Takeover Code (SEBI SAST Regulations 2011)

By Priya Sharma | Updated March 2026

What Is the Takeover Code?

The Takeover Code refers to the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations), which govern how acquirers can buy large stakes in listed Indian companies. Notified on September 23, 2011, and effective from October 22, 2011, these regulations replaced the earlier Takeover Regulations of 1997. The core principle: when an acquirer crosses the 25% voting rights threshold or acquires control of a listed company, they must make a mandatory open offer to purchase at least 26% of the remaining shares from public shareholders at a prescribed minimum price.

For foreign investors considering an acquisition of a listed Indian target, the Takeover Code is the single most important regulation to understand. It determines the minimum price you pay, the timeline of your acquisition, and the disclosures you must make. Failure to comply triggers severe penalties from SEBI, including disgorgement of profits and trading bans. The regulations were most recently amended on December 3, 2025, introducing mandatory independent registered valuers for offer price determination.

Legal Basis

• SEBI Act, 1992 (Section 11 and Section 30) — Empowers SEBI to frame regulations for investor protection and fair dealing in securities markets
• SAST Regulations, 2011 (Regulations 3-4) — Define the two triggers for mandatory open offers: threshold-based (25% voting rights) and control-based
• Regulation 7 — Mandates a minimum open offer size of 26% of total shares of the target company
• Regulation 8 (Chapter V) — Prescribes the offer price calculation methodology using the highest of multiple reference prices
• Regulation 10 (Chapter IV) — Lists automatic exemptions from the open offer obligation (inter-se transfers, inheritance, buy-backs, etc.)
• Regulation 11 — Grants SEBI discretionary power to exempt specific transactions on a case-by-case basis
• SAST (Amendment) Regulations, 2025 (December 3, 2025) — Mandates independent registered valuers under Section 247 of the Companies Act, 2013, for offer price determination

Trigger Thresholds: When Does the Takeover Code Apply?

The SAST Regulations create two independent triggers for a mandatory open offer. Understanding these thresholds is critical because crossing either one — even inadvertently — obligates you to make a public offer.

Threshold-Based Trigger (Regulation 3)

The creeping acquisition limit of 5% per financial year is a common trap for foreign investors. If a foreign PE fund holds 30% and acquires even 5.01% additional shares between April 1 and March 31, it triggers a full open offer obligation. The financial year resets on April 1, so strategic timing of acquisitions is essential.

What Counts as "Control"?

Under Regulation 2(1)(e), control includes the right to appoint a majority of directors or to control management or policy decisions, exercisable individually or jointly, through shareholding, management rights, shareholder agreements, voting agreements, or otherwise. Importantly, holding a directorship alone does not constitute control. The 2011 Code expanded the control definition to cover de facto control — practical influence over management decisions through contractual rights or veto powers, not merely shareholding percentages.

Open Offer Process and Timeline

Once a trigger is crossed, the acquirer must follow a structured process with strict deadlines.

Escrow Deposit Requirements

The acquirer must deposit an escrow amount to demonstrate financial capability. For open offers valued up to INR 500 crore, the escrow is 25% of the total consideration. For offers above INR 500 crore, the escrow is 25% of the first INR 500 crore plus 10% of the balance. The escrow can be in the form of cash deposited with a scheduled commercial bank, a bank guarantee from a scheduled commercial bank, or shares of the target company already held by the acquirer (valued at the offer price, up to 50% of the escrow amount).

Offer Price Calculation (Regulation 8)

The minimum offer price is the highest of the following reference prices:

• Negotiated price — The highest price per share paid or agreed under the share purchase agreement that triggered the open offer
• Highest price paid by the acquirer — During the 26 weeks preceding the public announcement, for any acquisition of shares of the target company
• Volume-weighted average market price (VWAMP) for 60 trading days — Before the date of the public announcement, calculated by dividing total turnover by total shares traded during that period

For infrequently traded shares, the fair value is determined using book value, comparable company multiples, or other accepted methodologies. Under the December 2025 amendment, this valuation must now be performed by an independent registered valuer under Section 247 of the Companies Act, 2013 — previously, acquirers and their merchant bankers had discretion over valuation methodology.

Indirect Acquisitions

When control of a listed Indian company is acquired indirectly (e.g., a foreign parent acquires the overseas holding company), Regulation 5 applies. The offer price is adjusted upward by 10% annually for delays exceeding 5 working days from the date of the triggering transaction. This prevents acquirers from timing indirect acquisitions to depress the price baseline.

Exemptions from Open Offer

Not every acquisition triggers an open offer. Regulation 10 provides automatic exemptions for specific situations:

• Inter-se transfers — Transfers among qualifying persons (promoters listed in the shareholding pattern for at least 3 years, immediate relatives, entities with 50%+ common shareholding)
• Preferential allotment — Under SEBI (Issue of Capital and Disclosure Requirements) Regulations (ICDR Regulations), subject to shareholder approval
• Rights issues — Acquisitions within the acquirer's entitlement in a rights issue
• Buy-backs — Where the acquirer's percentage increases due to the company buying back shares
• SARFAESI Act recoveries — Acquisitions by lenders exercising security enforcement rights
• Inheritance and succession — Transmission of shares by operation of law
• Government-directed acquisitions — Under the Banking Companies Act or other statutes

Additionally, Regulation 11 allows SEBI to grant case-specific exemptions where the acquisition does not warrant an exit opportunity for public shareholders. Foreign acquirers frequently apply for Regulation 11 exemptions in cross-border restructurings where the economic interest of public shareholders is not affected.

