Last verified: 18 June 2026
Picture a small shareholder in a listed company. She owns 400 shares she bought years ago, watches the stock occasionally, and otherwise leaves the company to its board. One morning she sees a notice in the newspaper: a new acquirer has signed a deal to buy a controlling stake from the promoters, and is now offering to buy her shares too, at a fixed price, if she wants out. She didn’t ask for this. So why is a stranger suddenly obliged to make her an offer?
That obligation is the open offer, and it sits at the centre of the SEBI Takeover Code. The logic is simple once you see it. When control of a listed company changes hands, the people selling control usually get a premium for it. Public shareholders, who had no seat at that negotiating table, get nothing unless the law steps in. The open offer is how the law steps in. It forces the incoming acquirer to extend a comparable exit to everyone else, on terms at least as good as the deal that triggered it.
Here’s the thing most people outside corporate practice never quite grasp. An open offer is not a takeover, and it is not a delisting. The company keeps trading. Shareholders who like the new owner can stay. The offer is just a guaranteed exit door, opened by regulation, priced by a formula, and run on a strict clock. Whether that door opens at all depends on three numbers and one concept: 25%, 5%, 26%, and control.
For a law student trying to make sense of the SAST Regulations, a company secretary running a transaction, a junior M&A associate drafting a public announcement, or an investor who just received one of these offers, the same questions come up. What triggers it? How is the price fixed? How long does the whole thing take? And what happens if an acquirer simply doesn’t make the offer it was supposed to? Let’s work through each one, with the regulation numbers that actually govern.
An open offer under the SEBI Takeover Code is a mandatory offer that an acquirer must make to a listed company’s public shareholders to buy at least 26% of its shares. It is triggered when the acquirer, with persons acting in concert, crosses 25% of voting rights, makes a creeping acquisition of more than 5% in a financial year, or acquires control of the company, under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
What follows is the full picture: what an open offer is and why it exists, the four triggers and how each works, how big the offer must be, how the price is calculated under Regulation 8, the step-by-step process from public announcement to payment, the exemptions, and the penalties for getting it wrong.
What is an open offer under the SEBI Takeover Code?
So what exactly is this thing the regulations keep forcing acquirers to do? An open offer is a public offer by an acquirer to buy shares from the existing public shareholders of a listed company, at a specified price, when the acquirer is taking a substantial stake in or control of that company. It is not optional for the acquirer who triggers it. It is a statutory consequence of crossing a line.
The line, and everything that follows once you cross it, lives in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Practitioners call them the SAST Regulations, or simply the Takeover Code. They are one of the central pillars of how India’s capital markets regulate ownership of listed companies. They were framed by the Securities and Exchange Board of India under the SEBI Act, 1992, and they replaced an older 1997 version. The shift from the 1997 Code mattered: the trigger for a mandatory offer used to be 15% of voting rights, and the 2011 Regulations raised it to 25% on the recommendation of the Achuthan Committee. That single change gave promoters and investors a lot more room to build a stake before the open offer machinery kicks in.
Why the law forces an open offer
Why should an acquirer be made to spend extra money buying out shareholders who never objected to the deal? Because control has value, and that value is usually captured entirely by whoever sells it. When a promoter sells a controlling block at a premium, the share price in the market doesn’t automatically rise to match. The public shareholder is left holding stock in a company with a new boss she didn’t choose, at a price that doesn’t reflect the control premium the promoter just pocketed.
The open offer corrects that asymmetry. It gives every public shareholder the right to exit on broadly the same financial terms as the seller of control. Think of it as a fairness mechanism wired directly into securities law. The acquirer gets the company; the public gets a fair, regulated chance to walk away at a fair price. That is the whole philosophy of the Takeover Code, and every detailed rule below is just an attempt to deliver on it.
Open offer versus a regular market purchase
There’s a common confusion worth clearing early. Buying shares of a listed company on the stock exchange is something anyone can do, any day, in any quantity the market will sell. That’s an ordinary market purchase, and most of the time it carries no open offer obligation at all. The Takeover Code only bites when your acquisition crosses one of its thresholds or hands you control.
So an investor can quietly accumulate up to just under 25% of a company without ever making an open offer (subject to disclosure rules along the way). Cross 25%, though, and the picture changes completely. The acquisition that takes you over the line drags the open offer obligation along with it. The difference between a routine purchase and a trigger event is not the act of buying. It’s the level you reach, and the control you gain.
