Cross 25% and you owe every public shareholder an exit. Acquire "control" without buying a single extra share and you owe them the same. The second trigger is the one that catches people.
Two triggers: 25% of voting rights (Regulation 3(1)), or more than 5% in a financial year while holding 25–75% (Regulation 3(2)). Acquiring control triggers an open offer at any shareholding level (Regulation 4).
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 exist for one reason. When someone acquires a substantial stake or control of a listed company, the public shareholders who invested under the old management should get a chance to leave at a fair price. The acquirer cannot buy the promoter's block at a premium and leave minority holders stranded with a controller they never chose.
The 2011 Code replaced the 1997 regulations on the Achuthan Committee's recommendations, raising the initial trigger from 15% to 25% and the minimum open offer size from 20% to 26%. The choice of 25% is deliberate: it is the level at which a shareholder can block a special resolution.
Most enforcement is not about deliberate raiders. It is about acquirers who crossed a threshold through a rights issue they under-thought, a family arrangement they assumed was exempt, or a shareholders' agreement whose veto rights turned out to be control.
The bottom line
Trigger 1 (Regulation 3(1)): acquiring 25% or more of voting rights for the first time.
Trigger 2 (Regulation 3(2)): holding 25–75% and acquiring more than 5% in a financial year, the creeping acquisition.
Trigger 3 (Regulation 4): acquiring control, irrespective of shares acquired.
Offer size: a minimum of 26% of total shares, or 10% for a voluntary offer.
Getting it wrong: a directed open offer with 10% interest, plus penalty under Section 15H of the SEBI Act — a floor of ₹10 lakh, rising to ₹25 crore or 3× the profit.
The three triggers
Regulations 3 and 4 of the SAST Regulations, 2011 carry all three.
Regulation 3(1), the initial threshold. An acquirer who, together with persons acting in concert, acquires shares or voting rights entitling them to 25% or more must make an open offer. It is a one-time crossing, applying to whoever crosses 25% for the first time.
Regulation 3(2), creeping acquisition. An acquirer already holding 25% or more, but less than the maximum permissible non-public shareholding of generally 75%, may acquire up to 5% additional voting rights in a financial year running 1 April to 31 March without an open offer. Cross 5% within that year and the obligation triggers. The arithmetic runs on gross acquisitions, so sales during the year do not simply net off against purchases for this purpose.
Regulation 4, control. Irrespective of any shares or voting rights acquired, acquiring control over a target triggers an open offer. This is the trigger that surprises people, because control can pass through a contract rather than a share purchase.
And control is defined more broadly than a majority. Regulation 2(1)(e) includes the right to appoint a majority of directors, or to control the management or policy decisions, exercisable directly or indirectly, individually or in concert, by virtue of shareholding, management rights, shareholders' agreements, voting agreements or in any other manner. Affirmative vote items in an investment agreement — vetoes over the business plan, the budget, senior appointments, a change of business — have repeatedly been argued to constitute control. Structure investor protections with that in mind, and take advice before signing a shareholders' agreement in a listed target.
Persons acting in concert
Thresholds are computed for the acquirer together with its PACs. Regulation 2(1)(q) defines them as persons who, sharing a common objective of acquiring shares or control, pursue that objective directly or indirectly.
Certain relationships are deemed PACs unless the contrary is established: a company with its holding, subsidiary and associate companies; promoters with their immediate relatives; a mutual fund with its sponsor, trustees and asset management company, and similar clusters.
This is where quiet aggregation happens. Three family members each acquiring 9% are not three independent investors. As deemed PACs they crossed 25% together, and they owe an open offer together.
How an open offer works
Regulations 7, 8 and 13–18 carry the mechanics.
Size, under Regulation 7: a minimum of 26% of the total shares of the target, calculated as of the tenth working day from the closure of the tendering period. A voluntary open offer, available to an acquirer already holding 25% or more, must be for at least 10%.
Price, under Regulation 8: the offer price is the highest of several reference points. Broadly, the negotiated price under the agreement triggering the offer; the volume-weighted average price of shares the acquirer and its concert parties bought in the 52 weeks before the public announcement; the highest price they paid in the 26 weeks preceding it; and the average market price over the 60 trading days before, where the shares are actively traded. The 2011 Code also abolished the old non-compete fee, which had let promoters extract up to 25% above the public offer price. In substance, the price the promoter gets is now the price the public gets.
