Introduction and Evolution from 1997 Regulations

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 — universally called the Takeover Code or SAST — did not appear out of nothing. They are the third generation of a regulatory experiment that began in the early 1990s, when India dismantled the Controller of Capital Issues regime and let market forces decide who would control its listed companies. Understanding the 2011 Code without its lineage is like reading a judgment without the facts: the thresholds, the open-offer architecture and the very definition of control only make sense against the 1994 and 1997 Regulations they replaced, and against the body of case law decided under the old Code that the Achuthan Committee was trying to absorb. This chapter traces that evolution — committee by committee, threshold by threshold, case by case.

Why regulate takeovers at all?

A takeover is, in commercial terms, simply the acquisition of enough shares or voting rights to control a company. Left entirely to private bargaining, control of a listed company would change hands between the acquirer and the existing promoters in a negotiated deal that ignored the thousands of public shareholders who also own the company. The regulatory premise of every takeover code in the world — and of the SAST Regulations in particular — is that control is a corporate asset that belongs to all shareholders, not just the controlling block. When control is sold, the law insists that the price and the exit opportunity be shared with the minority.

Two interlocking objectives flow from this premise. The first is the equal opportunity principle: if an acquirer pays a control premium to the outgoing promoter, the public shareholders must be offered a comparable exit at a comparable price through a mandatory open offer. The second is transparency: substantial acquisitions and changes in control must be disclosed so the market can price the security correctly and so existing shareholders can make an informed choice. These twin goals — exit and disclosure — are the constitutional DNA of the Code, and they explain why the same architecture survives from 1994 to 2011 even as the numbers change. The mechanics that deliver them are explored in the chapter on triggers for an open offer.

The pre-1994 vacuum

Before the Securities and Exchange Board of India Act, 1992, there was no dedicated takeover law in India. The only restraint on acquisitions was Clause 40 of the Listing Agreement, introduced in 1990, which required an acquirer crossing a defined shareholding to make a public offer for a further slice of shares. Clause 40 was a contractual obligation enforced by stock exchanges, not a statutory regime, and it was widely regarded as toothless: it lacked machinery for pricing, for verifying disclosures, for policing persons acting in concert, and for sanctioning defaulters. As Indian capital markets liberalised after 1991 and hostile and negotiated acquisitions multiplied, the inadequacy of a listing-agreement clause to govern contests for corporate control became obvious. SEBI, armed with statutory rule-making power under Section 30 of the SEBI Act, 1992, set out to build a proper code.

The first attempt: the 1994 Regulations

SEBI's first statutory takeover code was the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994. It marked a genuine advance over Clause 40 — it created a statutory open-offer obligation, a disclosure regime and SEBI oversight — but it was drafted hastily and proved unworkable in several respects. The 1994 Regulations fixed the trigger for a mandatory public offer at the acquisition of 10% of the voting capital, and the offer was for a relatively small slice of further shares, which meant a successful offer rarely gave the public a meaningful exit. The regime said little about indirect acquisitions, was vague on the concept of control, and gave acquirers room to consolidate control through structures the drafters had not anticipated.

A further structural weakness was the treatment of persons acting in concert: acquirers could spread a stake across friends, relatives and front entities, each staying below the trigger, and so capture control without ever making an offer. The 1994 Regulations gestured at the concept but lacked the definitional precision and evidentiary approach later supplied by the courts. The combined effect was that the equal-opportunity principle — the whole point of a takeover code — could be defeated by clever structuring.

Within two years it was clear that the 1994 Regulations needed wholesale revision rather than patchwork. SEBI accordingly constituted a high-powered committee to re-examine the entire framework — the body that would give India its long-lived second-generation Code.

The Bhagwati Committee and the 1997 Regulations

In November 1995 SEBI appointed a committee under the chairmanship of Justice P. N. Bhagwati, the former Chief Justice of India, to review the 1994 Regulations and recommend a comprehensive replacement. The Bhagwati Committee's report became the foundation of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, notified on 20 February 1997. The Committee re-convened in 2002 to revisit specific issues, and its supplementary recommendations fed a series of amendments to the 1997 Code over the following decade.