When is an open offer triggered?
This is the question that decides everything else, so it pays to be precise. An open offer becomes mandatory in four situations under the SAST Regulations: crossing the 25% initial threshold, making a creeping acquisition above 5% in a financial year, acquiring control, or acquiring the target indirectly through an upstream entity. A fifth route, the voluntary open offer, is one an eligible acquirer chooses to make rather than is forced into. The table sets them out; the subsections explain the traps.
| Trigger | Regulation | Threshold | What it means |
|---|---|---|---|
| Initial threshold | Regulation 3(1) | 25% of voting rights | Crossing 25% (with PACs) forces an open offer |
| Creeping acquisition | Regulation 3(2) | More than 5% in a financial year | Applies to holders already at 25% up to the maximum non-public limit |
| Acquisition of control | Regulation 4 | No share threshold | Acquiring control triggers an offer regardless of shareholding |
| Indirect acquisition | Regulation 5 | Threshold met indirectly | Gaining the target’s shares or control via an upstream entity |
| Voluntary offer | Regulation 6 | Already holds 25% or more | An optional offer an eligible acquirer may choose to make |
The 25% initial threshold (Regulation 3(1))
Regulation 3(1) of the SAST Regulations is the headline trigger. It says that no acquirer, together with persons acting in concert (PACs), may acquire shares or voting rights that entitle them to exercise 25% or more of the voting rights in a target company unless the acquirer first makes a public announcement of an open offer. The key phrase is “taken together.” You don’t get to ignore the shares your associates hold. The regulation aggregates everyone acting in concert and tests the combined number against the 25% line.
That word, “concert,” does a lot of work here. Persons acting in concert are people or entities who cooperate, directly or indirectly, to acquire shares or control with a common objective. Promoters and their group companies are typically presumed to be acting in concert. So an acquirer who structures a deal across three friendly entities, each taking 9%, hasn’t outsmarted the Code. The 27% combined holding crosses the line, and the open offer obligation attaches just the same.
Creeping acquisition: more than 5% in a financial year (Regulation 3(2))
What about someone who is already a large shareholder and simply wants to buy a bit more? That’s where Regulation 3(2) comes in, and it’s the rule people most often miss. A person who already holds 25% or more, but less than the maximum permissible non-public shareholding, cannot acquire more than 5% of additional voting rights in any financial year without triggering an open offer. This is called creeping acquisition, because it lets existing large holders consolidate slowly, but only up to a capped annual pace.
Two details trip people up. First, the 5% ceiling is measured per financial year, not per transaction or per rolling twelve months, so the allowance resets every April. Second, the calculation looks at gross acquisitions during the year, computed on the basis of voting rights, and you cannot net off shares you sold to make room for fresh buying. We see this misread constantly: a promoter assumes that selling 3% and buying 6% nets to a safe 3%, when the 6% gross purchase has already blown through the limit. The honest reading is the strict one. Count what you bought.
Acquisition of control (Regulation 4)
Here’s where it gets interesting, because this trigger has nothing to do with how many shares you buy. Regulation 4 says that irrespective of the acquisition or holding of shares or voting rights, no acquirer may acquire direct or indirect control over a target company unless it makes an open offer. You could acquire control while holding a relatively small stake, through board rights or a shareholders’ agreement, and still owe an open offer to the entire public.
So what counts as “control”? Regulation 2(1)(e) defines it as the right to appoint a majority of the directors, or to control the management or policy decisions of the company, exercisable directly or indirectly, whether through shareholding, management rights, shareholders’ agreements, voting agreements, or in any other manner. That last phrase is deliberately open-ended. The classic dispute is whether protective rights, such as a veto over major decisions, amount to control. In Subhkam Ventures (I) Pvt. Ltd. v. SEBI (2010), the Securities Appellate Tribunal held that negative or protective rights, designed to protect an investor rather than to run the company, do not by themselves constitute control. On appeal the Supreme Court disposed of the matter without ruling on the merits and directed that the SAT order not be treated as a precedent, so the question is not fully settled, though the positive-control approach has since found broad support. The practical takeaway: the line between an investor’s protective veto and a controlling hand is thin, fact-specific, and litigated.