Timeline: a public announcement on the day the obligation triggers, a detailed public statement within 5 working days, the draft letter of offer to SEBI within 5 working days of that, and the tendering period opening within 12 working days of SEBI's comments. The acquirer funds an escrow account — money locked with a bank as security, proving it can actually pay for the shares it has offered to buy.
The target has a duty of its own. Its independent directors must give reasoned recommendations on the offer, published at least two working days before the tendering period opens.
The exemptions people misread
Regulations 10 and 11 provide two different routes out.
Regulation 10 grants automatic exemptions, subject to conditions and disclosure: transfers among qualifying insiders, meaning immediate relatives, promoters named in the offer document for at least three years, and a company and its group entities; acquisitions in the ordinary course of business by SEBI-registered underwriters, stock brokers, merchant bankers acting as stabilising agents and scheduled commercial banks acting as escrow agents; acquisitions by transmission, succession or inheritance; increases in voting rights arising from a buyback, subject to conditions; rights issues, subject to limits; and acquisitions under an approved scheme of arrangement or an insolvency resolution plan under the IBC.
Regulation 11 grants case-specific exemptions, on application to SEBI with reasons, typically for genuine restructurings that do not fit Regulation 10's shape.
The trap here is that a transaction can be the right type and still lose the exemption, because these are conditions rather than categories. Transfers among qualifying insiders need both seller and buyer to have been named as promoters for the qualifying period and disclosed appropriately. Rights-issue exemptions require the acquirer not to renounce entitlements, and to observe the pricing limits. "It is a family transfer, so it is exempt" is a sentence that has cost people open offers. Check the conditions before closing.
The disclosure track, which runs separately
Regulations 29 and 30 sit apart from the open-offer duties and are independently enforceable.
- Regulation 29(1): an acquirer whose aggregate shareholding crosses 5% must disclose to the target and the exchanges within 2 working days.
- Regulation 29(2): after that, any acquisition or disposal of 2% or more must be disclosed within 2 working days.
- Regulation 30: annual disclosure by persons holding 25% or more, and by promoters, as at 31 March each year.
Failure to disclose is a standalone contravention attracting penalty under Section 15A(b) of the SEBI Act. A very large share of SEBI's SAST adjudication orders concern these missed filings rather than missed open offers, which makes the disclosure calendar the cheapest risk reduction available.
What happens when you get it wrong
Regulation 32, together with Sections 11, 11B, 15A and 15H of the SEBI Act, 1992, gives SEBI more than a fine. Under Section 11B read with Regulation 32 it can:
- Direct the acquirer to make the open offer, even years later, at the price that would have applied on the original trigger date, together with interest, commonly 10% per annum, for the period of delay.
- Direct the sale of shares acquired in breach, and order any gains to be handed back.
- Prohibit the acquirer from exercising voting rights on the shares in question, or from accessing the securities market at all.
- Impose penalty under Section 15H for failure to make a mandatory open offer or disclosure: not less than ₹10 lakh, extending to ₹25 crore or three times the profit made, whichever is higher.
- Impose penalty under Section 15A(b) for the disclosure failures under Regulations 29 and 30.
The delayed offer with interest is the remedy with real bite. An acquirer who crossed a threshold in 2019 and is directed in 2026 to open an offer at 2019 prices plus seven years of interest faces a liability that dwarfs any penalty, and one that selling down does not cure.
The case law
Swedish Match AB v SEBI (Supreme Court, 2004). The Court examined the interplay between the takeover regulations and a scheme where control passed through structured acquisitions, and established that the Code is beneficial legislation for public shareholders, to be construed so as to advance that protective purpose. That interpretive stance has coloured every later dispute about whether a transaction really triggered an offer.
Technip SA v SMS Holding (P) Ltd (Supreme Court, 2005). The leading Indian authority on when control changes. Technip acquired a French parent which indirectly held a stake in an Indian listed company. The Court held that the question turns on who actually controlled the company at the relevant date, examining shareholding, board composition and the reality of decision-making rather than form. It is still the starting point for any indirect-acquisition analysis.
Subhkam Ventures v SEBI (SAT, 2010). The most consequential decision on investor veto rights. SAT held that ordinary protective affirmative rights held by a private-equity investor, designed to safeguard the investment rather than to run the company, were not control — drawing the line between the power to direct a company and the power to block certain actions. SEBI appealed, and the Supreme Court disposed of the matter without treating SAT's ruling as binding precedent, which leaves the question formally open. So the reasoning in Subhkam is widely relied on when structuring investment agreements, and it cannot be cited as settled law. A heavily negotiated veto package remains a live open-offer risk.