The 1997 Regulations were a substantial improvement and governed Indian takeovers for almost fifteen years. Their key features set the template that survives today: a mandatory public offer triggered by crossing a quantitative shareholding threshold; a separate trigger for acquisition of control regardless of shareholding; a regime for persons acting in concert; a creeping-acquisition allowance permitting incremental purchases within limits; and detailed machinery for pricing, escrow, timelines and exemptions. The Committee deliberately fixed the initial trigger at a relatively low 15% — later, after amendment, the picture became more layered — reflecting the reality that in the corporate India of the 1990s, where promoter holdings were modest and public floats large, a 15% block could confer effective control of a listed company.

The architecture of the 1997 Code

It is worth understanding the 1997 numbers precisely, because the 2011 Code is best read as a deliberate revision of each of them. Under the 1997 Regulations as they finally stood, an acquirer crossing 15% of the voting rights of a target had to make a public offer. A holder already between 15% and 55% could acquire up to 5% in any financial year without triggering an offer — the famous creeping acquisition window. A holder between 55% and 75% could consolidate only within tightly confined limits. Crucially, the 1997 Code also contained a standalone trigger: any acquisition of control over a target, irrespective of the number of shares involved, obliged the acquirer to make a public offer. The minimum size of the public offer under the 1997 Code was 20% of the voting capital — a figure that, combined with a 15% trigger, often left much of the public float stranded with no exit even after a change of control. The 1997 Code also permitted the acquirer to pay the outgoing promoter a separate non-compete fee of up to 25% of the offer price, a sum that never reached the public shareholders and drove a wedge between the price for control and the price for the minority. These two features — the modest offer size and the non-compete fee — were precisely the targets the Achuthan Committee would later take aim at.

This four-part structure — a percentage trigger, a creeping window, a control trigger, and a fixed minimum offer size — is exactly the structure the 2011 Code retains, with every figure recalibrated. Readers should hold these 1997 numbers (15%, 5%, control, 20%) in mind; the contrast with the 2011 figures (25%, 5%, control, 26%) is the single most examined point on this topic, and is unpacked in the chapter on the 25% threshold and the chapter on creeping acquisition.

Case law that shaped the 1997 Code

The 1997 Regulations generated a rich jurisprudence, much of which the 2011 drafters were responding to. Three Supreme Court and Tribunal decisions are foundational.

On persons acting in concert, the leading authority is Technip SA v. SMS Holding (Pvt.) Ltd., (2005) 5 SCC 465. The Supreme Court held that to treat parties as acting in concert there must be a shared common objective of substantial acquisition of shares or control, pursued under an agreement or understanding — formal or informal. The standard of proof, the Court said, is one of probability: actual concerted action is hard to prove directly and may be inferred from the parties' relationship, conduct and common interest. Technip remains the touchstone for the concept now defined in the 2011 Code, examined further in the definitions chapter.

On indirect acquisitions and the timing of concert, the Supreme Court in Daiichi Sankyo Co. Ltd. v. Jayaram Chigurupati, (2010) 7 SCC 449, clarified that the relationship of persons acting in concert must exist at the time of the acquisition that triggers the offer, not be conjured up afterwards from a later holding-subsidiary relationship. When Daiichi acquired Ranbaxy — which in turn held shares in Zenotech — the Court held that Daiichi and Ranbaxy were not acting in concert at the time Ranbaxy had earlier acquired the Zenotech shares, because the holding-subsidiary position arose only later and could not retrospectively make them concert parties. The decision is a leading authority on indirect acquisitions, discussed in the chapter on indirect acquisition.