Indirect acquisition (Regulation 5)
Acquirers sometimes reach a listed Indian target by buying its parent abroad or up the chain, rather than the target’s own shares. Regulation 5 closes that gap. Where an acquirer acquires shares, voting rights or control over any company or entity that would, in turn, let it exercise the threshold percentage of voting rights in, or control over, a listed target, the Code treats it as an indirect acquisition of the target itself. The open offer obligation follows the control wherever it actually lands.
This is how a foreign-to-foreign deal can land an open offer obligation on an Indian listed subsidiary. The Daiichi Sankyo acquisition of Ranbaxy in 2008 is the textbook illustration: a change of control upstream triggered an open offer to Ranbaxy’s Indian public shareholders. Regulation 5 also sets a test for when an indirect acquisition is so significant that it is treated almost like a direct one, which in turn affects how the price is calculated. More on that when we reach pricing.
Voluntary open offer (Regulation 6)
Not every open offer is forced. Regulation 6 lets an acquirer who already holds 25% or more (but less than the maximum permissible non-public shareholding) voluntarily make an open offer to the public, even without crossing a new threshold. Why would anyone volunteer to spend money buying shares they’re not obliged to buy? Usually to increase their stake in one clean, transparent move, or to signal confidence and consolidate control ahead of a larger plan.
The voluntary route comes with guardrails. An acquirer isn’t eligible to make a voluntary offer if it has bought any shares of the target in the preceding 52 weeks without attracting an open offer obligation. And after completing a voluntary offer, the acquirer is locked out of further open-market acquisitions for six months, except through another voluntary offer. The design is meant to stop acquirers from gaming the market through a stop-start pattern of purchases and offers.
How big must the open offer be?
Once an offer is triggered, the next question is its size. How many shares must the acquirer offer to buy? Under Regulation 7(1) of the SAST Regulations, a mandatory open offer must be for at least 26% of the total shares of the target company. That 26% figure is not arbitrary. Combined with the 25%-plus stake that typically triggered the offer, it is calibrated so that public shareholders collectively retain a meaningful chunk of the company even in the worst case, and so that a controlling acquirer cannot mop up the entire float in a single forced sweep.
A voluntary open offer under Regulation 6 works on a different minimum. There, the offer must be for at least such number of shares as carries an additional 10% of total voting rights, subject to the acquirer not breaching the upper limit on non-public shareholding. The contrast is deliberate. A mandatory offer is large because it follows a change of control; a voluntary offer is a smaller, acquirer-initiated top-up.
The minimum public shareholding ceiling
There’s an outer wall the acquirer keeps running into: minimum public shareholding. Indian listed companies must, as a rule, keep at least 25% of their shares in public hands. So an open offer that succeeds spectacularly, drawing in far more acceptances than expected, can push the acquirer’s holding past the maximum permissible non-public shareholding and breach that 25% public floor.
The Code doesn’t let that breach stand. If acceptances would take the acquirer above the limit, it must bring its holding back into compliance within the time the regulations and listing rules allow, typically by selling down. The one situation where the acquirer is allowed to cross that line and stay there is when it intends to take the company private. Under Regulation 5A, an acquirer making an open offer may also seek to delist the company, provided it declares that intention upfront in the detailed public statement, and follows the SEBI delisting framework (now the SEBI (Delisting of Equity Shares) Regulations, 2021). Absent that declared delisting route, the public float has to be restored.
How is the open offer price calculated?
This is the part that decides whether the offer is worth anything to a shareholder, and it’s governed by Regulation 8. The governing principle is straightforward even if the arithmetic isn’t: public shareholders must be offered a price no lower than the best price the acquirer effectively paid for control, and no lower than what the market itself has recently reflected. The Code builds that principle into a “highest of” formula, and the formula depends on whether the shares are frequently traded.
Frequently traded shares: the “highest of” test (Regulation 8(2))
For frequently traded shares, Regulation 8(2) fixes the open offer price at the highest of four numbers. First, the highest negotiated price per share under the agreement that triggered the open offer. Second, the volume-weighted average price (VWAP) paid or payable by the acquirer or its PACs for any acquisition during the 52 weeks immediately preceding the public announcement. Third, the highest price paid or payable by the acquirer or PACs during the 26 weeks immediately preceding the public announcement. Fourth, the volume-weighted average market price of the shares over the 60 trading days immediately preceding the public announcement, on the stock exchange where the shares are most heavily traded.
