed or unlisted

will be regulated by SEBI. This was confirmed in the Sahara Case. Read the Sahara case.

Read todays ET, it has an article about DLF selling its 40% stake in some Singapore
company.

February 15, 2017

Preferential issue- private placement by a listed issuer. Cap for private placement is 50
persons. It cannot include securities offered through public issue, rights issue and bonus
issue, ESOP (50 number will not include the employees of the company), qualified

17
institutional placements, sweat equity shares, depositary receipts issued outside India,
and any foreign securities.

ESOP is employee stock option scheme- where a company reserves certain securities out
of a public issue for the employees to subscribe, it is an option and not compulsory.
Yesterday there was an article in ET that even banks can now give ESOPs to motivate
their employees. Mohit is asking why banking companies were restricted earlier from
issuing ESOPs? Harpreet cant answer the question. She says she will look it up and let
us know. They keep insisting that maybe the banks never thought about offering ESOPs
before. Mohit asks why they would be permitted now, permission implies they were
prohibited from doing it earlier.

Sweat equity shares- you can either be given remuneration in cash or kind. When it is
given in kind it can be given in the form of shares. You work for the company and you
are rewarded with shares. This is different from ESOP. It is not given to all employees,
its not a scheme for all employees. It may because of the work done, such as some
contribution toward intellectual property. She s reading out the definition of sweat
equity shares from the Companies Act- section 2(88) and section 54 (issue of sweat
equity shares).

Depositary receipts- if there is a US company that is making a world wide issue, can an
Indian subscribe? Yes. This needs to be done through an intermediary. Say the securities
are issued to this person. The process that has been evolved is that the intermediary to
facilitate international issues of shares is called a depositary. So instead of getting the
shares, the Indian will get a depositary receipt signifying the number of shares
subscribed to. This will be explained later in detail.

Rights Issue- given to existing shareholders. Need to fix a record date- the date on which
you will ascertain who the shareholders of the company, and whoever is a shareholder
as on that date will get the rights issue.
Category- Investor
Anchor Investor- at least Rs. 10 crore. Is a Qualified Institutional Buyers (QIB).
QIB- includes mutual funds, venture capital funds

Mutual funds- say Franklin Templeton is running a mutual fund and I am one of the
unit holders. The fund may be worth 100 crores, but I contribute only Rs. 500 (100 units
of Rs. 5 each). A fund which is for investment purposes run by a fund manager and
invests in securities is called a mutual fund. The return on investment will be divided on
the basis of your holding of units. The best way is to go for a systematic investment plan.
Fund is an institution. SO they become one of the QIBs that can invest.

Venture Capital Fund- defined in the SEBI (Venture Capital Fund) Regulations, 1996-

18
(m) venture capital fund means a fund established in the form of a trust or a
company including a body corporate and registered under these regulation which (i)
has a dedicated pool of capital; (ii) raised in a manner specified in the regulations;
and (iii) invests in accordance with the regulations;

Venture capital funds invest in private equity, they invest in start ups, they provide only
private equity to ventures or risk taking entities. Private equity means the money is not
collected from the public and is privately collected.

Lakshman: What if the investor in the VCF is a public company? Is that allowed?
Happy and Aprajita: That is allowed. Because person includes company (whether public
or private). Even if the capital was taken from the public, the company is separate entity
and its money becomes its own. So, it will be investing its own money.

Regulation 2(1)(b) of Securities and Exchange Board of India (Alternative

Investment Funds) Regulations, 2012
Alternative Investment Fund means any fund established or incorporated in
India in the form of a trust or a company or a limited liability partnership or a body
corporate which,-
(i) is a privately pooled investment vehicle which collects funds from investors,
whether Indian or foreign, for investing it in accordance with a defined investment
policy for the benefit of its investors; and
(ii) is not covered under the Securities and Exchange Board of India (Mutual
Funds) Regulations, 1996, Securities and Exchange Board of India (Collective
Investment Schemes) Regulations, 1999 or any other regulations of the Board to
regulate fund management activities:
Provided that the following shall not be considered as Alternative Investment
Fund for the purpose of these regulations,-
(i) family trusts set up for the benefit of relatives as defined under
Companies Act, 1956;
(ii) ESOP Trusts set up under the Securities and Exchange Board of
India (Employee Stock Option Scheme and Employee Stock Purchase Scheme),
Guidelines, 1999 or as permitted under Companies Act, 1956;
(iii) employee welfare trusts or gratuity trusts set up for the benefit of
employees;
(iv) holding companies within the meaning of Section 4 of the
Companies Act, 1956; (v) other special purpose vehicles not established by fund
managers, including securitization trusts, regulated under a specific regulatory
framework; (vi) funds managed by securitisation company or
reconstruction company which is registered with the Reserve Bank of India under
Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002; and
(vi) any such pool of funds which is directly regulated by any other
regulator in India;

19
February 16, 2017

AIF is defined by SEBI.. Its a fund created by people privately to invest their private
equity. It may be in the form of a trust, company, limited liability partnership or a body
corporate.

FVCI regulations are there- these are entities that are formed for investment abroad,
and they invest in any venture.

