In an informal guidance issued to a Promoter of Lactose (India) Limited (Company), SEBI has clarified that transactions involving inter se transfer of equity shares among immediate relatives would be exempt from the obligation to make an open offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (Takeover Regulations).
The Promoter holds 0.52% of the equity share capital of the Company. The Promoter wants to acquire additional shares of 7.76% in the following manner – a) Promoter’s sister’s daughter, not being part of the promoter group of the Company, will gift her 7.76% shareholding to her mother, i.e. Promoter’s sister; b) Then, Promoter’s sister will gift that 7.76% shareholding to the Promoter. By way of these transactions, Promoter’s shareholding will increase to 8.28%, and the total promoter group holding will increase from 34.28% to 42.04%.
The Promoter sought clarification from SEBI as to whether the aforesaid transactions would trigger the open offer requirements under the Takeover Regulations. An open offer is an offer made by the acquirer of shares of a company to the shareholders of that company, inviting them to tender their shares at a particular price. The primary purpose of an open offer is to provide an exit option to the shareholders.
Regulation 10(1)(a)(i) of the Takeover Regulations provides an exemption from open offer obligations in cases involving inter se transfer of shares among immediate relatives. Immediate relative has been defined under Regulation 2(1)(l) of the Takeover Regulations as ‘any spouse of a person, and includes parent, brother, sister or child of such person or of the spouse’. Therefore, SEBI was of the view that even though both the transactions individually would trigger open offer obligations, the above-mentioned transactions are between immediate relatives and the exemption provided under Regulation 10(1)(a)(i) would be available.
In this matter, the ultimate transfer of shares between two non-immediate relatives, i.e. Promoter’s sister’s daughter and the Promoter, is broken down into two transactions and structured in a way to avail the exemption provided under Regulation 10(1)(a)(i) for immediate relatives. SEBI has rightly accepted this structuring and considered the two transactions to be independent of each other and eligible for exemption under the Takeover Regulations.
