SEBI Takeover Code: Open Offer Obligations When Buying Listed Indian Companies

Why the SEBI Takeover Code Matters for Foreign Acquirers

India's listed company universe spans over 5,000 companies on the BSE and over 2,000 on the NSE, with a combined market capitalization exceeding USD 4.5 trillion as of early 2026. For foreign acquirers targeting publicly traded Indian companies, the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 — commonly called the Takeover Code — is the single most consequential regulatory framework governing the acquisition process.

Unlike private company acquisitions governed primarily by FEMA and the Companies Act, buying into a listed Indian company introduces an entirely separate compliance layer: mandatory open offers to public shareholders, strict pricing floors, escrow deposits running into hundreds of crores, and a timeline that can stretch the deal by 3-5 months beyond what private M&A typically requires.

The 2025 amendments to the SAST Regulations introduced independent registered valuers for offer price determination, tightened disclosure norms, and extended the valuation timeline to nine months for complex transactions. Foreign acquirers who approach listed Indian acquisitions with a private-deal mindset routinely underestimate these obligations, leading to regulatory delays, pricing disputes, and in some cases, SEBI enforcement actions.

The Two Triggers: When Open Offer Becomes Mandatory

Trigger 1: Initial Acquisition of 25% or More Voting Rights

Under Regulation 3(1) of the SAST Regulations, any acquirer — along with persons acting in concert (PACs) — who acquires shares or voting rights that result in their aggregate holding reaching or crossing 25% of the target company's voting rights must make a mandatory open offer. This threshold was raised from 15% under the old 1997 Takeover Code to 25% under the 2011 Regulations.

The 25% threshold is an absolute number. If an acquirer holds 24.9% and acquires even 0.1% additional shares that push the aggregate holding to 25% or above, the open offer obligation is triggered.

Trigger 2: Creeping Acquisition Beyond 5% in a Financial Year

Under Regulation 3(2), an acquirer who already holds between 25% and 75% of the target's voting rights can acquire up to 5% additional voting rights in any financial year (April 1 to March 31) without triggering an open offer. This is the "creeping acquisition" window. Any acquisition that causes the aggregate holding to increase by more than 5% in a single financial year triggers a mandatory open offer for an additional 26%.

Foreign acquirers must note that the 5% limit is calculated across all PACs. If a foreign parent holds 30% and its Indian subsidiary holds 3%, any acquisition by either entity counts toward the combined 5% annual limit.

Trigger 3: Acquisition of Control

Under Regulation 4, any acquisition of "control" over the target company — irrespective of the percentage of shares acquired — triggers a mandatory open offer. Control is defined broadly to include the right to appoint a majority of directors, the right to control management or policy decisions, and de facto control established through shareholder agreements, board composition, or veto rights.

This is particularly relevant for foreign acquirers who may acquire less than 25% but negotiate board seats, veto rights over key decisions, or operational control through management agreements.

Open Offer Size, Pricing, and Escrow Requirements

Minimum Offer Size: 26% of Share Capital

A mandatory open offer must be made for a minimum of 26% of the total share capital of the target company. This is a floor — the acquirer may offer to buy more, but cannot offer less. For voluntary open offers under Regulation 6, the minimum size is 10% of share capital.

This means a foreign acquirer buying 25% through a negotiated block deal must simultaneously prepare to purchase up to an additional 26% from public shareholders through the open offer. The total financial commitment could reach 51% of the target company's market capitalization.

Minimum Offer Price: The Four-Parameter Floor

Regulation 8 prescribes the minimum offer price. The open offer price must not be lower than the highest of the following four parameters:

The 2025 amendments introduced the requirement for an Independent Registered Valuer to determine the offer price for infrequently traded shares or where SEBI orders a valuation. The acquirer bears the cost of this valuation, and the process can take up to nine months.

Escrow Deposits: Cash Lock-Up Before the Offer

Before making the public announcement, the acquirer must open an escrow account with a SEBI-registered banker to the open offer. The escrow requirements are:

• 25% of the total consideration payable for the first INR 500 crore of offer value
• An additional 10% for any amount exceeding INR 500 crore

The escrow can be maintained as cash, a bank guarantee, or a deposit of frequently traded and freely transferable listed equity shares. For a foreign acquirer buying a company valued at INR 2,000 crore, the escrow deposit could exceed INR 200 crore — a significant capital lock-up that must be factored into deal financing.