All of these will be QIBs. They are called qualified because these entities have been
clubbed together by SEBI. It included FIIs- which is an institution established in a
foreign country which proposes to invest in public issues in India. For example, a
provident fund entity in Germany that wants to invest overseas may subscribe to public
issue in India, this would be an FII. The sub-account will be the person who owns a PF
account with this entity, which is investing in public issues in India for returns. To
regulate this, SEBI came up with SEBI (Foreign Portfolio Investors) Regulations, 2014.
The regulations define FII, their sub-accounts and qualified foreign investors- which can
be individuals, companies etc based abroad. These terms were used in several places
and there was a lot of confusion, so SEBI under these regulations, clubbed all these
three into Foreign Portfolio Investors (FPIs).

QIB- also included public financial institutions which is defined under section 2(72) of
2013 Act

Look at the QIB definition in the module (page 12)- it includes some billion things that
she rushed through.

Next, retail individual investor (page 13)- individuals like us who want to invest in
securities, there is a cap of two lakhs. In short they are referred to as RIIs.

Next, Retail individual shareholder- once a retail individual investor gets the shares, she
becomes a retail individual shareholder.

Next, non-institutional investors (page 10)- investors that are neither RII nor QIBs, but
fall somewhere in between. It cannot be an institution. So individuals investing more
than two lakhs (high net worth individuals), usually NRIs, will fall under this category.
Companies, body corporates will also fall under this category.

Category- Procedure
What is a book building process?

20
This woman keeps insulting AK Rai. Why she thinks she is better than him is beyond
me. So stupid.
When a company comes up with a public issue it can decide the price of the public issue
(of the share) before the issue, then it is a public issue of fixed price. Lets say that it
fixes the face value of the share at Rs. 10. The company can charge premium on this
though, which depends on the current market value of its securities. If the company
feels it is doing well and it can afford to charge a premium because people will still
subscribe, then it may do so.The second option available, is that the company does not
fix a price but puts up a price band, lets say it fixes a price band of Rs. 10-100, and the
public gets to decide at what price they want to buy. In this case, the company doesnt
know whether or how much premium to charge and just lets the people decide at what
price they want to buy. The company will come up with a Red Herring Prospectus
(RHP), and then announces that the book building process is open. It will be stated in
the RHP that a particular book runner (a bank for example) will be handling the book
building process, so investors will have to send their bids to the book runner. There will
be a duration for which the book remains open and then it will be closed. Then the book
manager will look at how much money is likely to come in upon issuing securities and
will then determine at what price the securities should be sold. Then the company will
let the public know at what price the share has been fixed (the face value and what the
premium is) and then issue it to the public. This is called the book building process.
Then they will come out with the full prospectus, because earlier they had come out only
with an RHP. If the company says you can only buy shares in a lot of 10 (10, 20, 30 etc.),
and in case there is oversubscription, it will allot on a prorata basis, such that you get
one share for every lot of 10 ahres that you have applied for. The bid is not binding, just
because you made a bid, doesnt mean you have to subscribe for the shares when they
are eventually issued. Nominal value of shares is fixed based on the regulations. The
price band is to fix the value of the premium. If the demand for a companys shares are
high, people will bid high in the hope that they will get the shares and not others
(because of the price/ premium is set at a high price, fewer people may subscribe).

ASBA (page 9)- you file an application for subscription of public/ rights issue, you will
get an abridged prospectus. Those who want full prospectus, you have to write to the
company and they will give you a full prospectus. You look at the amount that has to be
deposited, and then send the application with the money to the registered office of the
company. Allotment takes time, and the offer itself will be open for a long time. So the
money you sent in order to subscribe, will be temporarily held up with the company. So
for that time period, companies thought they will give some benefit to people
subscribing to the shares. There are some banks that offer these ASBA facilities- the
company issuing the securities will state they have an ASBA account with a particular
bank. So then the investor may keep Rs.1000 in the ASBA account by the banker for the
subscription for shares. Your application is supported by the blocked amount kept in the
ASBA account (it is an amount that is blocked in your own account, and therefore you
will continue to earn interest and all). The bank will release that amount to the company
once the company allots shares to you.

February 17, 2017

21
Read the publication of IPOs (advertisements) that she sent us by email when were
reading our bits of the regulations. Add practical information to the presentation, see
where the particular topic is used in the advertisements. BSE in the month of January
finished its public issue and was oversubscribed. Look for the latest news on the topic
assigned and bring it to the notice of the class.

Created groups, assigned some topics and then asked people for their project topics.

February 20, 2017

This paper will be open book for the regulations part.

Group 1- Common COnditions for Public Issues and Rights Issue (page 14)

Regulation number 4- any public issue/ rights issue must comply with the following
(a) And (b) Bar on accessing capital markets
Regulation 6- filing of draft offer document

Definition of promotor (page 11)- promotor relates to promotion. Promoter is one who is
involved in the promotion of the company, usually involved in the pre-incorporation
formalities and is involved in the incorporation of the company. But it need not always
be incorporation, she could promote any activity like a public issue.
Definition/ meaning of control (page 199)- from the SEBI Substantial Acquisition of
Shares Regulations- proviso not applicable when looking at the meaning of control with
respect to promoter. Its an inclusive, not an exhaustive definition; use the word
includes.
Definition of promoter group (page 11)

Okay, I was useless for todays notes, sorry.

February 21, 2017

Definition of promoter group- if the promoter is an individual (see page 12).