The acquirer takes whichever of those four is highest, and that becomes the floor for the open offer. The point of stacking four reference prices is to stop an acquirer from cherry-picking a low number. Paid a fat premium to the promoter last week? That negotiated price sets the floor. Quietly bought shares in the market over the past few months at a higher price? The 26-week figure catches it. The shareholder gets the benefit of the most generous of the lot.
What makes shares “frequently traded” in the first place? Regulation 2(1)(j) defines it by reference to trading volume: shares are frequently traded if the traded turnover on a stock exchange during the 12 calendar months before the month of the public announcement is at least 10% of the total number of shares of that class. Fall below that 10% turnover line, and the shares are treated as infrequently traded, which changes the pricing method entirely.
Infrequently traded shares: valuation parameters
When a share barely trades, its market price is an unreliable guide, so the Code switches to valuation. For infrequently traded shares, the price is determined by the acquirer and the manager to the offer taking into account valuation parameters including the book value of the company, comparable trading multiples, and such other parameters as are customary for valuing shares of companies in that industry. In practice this means a proper valuation exercise, usually documented by an independent valuer or registered merchant banker, rather than a glance at a thin order book.
This matters more than it sounds. A large share of India’s listed universe consists of companies whose shares trade rarely. For those, the open offer price is a matter of valuation judgment, and that judgment is exactly the kind of work covered in a corporate-finance or M&A practice. If you’ve ever had to defend a valuation to a sceptical seller, you’ll recognise the territory; our guide on how to value a company in India walks through several of the same multiples and book-value methods that resurface here.
Indirect acquisitions and price adjustments (Regulation 8(3))
Indirect deals get their own pricing rule. Under Regulation 8(3), where the open offer follows an indirect acquisition that isn’t treated as a direct one, the reference periods for the price parameters are measured from the date on which the primary (upstream) acquisition is contracted or publicly announced, whichever is earlier, rather than from the eventual public announcement of the open offer. The Code also adds a per-share value of the target computed under the regulation, and a component reflecting interest for the time lag between the upstream trigger and the detailed public statement. The intent is to make sure the public shareholder isn’t short-changed by the gap between when control really changed and when the formal offer finally appeared.
A worked example
Numbers make this concrete. Suppose an acquirer signs a deal to buy a 30% promoter block in a frequently traded company at Rs. 500 per share. Over the past 26 weeks it also bought small lots in the market, the highest at Rs. 470. The 52-week VWAP of its own purchases works out to Rs. 455, and the 60-trading-day market VWAP is Rs. 480. The open offer price is the highest of Rs. 500, Rs. 470, Rs. 455 and Rs. 480, which is Rs. 500, the negotiated block price. Every public shareholder who tenders gets Rs. 500, the same headline number the promoter received for control.
Real offers show the same logic, often with an added twist. In the 2025 open offer for Heubach Colorants India Ltd (formerly Clariant), the acquirer’s offer price was built up from a base figure plus an interest enhancement for the period between the underlying trigger and the offer, landing at roughly Rs. 602 per share. The exact figure in any given offer is whatever the Regulation 8 formula produces on the facts, disclosed in the letter of offer for shareholders to check.
The open offer process, step by step
How does an open offer actually unfold, from the moment a deal is signed to the day shareholders get paid? The process runs on a sequence of regulated steps with hard deadlines, mostly counted in “working days.” Miss a step and the whole offer can be derailed, so transactions are run to a tight calendar managed by a merchant banker. Here is the sequence, with the regulation and deadline for each.
| Step | Regulation | Timing |
|---|---|---|
| Appoint manager to the offer | Regulation 12 | Before the public announcement |
| Public announcement (PA) | Regulation 13 | On the date of the triggering agreement or event |
| Create escrow account | Regulation 17 | At least 2 working days before the DPS |
| Detailed public statement (DPS) | Regulation 13(4) / 14 | Within 5 working days of the PA |
| File draft letter of offer with SEBI | Regulation 16 | Within 5 working days of the DPS |
| SEBI comments on the draft | Regulation 16(4) | Within 15 working days of filing |
| Tendering period opens | Regulation 18 | Within 12 working days of SEBI’s comments |
| Tendering period stays open | Regulation 18 | 10 working days |
| Payment to shareholders | Regulation 21 | Within 10 working days of close of tendering |
Appoint the manager and make the public announcement (Regulations 12 and 13)
Before anything is announced, Regulation 12 requires the acquirer to appoint a SEBI-registered merchant banker, who is not an associate of the acquirer, as the manager to the open offer. The manager runs the process: drafting, filing, certifying, and acting as the channel to SEBI. Nothing public happens without the manager.