The Open Offer Process: Step-by-Step Timeline

Step 1: Appoint a SEBI-Registered Merchant Banker (Manager to the Offer)

The acquirer must appoint a SEBI-registered merchant banker as the Manager to the Open Offer before making the public announcement. The merchant banker is responsible for ensuring regulatory compliance, filing the draft letter of offer, and managing the tendering process.

Step 2: Public Announcement (Day 0)

The acquirer must make a public announcement (PA) of the open offer through the merchant banker. The PA must be published in at least one English-language national daily, one Hindi-language national daily, and one regional-language daily at the location of the target company's registered office. The PA must also be sent to the stock exchanges where the target's shares are listed.

The PA must contain specific details including the identity and background of the acquirer, the offer price, the number of shares sought, the mode of payment, the purpose and future plans for the target company, and the sources of funding for the offer.

Step 3: Detailed Public Statement (Within 5 Working Days)

Within 5 working days of the PA, the acquirer must publish a Detailed Public Statement (DPS) containing comprehensive information about the acquirer, the target, the offer terms, and financial details. This is simultaneously filed with SEBI and the stock exchanges.

Step 4: Draft Letter of Offer (Within 5 Working Days of DPS)

The merchant banker must file the Draft Letter of Offer (DLOF) with SEBI within 5 working days of the DPS. SEBI reviews the DLOF and provides comments typically within 15 working days.

Step 5: Dispatch Letter of Offer

After incorporating SEBI's comments, the final Letter of Offer (LOO) is dispatched to all public shareholders of the target company. The LOO details the exact tendering procedure, dates, and terms.

Step 6: Tendering Period (10 Working Days)

The tendering period must commence within 12 working days of SEBI's comments on the DLOF. It remains open for exactly 10 working days. Shareholders who wish to accept the open offer tender their shares through their demat accounts during this window.

Step 7: Payment and Settlement (Within 10 Working Days)

The acquirer must complete payment to all shareholders who tendered their shares within 10 working days of the closure of the tendering period. If more shares are tendered than the acquirer is obligated to purchase (26%), shares are accepted on a proportionate basis.

Step 8: Post-Offer Advertisement (Within 5 Working Days)

Within 5 working days of completing payment, the acquirer must publish a post-offer advertisement stating the total number of shares tendered, accepted, and the dates of payment.

Indirect Acquisitions: The Foreign Acquirer's Trap

Regulation 5(1) extends the open offer obligation to indirect acquisitions. If a foreign entity acquires control or shares of a foreign company that itself holds shares or control in a listed Indian company, the open offer obligation may still be triggered.

In the landmark Rhodia v. SEBI case, the tribunal held that a foreign acquirer cannot escape Indian takeover obligations by arguing that the Indian company was merely an incidental part of a global acquisition. The obligation is triggered whenever the acquisition results in the foreign entity gaining 25% or more voting rights or control over the listed Indian entity, whether directly or through an intermediate holding structure.

For foreign acquirers engaged in global M&A, this means every cross-border deal must be screened for Indian listed company exposure. If the target's group structure includes a listed Indian subsidiary, the SEBI takeover compliance becomes an additional workstream that must be factored into deal timelines and costs.

Proportionality and Pricing for Indirect Acquisitions

For indirect acquisitions, the minimum offer price is determined based on the per-share value attributable to the Indian listed company within the overall deal. This involves a valuation exercise to determine what proportion of the global acquisition price is allocable to the Indian listed entity. The Independent Registered Valuer role introduced by the 2025 amendments is particularly relevant here, as indirect acquisition pricing has historically been a source of disputes.