Rohan presenting about General Conditions (page 14). A depositary is an institution that
holds securities in dematerialised form. Two depositaries that work on
dematerialization, are NSDL (National Securities Depositories Limited) and CDSL
(Central Depository Services Limited)
Happy: What is dematerialised? When something is not in material form, it is said to be
dematerialised. Meaning you cannot hold it in physical form.
If a company has issued shares for raisaing 100 crores, and has collected 75 crores thus
far, then the company has to collect the outstanding 25 crores, before going for a fresh
issue. A company may either charge a lump sum for each share or may take the money
in installments (calls). All calls must be finished within one year. So either the shares

22
should become fully paid up (all outstanding calls should be collected) or the company
may forfeit the shares and only then go for a fresh issue.

Sub-rule 2(g) of Rule 4- General conditions:

Happy: Whatever project for which the company wants to raise money through issue of
shares, SEBI will allow only 25% of the project cost to be covered through an issue of
shares, the remaining 75% of the funds have to be arranged for through other means by
the company, and the company will have to show its remaining 75% fund arrangements

Rohan disagrees: If the company needs 100, and 25 is being received through IPO, then
the company needs to show where it would get 75% of the remaining 75 rupees is and
not the whole 75 rupees, because the rule says 75% of the stated means of finance
excluding the amount to be raised through the proposed issue or rights.
Happy insists that company has to show its where it will get its funds for the full 75
rupees and not just 75% of the 75 rupees. Happy says this is the only interpretation
that is possible. She insists that only 25% of the money therefore, can be raised though
public issue.

Rohan is explaining to Happy and Aprajita through an example he read in some RBI
circular: the project cost is 16000, and the public issue is for 6000, and 10,000 through
debts. Then firm arrangements would have to be 75% of 10,000. There is no 25% cap on
the amount that can be raised through public issue. Whatever is raise through public
issue, 75% of the remaining amount must be firm arrangements.

Happy does not look Happy at being proven wrong. This is quite amusing :p

Devagya explaining sub-rule 3 (page 15). About share warrants- if a subscriber does not
have the total amount to be paid for the shares, she may ask the company to issue a
share warrant in exchange for paying 25% of the amount due. So if she owes 100, she
pays 25 and receives a share warrant stating that she has subscribed for 100. There will
be a time limit within which she pays the remaining 75 and then her share warrant will
be converted to a security. You are not a shareholder of the company if you have a share
warrant so you wont have any rights vis-a-vis the company. If you cant convert your
share warrant to securities within the stipulated time (pay the remaining 75), then you
forfeit the 25%. Share warrants were part of the 1956 Act, and are no longer mentioned
in the 2013 Act.
Aparajita: To my understanding share warrants are different from these warrants.
Happy: yes, yes, share warrants are bearer instruments.
I think these people are very confused in life.

Synopsis Due Date: March 10, 2017.

February 22, 2017

23
Devagya presenting page 15. ICDR is limited to public listed companies. There is a
restriction not only on public issue of equity shares, but also public issue of convertible
instruments. Sub-Regulation (3)(c) to be read with Regulation 77(2) and (3)(d) with
Regulation 72(3).

Discussing general corporate purposes- page 13

Discussed wilful defaulter- page 13. The definition of wilful defaulter was necessary after
the Kingfisher case so the RBI created some guidelines. Added by the May 2016
amendment. During the pendency of a dispute about whether a person is a wilful
defaulter they may still subscribe to a public issue if they make some disclosures. Happy
and Mohit are arguing about the fairness of giving people such a bypass.

Rights issue and rights of renunciation- rights of renunciation must be mentioned in the
Articles of Association. Yash explained, she agreed, I didnt hear what Yash said. It is
there in the Companies Act.

Tarun dealing with regulations 5-9 which deal with public issue and rights issue (page
16).

The security deposit has to be submitted by the issuer before the allotment starts at the
rate of 1% of the amount of securities offered to the public.

Fast track issues- presented by Suneet and Arpit (page 17 onward).

What is a nationwide terminal or stock exchange? Where securities are listed and is the
venue or market for trading securities. Nationwide terminal means that from any part of
the country you can trade on the security. There will be national and regional stock
exchanges. We have 3 national stock exchanges- NSE, BSE and (missed).

For definition of reference date see page 18- the date of filing the RHP.

1000 crore for public issue and 250 crore for rights issue - amendment to the market
capitalisation requirements. (Regulation 10(b)). Market capitalisation is the number of
outstanding shares (number of shares issued) multiplied by the market price of each
share. Average market cap is defined on page 19.

Trading turnover- sub-regulation (c)of regulation 5. Average trading turnover= daily

turnover for a period divided by the number of days . Annualised trading turnover

24
would be the average for a year. For the past 12 months the company may have had
18000 outstanding shares, while 6 months later it may have only 12000 outstanding
shares because there will be trading in shares. We will not be asked to do any
calculations in the paper, this is just for our reference.

February 23, 2017

Sub regulation e): Equity listing agreement- an agreement signed by the issuer before
the issue saying that they will abide by the regulations. The law regulating equity listing
agreement is regulated by the Securities Contract Regulation Act.

Sub-regulation f: if the auditor finds a discrepancy which is more than 5% than the
company cannot go ahead with the fast track issue

Ga) Consent and settlement mechanisms power was given to the SEBI under the 2014
amendment where SEBI can settle violations made by defaulters. This was highly
controversial because how can you give such powers to an administrative body, which is
why after that some guidelines were put in place as to what kinds of violations can be
settled.

