The eventful battle for Religare Enterprises tests Sebi's takeover code

Last month, when Florida-based investor Digvijay ‘Danny’ Gaekwad approached the Securities and Exchange Board of India (Sebi) for permission to launch a “competing offer” to acquire controlling stake in New Delhi-headquartered financial services firm Religare Enterprises, the regulator “returned” his letters.

 

Gaekwad’s “competing offer” plea was against an open offer made by the Burman Group to acquire Religare, and though it quoted a higher price than the Burmans’s, Sebi stated that it was not an exemption application under Regulation 11 of the Sebi (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. The offer did not adhere to the timeline and lacked a proper process, such as appointing merchant bankers to manage it. Gaekwad had quoted ₹275 per share, a 17 per cent premium over the Burman family’s offer of ₹235 per share. 

 

Aggrieved, Gaekwad approached the Supreme Court, which directed him to deposit ₹600 crore with Sebi, in effect allowing him to enter the race. Gaekwad, however, failed to make the deposit, citing time constraints, and the Burman family’s much-delayed offer proceeded.

 

This entire saga has sparked a debate over Sebi’s takeover code.

 

The takeover battle for Religare began in September 2023, when the Burmans, having reached a 25 per cent stake in the company, made an open offer to acquire an additional 26 per cent — a move opposed by Religare’s senior management, led by then chairperson Rashmi Saluja, on the grounds that the offer price of ₹235 per share undervalued the company.

 

The Supreme Court’s intervention has added another dimension to the Religare takeover saga, drawing attention to the regulatory framework governing hostile and competitive takeovers under Sebi’s Takeover Code. 

 

By directing Gaekwad to deposit ₹600 crore by February 12 (later extended by a day) as a prerequisite for considering his superior counteroffer, the top court also underscored that all takeover bids must be backed by demonstrable financial commitments rather than mere legal assertions.

 

In its order of February 7, the apex court stated: “The main issue for Sebi to decide is the date of the public announcement of the open offer, as per Regulation 20(1) of the 2011 Sebi Regulations. The second issue is whether to grant an exemption, if necessary. The third issue concerns the public offer price.”

 

The Court’s directive for Sebi to entertain Gaekwad’s bid, despite its prior rejection, raises significant questions about the flexibility of Sebi’s regulatory oversight in corporate acquisitions. This judicial intervention implicitly tests whether Sebi exercised its discretion in a manner consistent with principles of fairness and investor protection, said Tushar Kumar, an advocate at the Supreme Court.

 

By extending the Burman family’s open offer deadline, the court also acknowledged the broader implications for public shareholders and the importance of evaluating competing bids in a manner that maximises shareholder value. While no final ruling has been made on Sebi’s adherence to the Takeover Code, the ongoing proceedings could set an important precedent regarding the extent to which judicial oversight can influence Sebi’s regulatory determinations in contested takeovers, Kumar said.

 

The top court’s order also reaffirmed that financial capability is a non-negotiable prerequisite in such transactions, reinforcing the principle that the sanctity of takeover regulations must be upheld in both letter and spirit.

 

Since Gaekwad failed to comply, Sebi’s initial rejection of his offer would stand, reinforcing the regulator’s authority to enforce strict compliance with procedural requirements in corporate control disputes.

 

“The outcome of this case has far-reaching consequences, not only for the parties involved but also for the broader jurisprudence surrounding regulatory oversight, shareholder rights, and the evolving framework of competitive takeovers in India,” Kumar said. “This case may serve as a litmus test for the robustness of Sebi’s regulatory framework and the extent to which judicial scrutiny can recalibrate the balance between regulatory rigidity and market dynamism.”

 

While the court’s intervention addresses a critical aspect of the takeover process under Sebi laws, legal experts argue that it does not necessarily challenge Sebi’s Takeover Code itself. 

 

“The core issue here is determining the appropriate date for making the public announcement by the first bidder, which sets the stage for subsequent bidders to offer a better price. The goal is to secure better and higher bids for public shareholders,” said Shashank Agarwal, an advocate at the Delhi High Court.

 

“This case touches upon the interpretation and enforcement of Sebi’s Takeover Code,” added Alay Razvi, managing partner at Accord Juris, a Hyderabad-based law firm. “It underscores the strict procedural requirements imposed by Sebi and highlights the challenges faced by entities attempting to make competing offers outside the established framework.”

 

Some legal experts believe the case may indicate the need for a review of Sebi’s takeover norms. 

 

“The pricing lookback period is tied to the public announcement date. The problem is that after the public announcement, numerous hurdles must be crossed, such as regulatory approvals,” said a senior legal official, speaking on condition of anonymity. “By the time these approvals are obtained, the market price may have moved significantly.”

 

Religare submitted applications to Sebi and the Reserve Bank of India (RBI) nearly a year after the Burmans announced the initial open offer. The submissions were made only after the Securities Appellate Tribunal issued directions to the company following an interim order-cum-show cause notice by Sebi. Subsequently, regulators approved the open offer.

 

“In the Companies Act, for preferential allotments, there is a requirement that if the allotment is not done within one year and resolutions are not acted upon, a fresh resolution must be issued. A similar concept could be applied in takeover norms,” the official added.

 

In his petition to the Supreme Court, Gaekwad argued that the public offer price should be the higher of two options: Either the acquisition price as of September 25, 2023, or the market price at the time of the public offer on January 18, 2025.

 

Clause (9) of Regulation 20 under Sebi’s takeover regulations states that after a competing offer is announced, an acquirer who made the preceding offer can revise the terms of their open offer, provided the revised terms are more favourable to the shareholders of the target company. Furthermore, acquirers making competing offers can revise the offer price upwards at any time up to one working day before the commencement of the tendering period, which ended last week in this case.

 

In its order, the Supreme Court noted that there had been multiple attempts to block the public offer, none of which had succeeded. “We have taken note of this aspect, but we also acknowledge that the application filed by the appellants (Gaekwad) is still under consideration by Sebi and has not been disposed of. The Sebi is expected to prioritise the rights and interests of public investors,” the top court had observed. 

 

Sebi has since rejected Gaekwad’s bid, terming it “frivolous”. Meanwhile, Saluja has been ousted from the Religare board after shareholders rejected her reappointment. Independent director PK Tripathi has been appointed as the interim chair. 

 

The Religare saga continues.

The story so far

2023 September 

> Burmans of Dabur, holding 25% in Religare, make an open offer to acquire another 26%

> Rashmi Saluja, Religare’s then chairperson, and senior management oppose the move; argue that ₹235 per share undervalues the company

> Religare’s board questions whether the Burmans meet regulatory “fit and proper” criteria; Burmans cite their experience in financial services

  2024 December: Regulators, including Sebi and RBI, clear Burmans’ bid

  2025 January 25: US-based investor Digvijay ‘Danny’ Gaekwad arrives on the scene with a ₹5,000 crore counteroffer; proposes ₹275 per share

  January 27: Offer is launched

  January 29: Sebi returns Gaekwad’s bid; Gaekwad approaches Supreme Court 

February 7: Apex court directs Gaekwad to deposit ₹600 crore with Sebi by February 13th to back his bid

> Gaekwad fails to do so, citing time constraint

> Sebi rejects Gaekwad bid due to lack of financial proof

> Meanwhile, Rashmi Saluja is ousted from Religare board