The first public step is the public announcement, or PA. Regulation 13 requires it to be made on the date the acquirer agrees to acquire the shares, voting rights or control that triggers the offer (for a market purchase, before the order is placed). The PA is a short notice sent to the stock exchanges and the target, alerting the market that an open offer is coming. It’s the starting gun. The moment it goes out, the clock on every later deadline begins to run.
Detailed public statement and escrow (Regulations 14 and 17)
The PA is brief; the detail comes next. Within 5 working days of the PA, Regulation 13(4) requires the acquirer, through the manager, to publish a detailed public statement (DPS) in the newspapers, in line with Regulation 14. The DPS is published in an English national daily, a Hindi national daily, and a regional daily where the target’s registered office is located, and copies go to SEBI, the exchanges and the target. This is where shareholders first see the real terms: the offer price, the offer size, the identity of the acquirer, the rationale, and the indicative timetable.
But the acquirer has to put money where its mouth is first. Regulation 17 requires an escrow account to be created not later than 2 working days before the DPS. The amount follows a slab: 25% of the total consideration on the first Rs. 500 crore of the offer, plus 10% of the consideration beyond Rs. 500 crore. Where the offer is conditional on a minimum acceptance level, the acquirer must deposit in cash either 100% of the consideration payable for that minimum level, or 50% of the total offer consideration, whichever is higher. The escrow is security for the shareholders: if the acquirer defaults, SEBI can realise the escrow to fund the offer. It can be held as cash, a bank guarantee, or eligible securities.
Draft letter of offer and SEBI review (Regulation 16)
The letter of offer is the formal document each shareholder receives, with the tender form. Before it goes out, it goes to the regulator. Within 5 working days of the DPS, Regulation 16 requires the acquirer, through the manager, to file a draft letter of offer with SEBI, along with the prescribed fee. SEBI reviews it and, under Regulation 16(4), gives its comments as expeditiously as possible but not later than 15 working days of receiving the draft. If SEBI says nothing within that window, it is deemed to have no comments, and the offer proceeds. The acquirer incorporates SEBI’s comments into the final letter of offer before dispatching it to shareholders.
Tendering period and payment (Regulations 18 and 21)
Now the offer reaches the people it’s actually for. After SEBI’s comments, the acquirer dispatches the letter of offer to all shareholders as of the identified date, and publishes a pre-offer advertisement one working day before tendering opens. Under Regulation 18, the tendering period must start not later than 12 working days from receipt of SEBI’s comments, and it stays open for 10 working days. During that window, shareholders who want to exit tender their shares; once tendered, they can’t withdraw during the tendering period.
When tendering closes, the acquirer settles up. Under Regulation 21, the acquirer must complete payment of the consideration to all shareholders who validly tendered, within 10 working days of the close of the tendering period. Shares are accepted, money is paid, and the offer is complete. From the public announcement to the cheque, a clean open offer typically runs a few months, most of it spent waiting on the regulated intervals rather than on the acquirer.
Exemptions from the open offer obligation
Does crossing a threshold always mean an open offer? Not quite. The Code carves out a list of situations where the obligation simply doesn’t apply, or where SEBI can waive it. The exemptions recognise that some increases in shareholding don’t really involve a change of control or a fresh acquisition from the public, and forcing an offer in those cases would be pointless cost.
Automatic exemptions (Regulation 10)
Regulation 10 lists acquisitions that are exempt from the open offer obligation under Regulations 3 and 4, provided the stated conditions and disclosures are met. The catalogue is long, but the recurring themes are easy to see. Inter-se transfers among a defined set of qualifying persons are exempt: among immediate relatives, among persons named as promoters for at least three years, and among certain group companies meeting common-control and shareholding tests. So a promoter family reshuffling shares among itself usually doesn’t owe the public an offer.