The minimum public shareholding in a public company is 25%. Which means promotor
cannot hold more than 75% of the shareholding.

When you buy and sell shares they may either be actually transferred into your demat
account, or there may be a system of squaring off of positions (no actual delivery of
shares). For example, I buy 1000 shares during the day at 100 rupees, and sell the
shares by the end of the day at Rs. 105, and make a profit of 5000 rupees. There is no
transfer of shares at the end of the day because Ive sold off everything and so there will
be no shares in my demat account. Its all on paper.

Opening of an Issue (Regulation 11) and Underwriting (Regulation 13)- discussed by

Thejaswi- page 19

Underwriting- it is like a safety device used by companies during public issue where if
the public undersubscribed (below minimum subscription) to the securities then the
underwriter will subscribe to the shares. Minimum subscription is 90% of the public
issue, if 90% is not subscribed to, then the company cannot go ahead with allotment of
shares.

February 27, 2017

Thejaswis presentation: regulation 13, page 19: There is an agreement between the
underwriter and the company, whereby the underwriter will subscribe to the public
issue if it is undersubscribed. If underwriting is done through a book building process,
75% of the net offer to the public must go to a qualified institutional buyer.

25
Mohit: why should there be a minimum subscription?
Happy: Because if the whole offer is not subscribed to, there will not be sufficient funds
for the project to be carried out, then the project will fail, and the shareholders who have
subscribed to the offer will lose their investment.

Mohit: what do underwriters get? Why would they do what they do?
Happy: they get a commission on the shares subscribed to.

Shivanshu: Regulation 14, 15, 16, page 20.

Shubham: Regulation 17, 18, 19, page 21.

If a share is worth Rs. 100, it may ask for the money in a lump sum, or in installments
(calls). All calls must be completed within 12 months. If calls are not completed within
the time period, then the company will have to go for forfeiture of shares depending on
whether its Articles allow for it. The company would have already received some money
in the form of application money/ first call, so after forfeiture, the company may reissue
the shares and if they dont receive the required money on reissue then it will just return
the money. It may not go for reissue and may just confiscate the entire amount on
cancelling the shares of defaulters.

Priyashrav and Anurag: Regulation 20, page 21.

February 27, 2017

She discussed our projects, didnt teach. No notes.

March 01, 2017

Priyashrav and Anurag Goswami: Regulation 20- section 117 of Companies Act, 1956
(section 71 clause 4 of the 2013 Act) which requires that debenture trustees be
appointed.

What is the purpose of a debenture redemption reserve- debentures are loans and the
company will have to pay them back. So if time for repayment comes and the company
has no money, that will be an issue, so the company may set aside money through the
reserve to prepare for repayment.
Who are secured creditors?- where the company offers a security in the form of an asset
to the creditor, a charge will be created on the asset.

Where does the money for DRR (Debenture Redemption Reserve) come from? - The
profits. 50% of the nominal value of the debentures will be put in the account before
they are issued.

Partly convertible debt instruments means that part of the debt instrument can be
converted to equity. So if you have a debt instrument for Rs. 100 and 50% is convertible,

26
then only Rs. 50 will be convertible to equity shares, which means the company will not
have to pay back that Rs. 50. Rollover means reinvesting the same money into the new
issue of the same security (did not understand). 3/4 th of the debenture holders have to
agree.

Astha: regulation 22-24

Optionally convertible instruments are issued and the conversion price is not
determined at the time of issue- then the owners will be given the option to not convert
the instruments [22(2)].

Regulation 24- variation of class rights- which section of the companies Act deals with
that?- section 48. It was notified earlier, but has now been notified.

Group 2- Anurag Singh (regulation 26)-

March 02, 2017 (sorry, these notes are rubbish)

Why would a company change its name?- If there is a merger, if the company changes
its objects, trademark issues (though this will be taken care of at the time of
incorporation), reconstruction of the company

Padia: Sub-regulation 5, 6, 7 (of 26):

Suniti, Shambhavi

Coupon rate is the interest rate on debt instruments.

Book building process- floor price is the lowest price the seller will accept.

March 06, 2017

Anushka: Regulation 32, Page 28:

Relevance of minimum promoters contribution?- To generate confidence among the

investors, because if you have stake in the project you will be reasonably careful with
risk taking and investing.

Post and Pre-issue capital- pre-issue is before the issue whatever the share capital is,
and post-issue includes the share capital after the issue is completed (the increased
capital).

Weighted average price (of outstanding equity shares)- if for three months there 100o
shares, and for next 6 months there are 2000 shares and for the last quarter there are

27
1500 shares outstanding (shares lying with the market), weighted average will be
(1000*3/12)+(2000*6/12)+(1500*3/12).

Sthavi: Regulation 32, Regulation 33, page 30-

This Happy is very proud that she knows how to calculate averages.

Escrow account- an account where money earmarked for some specific purpose is set
aside and the money can be used only for that purpose. The money will be released
when payments need to be made.

Kanchan: why should promoters minimum capital be kept in an escrow account?-Since

promoters have to ensure that they have contributed this minimum amount, it is kept
separately until the public issue takes place, once the public subscribes, the money from
the escrow account will be released. If the issue fails, the promoters will take back their
money.