Exemptions Available to Acquirers

General Exemptions Under Regulation 10

The Takeover Code provides automatic exemptions for certain categories of acquisitions that do not warrant an open offer. Key exemptions relevant to foreign acquirers include:

• Inter se transfers: Transfers among persons acting in concert, provided the holding was disclosed for at least 3 years
• Acquisitions through rights issues: Shares acquired through a rights issue (unless the acquirer has renounced their rights entitlement)
• Buyback and delisting: Increase in voting rights resulting from a share buyback or delisting by the target company
• SEBI-approved schemes: Acquisitions under schemes of arrangement approved by the NCLT with SEBI's observation
• Preferential allotment under IBC: Shares issued under a resolution plan approved under the Insolvency and Bankruptcy Code

Case-Specific Exemptions Under Regulation 11

SEBI has the power to grant case-specific exemptions from open offer obligations. The acquirer must file an application with SEBI, and the Board decides based on the specific facts. Recent SEBI orders (2024-2025) show that exemptions are granted sparingly and only where the acquisition does not prejudice minority shareholder interests. Common grounds include restructuring within the same group, acquisitions by government entities for strategic purposes, and situations where the economic substance of the transaction does not change control dynamics.

Foreign Acquirer-Specific Compliance Layers

FEMA and RBI Compliance

Foreign acquirers must ensure compliance with FDI regulations in parallel with SEBI requirements. The acquisition must comply with sectoral caps — for example, defence is capped at 74% FDI and insurance at 100% (with conditions). Sectoral cap restrictions override the acquirer's ability to purchase shares tendered in the open offer. If the sector has a 49% FDI cap and 30% of shares are tendered, the acquirer can only accept shares up to the FDI cap limit.

The acquirer must also file Form FC-GPR (for new share allotments) or FC-TRS (for share transfers) with the RBI through the FIRMS portal. FEMA pricing guidelines apply — the acquisition price must not be below the floor price determined per RBI's valuation methodology, which may differ from the SEBI-mandated open offer price.

CCI Merger Control

If the acquisition exceeds Competition Commission of India thresholds — combined assets of INR 2,500 crore or combined turnover of INR 7,500 crore in India, or the Deal Value Threshold of INR 2,000 crore (effective September 2024) — prior CCI approval is required. The CCI review must be completed before the open offer closes. The revised timeline under 2025 amendments requires CCI to form a prima facie view within 30 calendar days, with the overall review period reduced from 210 to 150 days.

Press Note 3 Restrictions

Acquirers from countries sharing a land border with India (China, Pakistan, Bangladesh, Myanmar, Nepal, Bhutan, Afghanistan) require prior government approval under Press Note 3, irrespective of the FDI route or sectoral cap. This approval must be obtained before executing the triggering acquisition.

Disclosure Obligations at Every Stage

Pre-Acquisition Disclosures

Under Regulation 29, any person holding 5% or more of shares or voting rights in a listed company must disclose this holding to the stock exchanges within 2 trading days of the acquisition. Subsequent changes of 2% or more must also be disclosed. Foreign acquirers building a position gradually — a common strategy to avoid paying a control premium — must be acutely aware of these disclosure triggers.

Continual Disclosures

Promoters and acquirers holding 25% or more must make annual disclosures of their shareholding within 7 days of the end of each financial year. Any change in holding of 1% or more must be disclosed within 2 trading days.

Penalties for Non-Disclosure

SEBI has imposed penalties ranging from INR 5 lakh to INR 25 crore for non-disclosure and delayed disclosure under the SAST Regulations. In 2024-2025, SEBI increased enforcement activity against acquirers who failed to disclose acquisitions in the 5-25% range, particularly where the acquisitions appeared to be structured to avoid triggering the 25% open offer threshold.

Voluntary Open Offers: A Strategic Tool

Under Regulation 6, an acquirer holding between 25% and 75% may make a voluntary open offer for at least 10% of the target's share capital. This is a strategic tool used when:

• The acquirer wants to increase their holding without triggering the creeping acquisition limit
• The acquirer seeks to consolidate control before a delisting attempt
• The acquirer wants to signal long-term commitment to the market

The voluntary open offer follows the same process as a mandatory offer — public announcement, DLOF, tendering, and settlement — but with a lower minimum offer size of 10% versus 26%.

Competitive Bids and Counter-Offers

Under Regulation 20, a competing bidder can make a counter-offer within 15 working days of the first acquirer's public announcement. The competing bid must be for at least the same number of shares as the original offer. This introduces deal uncertainty for foreign acquirers, particularly in sectors like pharmaceuticals, telecom, and financial services where strategic buyers may emerge.