Several other categories sit alongside it. Acquisitions in the ordinary course of business, by registered market intermediaries such as underwriters, stockbrokers exercising a lien, or merchant bankers acting as market makers, are exempt. So are acquisitions pursuant to a scheme of arrangement, including a court or NCLT-sanctioned scheme of merger or demerger, and certain acquisitions through rights issues and buy-backs, each on its own conditions. The common thread is that these aren’t the kind of stealth control changes the open offer was designed to police. (Schemes of arrangement carry their own approval track, which we cover in the guide on mergers and acquisitions in India.)
Case-by-case exemptions by SEBI (Regulation 11)
Beyond the automatic list, Regulation 11 gives SEBI a discretionary power. The Board may, for reasons recorded in writing, grant an exemption from the open offer obligation, subject to conditions it considers appropriate in the interests of investors in securities and the securities market. It can also relax strict compliance with the procedural requirements of the offer in deserving cases. This is the safety valve for genuine situations the automatic exemptions don’t anticipate, for example certain government-driven restructurings or distress cases. The acquirer applies, SEBI examines, and the exemption, if granted, comes with its own conditions.
Conditional offers, competing offers and withdrawal
Open offers don’t always run as a single, unconditional, uncontested process. The Code anticipates three complications: an acquirer who only wants the deal if enough shares come in, a rival who wants the same target, and an acquirer who wants out. Each is tightly regulated, because each can be used to manipulate shareholders if left unchecked.
Conditional and competing offers
Regulation 19 allows an open offer to be made conditional on a minimum level of acceptance. The acquirer says, in effect, “I’ll go through with this only if shareholders tender at least X%.” Where the offer is made under an agreement, that agreement must provide that if the minimum acceptance isn’t reached, the acquirer acquires no shares at all and the agreement is rescinded. It’s a way to avoid being left with a half-built, unworkable stake.
Then there are competing offers. Once an acquirer has announced an open offer, a rival may want the same company. Regulation 20 lets any other person make a competing offer, but only within 15 working days of the date of the detailed public statement of the first offer. A competing offer puts the target genuinely in play, and triggers a synchronised timetable so that both offers run and close together, giving shareholders a real choice between bidders rather than a rushed decision on the first one. This is the closest the Indian market comes to an open bidding contest for a listed company.
When an open offer can (and cannot) be withdrawn
Can an acquirer simply call the whole thing off if the deal sours? Almost never. Regulation 23 says an open offer, once made, cannot be withdrawn except in a short list of situations: where a statutory approval necessary for the acquisition is finally refused (and that requirement was disclosed), for instance where the Competition Commission of India declines to clear the combination; where the sole acquirer, being a natural person, has died; where a condition in the underlying agreement, outside the acquirer’s reasonable control, is not met and the agreement is rescinded (again, if disclosed); or in such other circumstances as SEBI, in the interests of investors, permits.
Notice what’s missing from that list: “the deal stopped looking like a good idea.” The Supreme Court drove this home in SEBI v. Akshya Infrastructure Pvt. Ltd. (2014), holding that a voluntary open offer, once made, cannot be withdrawn merely because it has become economically unattractive to the acquirer. The sanctity of the open offer is the point. Shareholders rearrange their affairs in reliance on it, and letting acquirers retreat at will would gut the protection the Code is built to provide. Fair warning to anyone advising on a transaction: treat the public announcement as a near-irreversible commitment.
Obligations of the acquirer and the target’s board
The Code doesn’t only regulate the acquirer; it also tells the target’s board how to behave while an offer is live. Regulations 24 to 26 set out conduct obligations designed to keep the playing field level during the offer period. Once an offer is underway, the target’s board can’t, for instance, alienate material assets or enter unusual transactions outside the ordinary course without shareholder approval, because doing so could sabotage the offer or strip the company of value the acquirer was paying for.
The most shareholder-facing obligation is the independent directors’ recommendation. Under Regulation 26(6) and 26(7), once the detailed public statement is out, the target’s board must constitute a committee of its independent directors to provide reasoned recommendations on the open offer, and the company must publish those recommendations. They have to be published at least two working days before the tendering period opens, in the same newspapers where the public announcement appeared, with copies to SEBI, the exchanges and the manager.