Saumya: Regulation 33,page 30:

391-394 Companies Act= merger provisions, which is 230, 231, 232 of 2013 Act (232 has
not been notified yet)

Infrequently traded shares- shares that are not traded frequently; if in the last three
years the trading turnover has been less than 5%.

March 07, 2017

Arya: Regulation 35 (page 31)- What is the significance of lock-in? To make sure that
promoters have an interest in the business, and a minimum promoters contribution is
meaningless if it can be withdrawn at any stage later.

Regulation 36- date of commencement of commercial production means date of

commencement of manufacturing.

Shreya: Regulation 37 (Page 32), regulation 38- Green shoe option- an agreement
between company and underwriter where if there is an over-subscription, then the
underwriter can additionally up to the extent of 15% can allot shares. The additional 15%
will come from the promoters, who are lending the shares, so it will have to be returned

28
later. This is a price stabilization mechanism, by trying to match supply to demand. The
underwriters would buy back the shares from the market when they are sold by
shareholders at some point and return them to the promoters. This method was used by
a company called Green Shoe in some 1900, since then exercising this option has been
referred to as green shoe option.

Regulation 39, 40.

Kanchan: Regulation 41, 42 (page 34)- take slides form Kanchan

Megha: Regulation 42 continued (take slides)- sub-regulation 4(a) it is 5% not 29%,

there is a mistake. Spillover (to the extent of under-subscription) will be compensated
from the reserved category - if 80% has been subscribed, you need 10% more, it will be
compensated from the reserved category.

Regulation 43

March 08, 2017 (Happy Womens Day :))

Priyanka Goel: Regulation 43, Regulation 44- why should we have a safety net
arrangement?- we are talking about Retail Individual Investors, lets say they bought at
Rs.1000 and the current market value of the shares is Rs.900, you dont want to lose
money so you want someone to buy at the issue price of Rs.1000, but nobody will do it
so you will have a safety net arrangement. There is a cap of 1000 specified securities.

Regulation 45- Happy is explaining green shoe option even though it was explained
yesterday.

Kudrat: Regulation 45

Yashika: Regulation 46-51A (page 39)

Jesselina: Regulation 52 (page 41), Regulation 53- why do we need this kind of
restriction?- a holder of a compulsorily convertible debt instrument will not be eligible
for a rights issue until the conversion takes place, which is unfair to them if they dont
get rights issue, hence when a rights issue takes place for equity shareholders, a reserve
will have to be set aside for these CCDI holders for when their holding is converted to
equity.

29
March 09, 2017

Jesselina: Regulation 54, Malavika: 55-57, Aditi- 58, Itisha-58

Yash: Regulation 71- what is the relevance of relevant date? (missed answer, sorry)
Concept of frequently traded share is very important.

March 10, 2017

Regulation 73 (page 46)- (3) look at Companies Act for when share allotment for cash
and kind are allowed

Regulation 74, 75, 76

Somil: Regulation 76A (page 49)- frequently traded shares is defined on page 200,
traded turnover means, if calculated for 3 months, would be the total number of shares
traded for 3 months divided by the total number of shares outstanding in the market.

March 20, 2017

Indian Depositary Receipts (IDR)

Abhinav: regulation 96, 97,98

Where is the definition of IDR given? Companies Act- section 2(48)- they are negotiable
instruments that can be transferred

3 intermediaries- Overseas custodian bank, Indian depositary and merchant banker.

Standard Charter bank is the only institution that has issued Indian Depositary
Receipts.

Say a UK company wants to issue equity shares, and the public issue is multinational
(not limited to the UK public). It wants to issue shares to Indian public as well. It cannot
publish an advertisement, issue a prospectus and directly issue shares like Indian
company. It must go through a foreign custodian bank which becomes the custodian of
shares issued to the Indian public. This overseas bank will have an agreement with an
Indian depositary. And advertisement will be made and some Indians will subscribe

30
through the Indian depositary. The company through the overseas CB will tell the ID to
issue certain receipts of how many shares are being held by each allottee. It is not a
share certificate, it is just a receipt of how many underlying shares I am holding. These
IDR are transferable. The shares remain in the custody of the OCB. Similarly, you have
global depositary receipts (where there is issue not just in India), American Depositary
receipts etc.

Deepak: regulation 99, 100, 101, 105, 106.

Fungibility: Apply for conversion into underlying shares and the shares are converted I
become the holder of the shares and not the depositary receipts and have therefore
exited the IDR market. Alternatively, I could sell my shares, or third option is that I
convert a part of them and sell a part of them. Two way fungibility means you can
reconvert your shares back into IDR. What is the headroom available for conversion of
shares back into IDR (to what extent can you reconvert)? Headroom is 25%- which
means at one go you can apply for up to 25% of your shareholding to be converted into
IDR.

Conversion is also up to 25% and after holding the IDRs for at least one year. IDR
holders will have all the rights of a shareholder because they are the holders of
underlying shares. This is the same for demat shares, you are not the holder of shares in
the companys books, the demat depositary is the member, but in the depositarys books
you will be the member, so you will still get all the rights of the shareholder and not the
demat depositary.