Competing Offers and Voluntary Delisting

Competing Offers (Regulation 20)

A competing offer must be made within 15 working days of the initial detailed public statement. The competing acquirer must offer at least the same number of shares at an equal or higher price. When a competing offer is made, both offers remain open, and the tendering period is extended for both. The initial acquirer can revise their offer upward within 15 working days of the competing offer announcement.

Voluntary Delisting Connection

An acquirer who acquires shares through a mandatory open offer and ends up holding more than the maximum permissible non-public shareholding (i.e., more than 75% for most listed companies) must reduce holdings to permissible levels within 12 months. Critically, such acquirers cannot make a voluntary delisting offer under the SEBI (Delisting of Equity Shares) Regulations for 12 months from the date of completion of the open offer. This prevents acquirers from using the open offer as a backdoor to delisting at a lower price.

How This Affects Foreign Investors in India

Foreign acquirers of listed Indian companies face unique challenges under the Takeover Code:

• FEMA pricing norms overlap — Under FEMA and the FDI pricing guidelines, the minimum price for FDI into a listed company is the price determined under SEBI's ICDR Regulations. The Takeover Code price and FEMA floor price must both be met — the effective price is the higher of the two.
• Sectoral caps interaction — If the open offer acceptance would push FDI beyond sectoral caps (e.g., 74% in telecom, 49% in insurance), the acquirer must obtain government approval before launching the open offer
• RBI reporting — Post-acquisition, the acquirer must file FC-GPR within 30 days and the FLA return annually
• Indirect acquisition complexity — When a foreign parent acquires an overseas company that holds shares in a listed Indian subsidiary, the Takeover Code still applies. The 10% annual price escalation for delays makes swift execution essential.
• Tax implications — Open offer payments may attract capital gains tax and withholding tax obligations for selling shareholders. DTAA benefits may apply depending on the acquirer's jurisdiction.

Common Mistakes

• Treating creeping acquisition as a simple calendar-year calculation. The 5% limit is per financial year (April to March), not calendar year. A December acquisition followed by a February acquisition in the same financial year aggregates toward the 5% limit, catching acquirers who assume the limit resets on January 1.
• Ignoring indirect acquisition triggers when restructuring overseas holding structures. A merger of two foreign companies, where one holds shares in a listed Indian company, can trigger an open offer obligation even though no Indian shares changed hands directly. SEBI has consistently applied the Takeover Code to such restructurings.
• Assuming inter-se transfer exemptions apply automatically to all promoter group transfers. The exemption under Regulation 10 requires that both transferor and transferee have been part of the promoter group in the shareholding pattern for at least 3 years. New promoter group members do not qualify.
• Failing to account for the FEMA floor price when calculating the open offer price. Foreign acquirers must pay the higher of the Takeover Code price (Regulation 8) and the FEMA pricing guidelines minimum. Many deals are structured assuming only the Takeover Code price applies, leading to last-minute price revisions.
• Not factoring in the 12-month delisting restriction post open offer. Acquirers planning a two-step acquisition (open offer followed by delisting) must wait 12 months between the two steps. This timeline affects deal economics, as the delisting price may differ significantly from the open offer price after a year.

Practical Example

NovaTech GmbH, a German industrial automation company, agrees to acquire 35% of AutoPrecision Ltd, a BSE-listed Indian manufacturer, from its promoter family at INR 450 per share. AutoPrecision has a total of 2 crore (20 million) shares outstanding. The acquisition triggers a mandatory open offer under Regulation 3(1) since NovaTech will hold 25%+ voting rights.

Offer price calculation:

• Negotiated price: INR 450 per share
• Highest price paid in preceding 26 weeks: INR 420 (NovaTech purchased 2% on the open market)
• 60-day VWAMP: INR 410
• Minimum offer price = INR 450 (highest of the three)

Open offer size: 26% of 2 crore shares = 52 lakh (5.2 million) shares

Maximum consideration: 52 lakh shares x INR 450 = INR 234 crore

Escrow requirement: 25% of INR 234 crore = INR 58.5 crore (deposited as a bank guarantee from Deutsche Bank)

NovaTech publishes the public announcement on the same day as signing the SPA. The DPS is published within 5 working days. The draft letter of offer is filed with SEBI. After SEBI's observations (15 working days), the letter of offer is dispatched and the tendering period opens for 10 working days.

If 40 lakh shares are tendered (out of the 52 lakh offered), NovaTech acquires all 40 lakh shares at INR 450 each. Total outflow: INR 180 crore for the open offer + INR 315 crore for the initial 35% = INR 495 crore. NovaTech's total holding becomes 55%. It must also file FC-GPR with the RBI within 30 days and comply with FEMA reporting obligations.

Key Takeaways

• The Takeover Code triggers a mandatory open offer when an acquirer crosses 25% voting rights, acquires more than 5% in a financial year (between 25-75%), or acquires control of a listed company
• The open offer must be for a minimum of 26% of the target's total shares at the highest of the negotiated price, 26-week highest price, or 60-day VWAMP
• The December 2025 amendment requires independent registered valuers for offer price determination, strengthening minority shareholder protection
• Foreign acquirers must comply with both SEBI Takeover Code pricing and FEMA pricing norms — the effective price is the higher of the two
• Inter-se transfers and preferential allotments under ICDR enjoy exemptions, but conditions are strict and must be verified
• Indirect acquisitions of listed Indian companies through overseas restructurings trigger the Takeover Code with a 10% annual price escalation for delays

Planning an acquisition of a listed Indian company? Beacon Filing provides end-to-end FDI advisory services, including Takeover Code compliance, FEMA pricing, and regulatory filings.