Sebi proposes exemption frm open offer in forfeiture of shares

Capital markets regulator Sebi today proposed exemption from making an open offer for entities whose shareholding in a listed company increases due to forfeiture of shares.
Currently, there is no provision for exemptions under the Takeover Regulations in case of increase in the voting rights of a shareholder due to the expiry of call notice period and forfeiture of partly paid-up shares.
Under the new norms, Sebi has proposed "for providing general exemption from the open offer obligations in the cases of increase in voting rights as a result of the expiry of call notice period and the forfeiture of shares in line with general exemptions available with respect to rights issues, buybacks etc."

The increase in the shareholding due to the expiry of call notice period and forfeiture of shares may be treated as a 'passive acquisition'.
Issuing a discussion paper for amendments to Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, the capital markets watchdog has invited comments from all stakeholders till September 30.
The final decision would be taken after looking into the public comments on the proposed changes.

In case of forfeiture of shares, there would be changes in existing shareholding pattern and that could trigger open offer obligations for concerned entities.
As per Sebi's takeover norms, any entity having over 25 per cent stake in a listed firm can hike the shareholding by up to 5 per cent in a financial year. If the limit is breached in a fiscal, then that entity would have to make an open offer.

Securities and Exchange Board of India (Sebi) said that increase in voting rights of any shareholder as a result of forfeiture of partly paid-up shares is passive in nature as the process is initiated due to non-payment of call money by defaulting shareholders.
Similarly, accrual of voting rights to the remaining shareholders, computed on pro rata basis, upon the expiry of call notice issued to the shareholders holding partly paid-up shares, is also passive in nature.
The regulator said that forfeiture is undertaken by the company as per the provisions of the Companies Act, where it is at full liberty to undertake this to remove "defaulting shareholders from the register of members".