March 21, 2017

What is the purpose of two way fungibility?- The securities market is not predictable, I
might think that I am going to make a profit by selling shares and so converted to
shares, but then the market may be volatile and I may not end up making a profit
anymore, so I may decide to reconvert to IDR and hold the IDR. (This seems like stupid
reasoning).

She is showing us an advertisement of career launcher for an IPO.

http://epaperbeta.timesofindia.com/Gallery.aspx?
id=20_03_2017_005_028&type=A&eid=31816

Nobody can predict the sentiments of the market.

March 27, 2017 (2 lectures)

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ICDR regulations are part of the mid sem syllabus. They will not be provided during the
mid sems, but will be provided in the end sems. The paper will not require you to refer t
the regulations- concept based, not technical.

Corporate Restructuring (sections 391-395 from the 1956 Act)

Compromise or arrangement will include any type of restructuring between company

and its creditors, or shareholders (or class of shareholders). Whether it is compromise
or arrangement it involves corporate restructuring, if it is arrived at after a dispute it will
be a compromise, if there was no dispute it is an arrangement. Reorganisation of capital
(consolidation or splitting of shares into smaller denominations) will also be an
arrangement.

After such a scheme is proposed it has to be sanctioned by the High Court. Any member
or shareholder can approach the court. If the company is being wound up then the
liquidator can apply for sanction. Court will look at whether there is a need for this
scheme, whether shareholders have approved it, whether the scheme is reasonable,
whether a person of ordinary business prudence would approve such a scheme. The
court will call a meeting of shareholders and creditors and if 3/4th majority agree then
the court will approve the scheme. Then the court can also supervise the restructuring.
If the scheme is between the creditors and company then 3/4th majority of creditors (or
class of creditors) will have to approve, and shareholders may be called for meeting if
necessary. If scheme is between shareholders and company then 3/4th majority of the
shareholders will have to approve, and creditors may be called for the meeting if
necessary.

Reconstruction includes situation where the an entity transforms itself into a new entity
(no merger or acquisition) with a new name. For example, if it wants to change its
objects, the alteration of objects is allowed to a limited extent. But if the company wants
to change the very nature of its business, it will have to reconstruct itself into another
business altogether. Example: L&T, Hero Honda. Kanchan: Hero Honda was a
demerger not really a reconstruction of the kind you were referring to. Happy: we wont
call that a demerger because it happened on such a large scale, demerger is used on a
small scale.

Amalgamation- A and B amalgamate to form company C. Merger- A is completely

merged into B and the only existing entity is B. Amalgamation is a more general term
that includes mergers also, but we should know the difference. In merger one entity
loses its identity. Demerger is when one of the undertakings is split up from the
company.

A reconstruction or amalgamation may take place (third point is missing in the text):
1. By sale of shares

32
 2. By sale of undertaking
3. By sale and dissolution
4. By a scheme of arrangement

Undertaking- group companies will have the same promoters, or the same people will
have control over the company, but they will all be separate entities. Say there are 10
such entities considered group companies, and one such group company may be merged
or amalgamated with another company. You will have to see whether the merger/
amalgamation includes the subsidiaries of that entity or not. So the undertaking will be
sold off (demerged) from the company and will be merged or amalgamated into another
company.
Abhinav: is a spin-off the same as a demerger?
Happy: Yes. That is a laymans term.

By sale and dissolution- there can be a sale of an undertaking without dissolution (as
seen above). When entity A is sold and merged with B such that only B eists, it involves
dissolution of A. Similarly, when A and B amalgamate to form C, there is dissolution of
A and B.

Sanction will have to be taken from the court and the court will ask for reports from the
Company Law Board, Registrar of Companies and the Central Government. Central
Government will raise technical considerations and not about the substance of the
scheme.

Minority shareholders can raise their dissent with the court. If the minority does not
raise any objection then the court will proceed and the burden lies on the dissenting
shareholder to prove that it is unfair to be able establish it.

Demerger is when the undertaking is divided into multiple undertakings that are
independent entities. The central government in the interest of the public or for national
importance can order the amalgamation of these separate entities. There is the backdoor
power of the government to acquire certain companies of national importance - by
amalgamating with government companies.

Section 391 of 1956 Act- 2013 equivalent is section 230.

http://ebook.mca.gov.in/default.aspx

Members voluntary winding up and companies winding up by 3/4th majority

resolution- company may take a decision through its board (for matters earmarked for
the board) or through shareholders passing a resolution by simple or special majaority.
So if 3/4th majority of shareholders pass a resolution to wind up, that is a companys
decision to wind up, it is not a members voluntary winding up. In 1956 Act there werr
two ways to wind up- one was through NCLT which was compulsory (registrar would

33
petition the NCLT, for example, because of some default or the company itself would
approach NCLT), and the other was called voluntary winding up initiated by either
creditors or members. The 2013 Act removes the members voluntary winding up. SO it
is either through NCLT or through creditors. But winding up through creditors has been
brought under the insolvency and bankruptcy code, so basically under the Companies
ACt 2013, we only have the NCLT winding up. Approval of winding up scheme, whether
by creditors under the bankruptcy code or through a resolution of the company, would
be done by NCLT only. Members voluntary winding up was only under the 1956 Act and
had some specification about the number of shareholders etc.

There is no change from the 1956 Act with respect to section 231.

MNCs acquiring Indian entities now prefer to go for asset purchases rather than share
purchases because the latter requires lots of compliances and procedures such as SAST
guidelines, takeover guidelines etc.