On the irrevocability of a public offer, the Supreme Court in Nirma Industries Ltd. v. SEBI, (2013) 8 SCC 20, upheld SEBI and the SAT in refusing Nirma permission to withdraw a public offer for Shree Rama Multi-Tech after the deal soured. The Court read the withdrawal grounds narrowly: an acquirer cannot escape a triggered public offer merely because the bargain has turned uneconomic. The case entrenched the principle that once an open offer is triggered, the acquirer is largely locked in — a principle carried forward into the 2011 Code's restrictive withdrawal regime.

The control debate: Subhkam Ventures

No single dispute did more to expose the soft underbelly of the 1997 Code than the fight over the meaning of control. In Subhkam Ventures (P) Ltd. v. SEBI, decided by the Securities Appellate Tribunal on 15 January 2010, the question was whether a private-equity investor's affirmative or veto rights in a shareholders' agreement — rights to block major decisions of MSK Projects (India) Ltd. — amounted to acquiring control and thus triggered an open offer. The SAT drew a now-famous distinction: positive (proactive) control means the power to direct the company to do what one wants; negative (reactive) control means only the power to block the company from doing something. Protective veto rights, the Tribunal held, are merely shields for an investor's capital and do not constitute control under the takeover regime.

SEBI appealed to the Supreme Court. While the appeal was pending the parties' circumstances changed — Subhkam had exited its investment — and the Court disposed of the matter without deciding the legal question, expressly directing that the SAT order should not be treated as a precedent. The result was acute uncertainty: the most cited proposition on control had been formally stripped of precedential value, leaving acquirers and private-equity investors guessing whether negative covenants triggered offers. This unresolved Subhkam question was one of the principal problems handed to the committee that would draft the 2011 Code.

The Achuthan Committee (TRAC)

By the late 2000s the 1997 Code was creaking. It had been amended more than two dozen times, the 15% trigger sat awkwardly with the higher promoter holdings now common in Indian companies, the control concept was unsettled after Subhkam, and the regime had drifted out of step with international practice. In September 2009 SEBI constituted the Takeover Regulations Advisory Committee (TRAC) under the chairmanship of C. Achuthan, a former Presiding Officer of the SAT, to undertake a clean-sheet review.

The Achuthan Committee submitted its report in July 2010. It recommended a comprehensive rewrite rather than further amendment, and several of its proposals were bold: raising the initial trigger sharply, enlarging the mandatory offer so the public exit was meaningful, abolishing the controversial non-compete fee that had let acquirers pay promoters a premium denied to the public, and introducing a separate voluntary-offer route. SEBI did not adopt the report wholesale — most notably it declined the Committee's recommendation to raise the open-offer size to 100% — but the 2011 Regulations are, in their bones, the Achuthan blueprint. The Committee's report and the public consultation that followed it are the immediate intellectual source of the modern Code.

The animating philosophy of the Achuthan report deserves emphasis for examination purposes. The Committee proceeded from the premise that the takeover regime existed to protect the interests of public shareholders, not to obstruct legitimate changes of control; its reforms were designed to make exits more meaningful and pricing more honest while removing frictions that deterred genuine investment. That is why it simultaneously raised the trigger (giving investors more room below the line), enlarged the offer (giving the public a better exit above it), and abolished the non-compete fee (ending the price discrimination between promoter and public). The 2011 Code should be read as the institutional expression of that shareholder-protection-plus-efficiency philosophy.

The 2011 Regulations: notification and commencement

Acting on the Achuthan report and the feedback to it, SEBI notified the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 on 23 September 2011, in exercise of its powers under Section 30 of the SEBI Act, 1992. The 2011 Regulations repealed and replaced the 1997 Code and came into force in October 2011 (on the expiry of thirty days from notification). The new Code applies to acquisitions made on or after that date; transactions before it remained governed by the 1997 Regulations, a transitional point that still surfaces in litigation about historical acquisitions. This is why decisions such as Daiichi Sankyo and Nirma, though delivered under the 1997 Code, remain doctrinally relevant: they interpret concepts — concert, indirect acquisition, the irrevocability of an offer — that the 2011 Code carried forward in substance, so the reasoning survives even where the regulation numbers have moved.