If a competing bid is made, both acquirers can revise their offer prices upward (but not downward) until 3 business days before the commencement of the tendering period. The tendering period for both offers runs simultaneously.

Post-Acquisition Compliance

After the open offer closes, the acquirer must complete the following within prescribed timelines:

• Minimum public shareholding: Ensure the target company maintains the minimum 25% public shareholding required under SEBI (LODR) Regulations. If the open offer acceptance takes the acquirer's holding above 75%, the acquirer must dilute within 12 months (18 months for acquirers under IBC resolution plans)
• RBI and ROC filings: File FC-TRS, update the members' register, and complete all post-acquisition filings within their respective deadlines
• Board reconstitution: Appoint nominee directors and comply with independent director requirements under SEBI LODR Regulations

Penalties for Non-Compliance with Open Offer Obligations

SEBI takes non-compliance with open offer obligations extremely seriously. The consequences include:

• Monetary penalties: Under Section 15H of the SEBI Act, penalties for non-compliance with takeover regulations can reach INR 25 crore or three times the profit made from the non-compliance, whichever is higher
• Debarment: SEBI can debar the acquirer from accessing the securities market for a specified period, effectively blocking further acquisitions of listed Indian companies
• Disgorgement: SEBI can order disgorgement of any gains made by the acquirer as a result of the non-compliance
• Criminal prosecution: In cases of willful non-compliance, SEBI can initiate criminal proceedings that carry imprisonment of up to 10 years or a fine of up to INR 25 crore, or both

Foreign acquirers should note that SEBI enforcement actions are public — they are published as orders on SEBI's website and widely reported in Indian financial media. A SEBI enforcement action against a foreign acquirer can have reputational consequences far beyond the financial penalty, potentially affecting the acquirer's ability to do business in India across all sectors.

Common Mistakes Foreign Acquirers Make

Mistake 1: Ignoring Indirect Acquisition Triggers

Global M&A teams frequently overlook the Indian listed company exposure within a target group's structure. A USD 5 billion cross-border deal can trigger SEBI open offer obligations for a USD 50 million Indian listed subsidiary.

Mistake 2: Confusing FEMA Pricing with SEBI Offer Pricing

FEMA pricing and SEBI open offer pricing are calculated using different methodologies. FEMA uses DCF or NAV for unlisted company share pricing, while SEBI uses VWAP and negotiated price parameters. The two prices can diverge significantly, and the acquirer must comply with both.

Mistake 3: Underestimating the Timeline

A listed company acquisition in India typically takes 4-6 months from signing to completion when open offer obligations are involved. The open offer process alone — from public announcement to settlement — takes approximately 60-90 days. Adding CCI review (up to 150 days) and FEMA compliance can extend the total timeline to 6-8 months.

Mistake 4: Structuring Around the 25% Threshold

Some foreign acquirers attempt to structure their acquisition just below 25% to avoid the open offer. SEBI actively scrutinizes acquisitions in the 20-24.9% range, particularly where the acquirer simultaneously acquires board seats, veto rights, or management control. The "acquisition of control" trigger under Regulation 4 applies irrespective of shareholding percentage.

Key Takeaways

• The 25% shareholding threshold and any acquisition of "control" trigger a mandatory open offer for 26% of the target company's share capital at a price not below the highest of four prescribed parameters.
• Foreign acquirers face triple regulatory compliance: SEBI (open offer), RBI/FEMA (FDI regulations and pricing), and CCI (merger control above prescribed thresholds).
• The 2025 amendments introduced Independent Registered Valuers for offer price determination, with a nine-month timeline for complex valuations.
• Indirect acquisitions — where a global deal incidentally brings a listed Indian company under the acquirer's control — trigger the same open offer obligations as direct acquisitions.
• Escrow deposits of 25% of offer consideration (first INR 500 crore) plus 10% thereafter must be arranged before the public announcement, requiring significant upfront capital commitment.
• Engage a FEMA compliance advisor and a SEBI-registered merchant banker at the deal structuring stage, not after signing — the open offer timeline begins from the moment the triggering transaction is agreed.