March 28, 2017 (only Aprajita)

Restructuring vs. reorganisation vs. reconstruction

A company is like a house. Houses need repairs, and if they are really old it may need to
be reconstructed because it is falling apart. During Diwali you may just whitewash the
house, minor changes and not go for a major restructuring. The call is taken by the
board of directors and then put it for vote before shareholders.

Restructuring- broad umbrella term for all kinds of internal or external changes
(organic or inorganic). It may be change in financial changes (changing capital structure
etc.), managerial changes (changing board, key personnel) etc. If it is eternal/ inorganic
and outsiders intervention is involved. Mergers and amalgamations are, therefore,
inorganic changes.

Reorganisations- changes in the share capital of the company. It includes compromise,

arrangements and rearrangements. Arrangements and rearrangements include mergers,
demergers, reverse mergers and amalgamations. Rearrangement happens when the
company is not happy with an arrangement and tries to make another change. Reverse
merger- A and B merge to form bigger entity either A or B (normal merger). In case of a
reverse merger, the bigger entity is absorbed into the smaller entity and the smaller
entity retains its identity. Usually happens when a private and public company merges,
and the private company is the one that retains its identity instead of being absorbed by
the public company and being converted into a public company in the process. The
public company will usually be a shell company, like a shell empty on the inside. You
cannot register a shell company in India, they may become a shell company in the long
run because they may have started off healthy and ended up making losses and has no
business/ manufacturing, is just a structure. For tax benefits, a healthier company can
be merged with the unhealthy company.
Saumya: what if it is not a shell company that is merging?

34
Aparajita: the term shell company is very extremist word. Shes saying some nonsense
about shell companies now. Reverse merger need not always involve a shell company.

Demerger- splitting its undertakings. Usually done to focus on its core competency.

Shes going over 230, 231 and 232 again.

The scheme has to be passed by shareholders holding 3/4th in value of the shares, it is
not 3/4th of the number of shareholders. So even if one shareholder holds 75% of the
shares and votes in favour of the scheme, while all remaining shareholders vote against
it, the scheme will be passed. Once the scheme is passed it is presented before the
tribunal.
It (section 230?) is a complete code in itself because it gives all the procedures for a
merger. When the two companies do not have it mentioned in their objects clause that
they can merge/ amalgamate, can any authority raise an objection that they have no
power under their object clause to amalgamate? The SC has said no, because they will
have the power under 230 to amend their objects clause to allow them to merge/
amalgamate. 230 is a complete code in itself.

Once a scheme has been approved under 230, the implementation becomes difficult to
work out procedures. The NCLT therefore, has the power to supervise and implement
the schemes u/s 231. It can modify the scheme u/s 231 or rework/ reevaluate if it feels
that some new light has been shed on the scheme, it can also reject the scheme at this
stage.

232- amalgamation is only mentioned in this section. All such schemes have to be
channeled through 230. 232 deals with reconstruction and amalgamation, 230 deals
with share capital reorganisation. So even amalgamation/ reconstruction schemes u/s
232 will have to follow procedure u/s 230. 232 however, includes not just reorganisation
of share capital but involves reconstruction. So all liabilities would also be transferred to
the transferee company.

March 29, 2017 (only Aprajita)

Why would companies merge/ amalgamate?

1. Reduce competition (Idea-Vodafone move towards monopolising the
sector)
2. Diversification and expansion (instead of starting from scratch in setting
up new offices, factories etc. a company can just merge with an existing company)
3. Synergy (the principle being 2+2=5 not 4, something extra is achieved for
the company through a merge)
4. Cost efficiency/ economic efficiency;
5. Many other reasons

If the merger takes the form of a combination then along with COmpanies Act, it will
also involve Competition Act. If there is inflow and outflow of funds from the country,

35
then FEMA will also be implicated. IT Act and stamp act are also relevant. If it is a
takeover then the SAST is also relevant.

Under section 230, only those shareholders can raise an objection to the scheme who
hold at least 10% of the shareholding, and a creditor who holds at least 5% of the
outstanding debt owed by the company. Once the scheme is approved it becomes
equally binding on all parties, even those who dissented.

Section 232- follow the procedure under section 230 and the tribunal will consider the
following (as under 230)- that all laws and legal procedure have been complied with,
that interests of minority shareholders and creditors have not been adversely affected
and (missed)
Why have a separate section 232 then?- the rights liabilities of shareholders will remain
the same, but it is transferred to another company (reconstruction) which is different
from 230. It may take place through sale of shares, sale of undertaking, by sale and
dissolution (the only section under the Companies Act where a company can be
dissolved without following winding up procedure because the purpose of dissolution is
not for being wound up but for merging so why unnecessarily go through winding up
processes) by scheme or arrangement.

Section 233- merger/amalgamation of certain company- small companies, holding and

subsidiary companies. There is a separate provision to encourage mergers among small
companies because merging is a daring act and usually small companies dont go for
mergers. The procedure- the proposal has to be put for vote before shareholders, once
the resolution is passed, the scheme has to be filed before the ROC and there will be a
chance for parties to raise objections, and approval from 90% of creditors will be
required. This is considered a short cut method because there is no need to go before the
NCLT and follow all of those procedures. Finally the central government will approve. If
the central government feels that sanction must be given by a tribunal it will forward the
scheme to the tribunal. All assets, liabilities etc. of one company gets transferred to
another.