Why does this matter to an ordinary shareholder? Because it gives her something independent to weigh before deciding whether to tender. The committee, drawn from directors with no stake in pleasing the acquirer, tells shareholders whether, in its view, the offer price is fair and the offer is in their interest. It’s not binding, and it’s not a guarantee, but it’s a structured, accountable opinion from people who owe a duty to the company. The quality of that independent assessment is exactly why board independence carries so much weight under the listing framework, a theme explored in our overview of the listing obligations and disclosure requirements (LODR).
Penalties for failing to make an open offer
What happens to an acquirer who crosses a threshold and just doesn’t make the offer? The consequences are serious, and they operate on two levels. First, SEBI can direct the defaulting acquirer to actually make the open offer, belatedly, along with interest to compensate shareholders for the delay, and can bar the acquirer from the securities market until it complies. The obligation doesn’t evaporate just because it was ignored; it gets enforced, often more expensively.
Second, there’s a monetary penalty. Under Section 15H of the SEBI Act, 1992, failure to make a public announcement or open offer as required attracts a penalty of not less than Rs. 10 lakh, which may extend to Rs. 25 crore or three times the amount of profits made out of the failure, whichever is higher. That “three times the profit” measure is what gives the provision teeth in a large transaction; on a big control deal, three times the gain can dwarf the flat ceiling. SEBI has used these powers repeatedly against acquirers who crept past 5% in a financial year, or who acquired control through agreements they assumed would fly under the radar. The lesson practitioners draw is blunt: when in doubt about whether a transaction triggers the Code, assume it does and structure accordingly, because the cost of a wrong call is measured in crores, not lakhs.
Common mistakes and misconceptions
After all that detail, it helps to name the errors that recur, because they’re remarkably consistent across both first-time investors and seasoned dealmakers. Most of them come from reasoning by intuition instead of reading the regulation.
The biggest misconception among retail shareholders is that an open offer means the company is being delisted or that they’re obliged to sell. Neither is true. Tendering is entirely optional, and the company keeps trading unless a separate delisting is declared and carried through under Regulation 5A. A shareholder who likes the new owner can hold on and do nothing at all.
On the acquirer’s side, the mistakes are more expensive. Some assume the 5% creeping limit is a net figure and quietly buy and sell their way past it, when the calculation counts gross purchases of voting rights in the financial year. Others forget that persons acting in concert are aggregated, and structure an acquisition across friendly entities, only to find their combined holding tripped the 25% line anyway. And many underestimate the control trigger: they fixate on the share count and overlook that board-appointment rights or a tight shareholders’ agreement can amount to control under Regulation 4 even at a modest stake. Each of these is a known way to walk into a Section 15H penalty. The fix is the same in every case: count carefully, aggregate honestly, and treat control as a question of substance, not just shareholding.
Frequently asked questions
What is an open offer under the SEBI Takeover Code?
It is a mandatory offer an acquirer must make to a listed company’s public shareholders to buy at least 26% of its shares, when the acquirer crosses 25% of voting rights, makes a creeping acquisition of more than 5% in a financial year, or acquires control. It is governed by the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
At what percentage is an open offer triggered in India?
The initial trigger is 25% of voting rights under Regulation 3(1). Separately, an existing holder of 25% or more who acquires more than 5% additional voting rights in a financial year triggers an offer under Regulation 3(2), and acquiring control triggers one under Regulation 4 regardless of the shareholding.
What is the minimum size of an open offer?
A mandatory open offer must be for at least 26% of the total shares of the target company under Regulation 7(1). A voluntary open offer under Regulation 6 must be for shares carrying at least an additional 10% of voting rights.
How is the open offer price decided?
For frequently traded shares, Regulation 8(2) sets the price as the highest of: the negotiated price under the triggering agreement, the 52-week volume-weighted average price paid by the acquirer, the highest price paid in the preceding 26 weeks, and the 60-trading-day market VWAP. For infrequently traded shares, the price is fixed by valuation parameters such as book value and comparable multiples.
Is it mandatory for shareholders to tender shares in an open offer?
No. Tendering is entirely voluntary. A shareholder can choose to sell some, all, or none of her shares into the open offer, and the company continues to trade on the exchange afterwards unless a separate delisting is undertaken.
What is creeping acquisition under the Takeover Code?