The full 2011 hub and its companion chapters can be reached from the SEBI Takeover Code notes hub. The remainder of this chapter sets out exactly what changed.

What changed: thresholds and offer size

The headline change was the initial trigger. The 1997 figure of 15% was raised to 25% under Regulation 3(1) of the 2011 Code: an acquirer (with persons acting in concert) crossing 25% of the voting rights of a target must make a public announcement of an open offer. The rationale was twofold — to align India with the higher trigger common in mature markets, and to give private-equity and strategic investors room to take meaningful stakes (up to just under 25%) without being forced into a control offer. This is analysed in the 25% threshold chapter.

The creeping-acquisition window was retained but recalibrated. Under Regulation 3(2), a holder between 25% and the maximum permissible non-public shareholding (effectively up to 75%) may acquire up to 5% of voting rights in any financial year without triggering an offer — a cleaner, single-band rule replacing the layered 1997 limits. The open-offer size was enlarged from 20% to a minimum of 26% of the total shares under Regulation 7, the figure SEBI chose instead of the Committee's 100% proposal, calibrated so that a successful offer plus the acquirer's existing stake could give the public a substantial exit while keeping the company listed.

What changed: control and the non-compete fee

The control trigger survived in Regulation 4: acquisition of control over a target, by whatever means and irrespective of shareholding, independently obliges the acquirer to make an open offer. The 2011 Code retained the same broad, effects-based definition of control as the 1997 Code — the ability to appoint a majority of directors, or to control management or policy decisions — without legislatively resolving the positive-versus-negative-control debate that Subhkam had left open. That deliberate choice means the Subhkam reasoning, though not a binding precedent, continues to inform how affirmative rights are assessed; the issue is examined in the definitions chapter.

Two further reforms deserve mention. First, the 2011 Code abolished the non-compete fee — the device by which acquirers had paid outgoing promoters up to 25% extra outside the offer price — so that the price paid to the promoter and the price offered to the public are now aligned, vindicating the equal-opportunity principle. Second, the Code introduced a structured voluntary open offer under Regulation 6, letting a qualifying holder make an offer without being compelled to, subject to size and eligibility conditions — see the voluntary open offer chapter.

Continuity beneath the change

For all the recalibration, it is the continuity that an examiner most wants to see understood. The 2011 Code did not reinvent takeover regulation; it refined a structure that had been stable since 1997. The four pillars — a percentage trigger, a creeping window, a control trigger and a minimum offer size — are unchanged in concept. The mandatory-offer philosophy, the persons-acting-in-concert machinery, the escrow and pricing discipline, the timelines, and the exemption framework all descend directly from the Bhagwati-era design. Even the case law remains live: Technip still governs concert, Daiichi Sankyo still governs the timing of concert and indirect acquisitions, Nirma still governs withdrawal, and Subhkam still haunts the control analysis.

The 2011 reform is therefore best characterised as a calibration of a mature regime rather than a revolution: the same goals (exit and disclosure), pursued through the same architecture, with thresholds tuned to a corporate India in which promoter holdings had risen and global capital had arrived. That is the framing to carry into every other chapter of this subject.

The evolution at a glance

To consolidate: India moved from no statutory code (only Clause 40 of the Listing Agreement, 1990), to the 1994 Regulations (a flawed first statutory attempt with a 10% trigger), to the 1997 Regulations born of the Bhagwati Committee (the long-lived second generation: 15% trigger, 5% creeping window, control trigger, 20% offer), and finally to the 2011 Regulations born of the Achuthan Committee / TRAC (the current Code: 25% trigger under Reg 3(1), 5% creeping under Reg 3(2), control trigger under Reg 4, 26% minimum offer under Reg 7, with the non-compete fee abolished and a structured voluntary-offer route added). Each generation responded to the failures of the last and to the case law decided under it. Anchor the dates — 1990, 1994, 1997, 2011 — and the two committee names, and you have the spine of this entire topic.