Section 234- earlier only a foreign company could be merged into an Indian company
(Indian company could be the transferee company and not the transferred entity), but
235 allows for cross-border two way mergers. But the section has not been notified.

Section 235 and 236 difference- under 235 there is power to compulsorily acquire shares
where 90% of shares have been acquired, the remaining 10% shares can also
compulsorily be acquired. Section 235 does not use the word acquirer or persons acting
in concert. 235 applies to the transferee company and 236 to the acquirer and persons
acting in concert. The minority is given two options- to either join the majority or to be
given reasonable compensation and an exit (valuation will be done by an independent
valuer appointed usually by the court). 235 is analogous to 395 of the 1956 Act.

Section 237- if the central government feels that a merger is required in public interest,
then it may directly give permission and there would be no need to go to the tribunal.

36
The central government would notify the merger and from the date of notification the
merger would stand to be completed. Companies may raise objections. The scheme
would have to be approved by both houses of parliament. No tirbunal has any role.

Please look into the following cases:

Mihir H. Mafatlal case- the scheme must be just, fair reasonable, should not be against
minority interests etc.
Vodafone case- court said judges are not to look into the commercial merits of the
scheme

Acquisitions and Takeovers

What is the difference between the two?- acquisition there is no intent to control the
company or the management of the company, in case of a takeover, the acquisition is
done to gain control over the company, to gain control over the management of the
company. So takeovers are regulated by the SEBI SAST regulations. Every takeover is an
acquisition, but all acquisitions are not takeovers. There has to be substantial
acquisition for a takeover- which has been determined as 25%. So up to 24.99% it will be
just an acquisition. If it is a takeover there must be a public announcement.

March 30, 2017

Page 199- SAST Regulations

Whenever there is an acquisition or takeover by a listed company it will be regulated by

SEBI. If the acquisition/ takeover is more than 25% of the target company then there
has to be an open offer.

Going over definitions on page 199:

Acquirer; Acquisition- acquiring shares, voting rights of control; what is control-
page 199- right to appoint majority of directors or to control management or policy
decisions exercised by virtue of their shareholding, their management rights, voting
agreements, shareholders agreement or any other manner (very wide definition);
Frequently Traded Shares- traded turnover must be at least 10% of total number of
shares;
Identified Date;
Maximum permissible non-public shareholding= 75%;
Offer period;
Persons acting in concert- example, companies part of the same promoter groups,
sub clause 2 lists out several relationships covered under the definition;
Volume Weighted Average Market Price-
No. of equity shares traded on particular stock exchange in a day is 20,000 and the
price of each is Rs. 100
VWAMP=(20,000*100)/20,000

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(okay this has to be the stupidest example of a weighted average calculation)
VWAMP= (x1y1)+(X2y2)+(x3y3)/x1+x2+x3

Volume Weighted Average Price

Wilful Defaulter- example, Vijay Mallya by SBi as per guidelines of RBI.

Part 1:
If you already own 25% in the target company, you can acquire up to 5% each year
without making a public announcement. This is called creeping acquisition. If the
acquisition is more than 5% per annum then a public announcements will have to be
made.

Regulation 4- the trigger for public announcement in case of share acquisition is 25%, in
case of acquisition of control there is no trigger amount, you will always be required to
make a public announcement.

Regulation 5- deemed direct acquisitions (indirect ones deemed to be direct ones, due to
which they need to follow the procedure for direct acquisitions)
When there is an acquisition of subsidiary company by a holding company, there has to
be a public announcement. This is an indirect acquisition but a public announcement
has to be made because the threshold of 25% will be met.

March 31, 2017 (From Yash)

Substantial Acquisition of Shares
2 parts
1. Those who want to bring their shareholding in the target company to 25%

2. Those who already have 25% but want to bring it to 75% (maximum allowed). If a
person owning 25% buys more than 5% in the target company in a FY, they have to
make a public announcement.

Indirect Acquisition of shares:

To make sure that no one goes around the system. Eg. A acquires XYZ Pvt. Ltd. which
has 70% shareholding in the target company. A is therefore indirectly acquiring control
of the target company, and hence has to make a public announcement. Hence, if the
trigger for the public announcement would otherwise have been met, such an indirect
acquisition is deemed to be a direct one.

Further, if in case more than 80% of sales turnover, net assets or market capitalisation
of the company is acquired, an open offer would have to be made. E.g.- If a company
buys more than 80% of the assets of the target company (without actually buying shares
or voting rights), it would still have to make an open offer.

Voluntary offer:
1 st Requirement Must already hold at least 25% shareholder (Maximum is 75%)

38
2 nd Requirement Moratorium period: Acquirer should not have acquired shares in
the target company in the last 52 weeks through a voluntary offer.
3 rd Requirement Minimum offer size through voluntary offer is 10%. (In a mandatory
offer, the acquirer has to make a minimum offer of 26%)
4 th requirement 6 month restriction to make a similar voluntary offer
Under Reg. 6A, wilful defaulter cannot make an open offer.

Offer Size:
The minimum offer size is 26% (in case of mandatory open offer). Hence, the outcome
shareholding of the acquirer will be existing sharholding + 26% (or the extent of the
offer size).

39