Creeping acquisition is the limited room the Code gives an existing large shareholder to buy more without an open offer. A holder of 25% or more, but below the maximum non-public limit, may acquire up to 5% of additional voting rights in a financial year. Cross 5% and an open offer is triggered under Regulation 3(2).
What is the difference between a mandatory and a voluntary open offer?
A mandatory open offer is forced on an acquirer who crosses a threshold or acquires control, and must be for at least 26% of shares. A voluntary open offer is one an eligible acquirer who already holds 25% or more chooses to make, for at least 10% of shares, subject to lock-in and eligibility conditions under Regulation 6.
How long does an open offer take?
From the public announcement to payment, an open offer typically runs a few months. The key intervals are: detailed public statement within 5 working days of the announcement, draft letter of offer to SEBI within 5 working days of that, SEBI comments within 15 working days, tendering open for 10 working days, and payment within 10 working days of close.
What is the role of the manager to the open offer?
The manager is a SEBI-registered merchant banker, not an associate of the acquirer, appointed under Regulation 12. The manager runs the offer: it drafts and files the public announcement, detailed public statement and letter of offer, interfaces with SEBI, and ensures the offer complies with the Code throughout.
Can an open offer be withdrawn once announced?
Only in narrow circumstances under Regulation 23: a required statutory approval is finally refused, the sole natural-person acquirer dies, a disclosed condition outside the acquirer’s control fails, or SEBI permits withdrawal in investors’ interest. An offer cannot be withdrawn merely because it has become commercially unattractive, as the Supreme Court confirmed in the Akshya Infrastructure case.
What is a competing offer?
A competing offer is a rival open offer for the same target, which any other person may make within 15 working days of the detailed public statement of the first offer, under Regulation 20. Competing offers run on a synchronised timetable so shareholders can choose between bidders.
What happens if an acquirer does not make a required open offer?
SEBI can direct the acquirer to make the offer belatedly with interest, and can bar it from the market until it complies. A monetary penalty also applies under Section 15H of the SEBI Act, 1992: not less than Rs. 10 lakh, up to Rs. 25 crore or three times the profit made, whichever is higher.
Does an open offer mean the company is being delisted?
No. An open offer and a delisting are different things. A company is delisted only if the acquirer declares that intention upfront in the detailed public statement and completes the process under Regulation 5A and the delisting regulations. Most open offers leave the company listed and trading.
What are persons acting in concert (PACs)?
PACs are persons or entities who cooperate, directly or indirectly, to acquire shares, voting rights or control of a target with a common objective. Their holdings are aggregated when testing the 25% and 5% thresholds, so an acquisition cannot escape the Code by being split across associates.
What is an indirect acquisition?
An indirect acquisition, under Regulation 5, is gaining the target’s shares or control by acquiring an upstream company or entity rather than the target’s own shares. If that upstream acquisition lets the acquirer exercise the threshold voting rights in, or control over, the listed target, an open offer is still owed to the target’s public shareholders.
References
Case law
- SEBI v. Akshya Infrastructure Pvt. Ltd., (2014) 11 SCC 112. A voluntary open offer, once made, cannot be withdrawn merely because it has become economically unattractive.
- Subhkam Ventures (I) Pvt. Ltd. v. SEBI, SAT Appeal No. 8 of 2009 (decided 15 January 2010). Protective or negative rights do not, by themselves, amount to “control”; on appeal the Supreme Court left the question open and directed that the SAT order not be treated as precedent.
- ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1. Supreme Court discussion endorsing a substance-based, positive approach to the meaning of “control.”
Statutes and regulations
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Regulations cited: 2(1)(e), 2(1)(j), 3(1), 3(2), 4, 5, 5A, 6, 7, 8, 10, 11, 12, 13, 14, 16, 17, 18, 19, 20, 21, 23, 24 to 26.
- Securities and Exchange Board of India Act, 1992. Section cited: 15H.
- SEBI (Delisting of Equity Shares) Regulations, 2021. Referenced for delisting via open offer under Regulation 5A.
Disclaimer: This article is for informational and educational purposes only and does not constitute legal advice. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 are amended from time to time, and their application turns on the specific facts of each transaction. Readers should verify the current text of the regulations and consult a qualified securities lawyer or SEBI-registered merchant banker before acting on any matter discussed here.