Daiichi Sankyo v Jayaram Chigurupati (Supreme Court, 2010). On persons acting in concert, the Court held that PAC status requires a shared common objective of acquiring shares or control at the relevant time, and is not established by a pre-existing relationship alone. Parties have to be shown to have come together for that purpose, which narrowed SEBI's ability to aggregate holdings on the basis of association.
Alongside these sit SEBI's own adjudication and 11B orders, which routinely direct acquirers who breached Regulation 3 or 4 years earlier to make a delayed open offer at the historical price plus 10% interest, sometimes with disgorgement and voting restrictions on top. Those orders, rather than the headline judgments, are where practitioners should calibrate real exposure.
A worked example
A promoter group holds 24.5% of a listed company. The company announces a rights issue, and the promoters subscribe to their full entitlement and the unsubscribed portion renounced by other shareholders, taking them to 29%.
They assumed the rights-issue exemption in Regulation 10 covered them. On these facts it does not: the exemption is conditional, and picking up renounced entitlements beyond the acquirer's own proportionate share, in a way that carries them across 25%, falls outside its protection. They have crossed the Regulation 3(1) threshold.
The correct sequence: public announcement on the date the obligation triggered, detailed public statement within 5 working days, escrow funded, draft letter of offer to SEBI, and an open offer for a minimum of 26% at the Regulation 8 price.
If they miss it: SEBI, finding the breach during a routine examination two years later, can direct the open offer at the original trigger-date price plus 10% interest for two years, impose a Section 15H penalty with its ₹10 lakh floor and ₹25 crore or 3× profit ceiling, and restrain the promoters from voting the excess shares in the meantime. The rights issue raised ₹40 crore. The remediation costs a multiple of that.
Common mistakes
- Netting sales against purchases when computing the 5% creeping limit. The calculation runs on gross acquisitions in the financial year.
- Treating veto rights as automatically safe. Subhkam is persuasive rather than binding, and a broad affirmative-rights package is a live control risk.
- Ignoring PAC aggregation. Deemed PACs — promoters and immediate relatives, group companies — are aggregated unless the contrary is shown.
- Assuming a transaction type is exempt without satisfying Regulation 10's conditions.
- Missing the Regulation 29 disclosures. The 5% and subsequent 2% filings are separately penalised, and they are the most commonly breached provisions in the whole Code.
- Overlooking indirect acquisition. Buying an offshore parent that controls an Indian listed company triggers the Code, as Technip settled.
- Negotiating on the deal price alone and forgetting the 52-week, 26-week and 60-trading-day reference points.
- Believing that selling down cures the breach. The remedy is the offer shareholders were denied, with interest, not a return to the status quo.
Frequently asked questions
What triggers a mandatory open offer? Acquiring 25% or more of voting rights, acquiring more than 5% in a financial year while holding 25–75%, or acquiring control at any shareholding level.
What is the minimum open offer size? 26% of the target's total shares. A voluntary open offer must be for at least 10%.
Do veto rights amount to control? SAT in Subhkam Ventures held that protective rights are not control, but the Supreme Court disposed of the appeal without treating it as precedent, so the position is unsettled. Broad affirmative rights carry real risk.
Can I avoid the offer by selling back below the threshold? No. The obligation crystallises on crossing, and SEBI's remedy is typically a directed delayed open offer at the original price with interest.
What is the penalty for not making an open offer? Under Section 15H, not less than ₹10 lakh and up to ₹25 crore or three times the profit made, whichever is higher, alongside directions to make the offer with interest, disgorgement and possible market debarment.
Does inheriting shares trigger an offer? Acquisition by transmission, succession or inheritance is exempt under Regulation 10, subject to conditions and disclosure.
Are indirect acquisitions covered? Yes. Acquiring an entity that in turn controls an Indian listed company triggers the Code, with specific provisions on indirect acquisition pricing and timing.
What should we do if we find an old breach? Take advice immediately. Voluntary disclosure materially affects how SEBI treats it, and the interest clock is running either way.
Primary sources
- Regulations 2(1)(e), 2(1)(q), 3, 4, 7, 8, 10, 11, 29, 30 and 32, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
- Sections 11, 11B, 15A(b) and 15H, SEBI Act, 1992
- Report of the Takeover Regulations Advisory Committee (Achuthan Committee), 2010
- Swedish Match AB v SEBI, (2004) 11 SCC 641; Technip SA v SMS Holding (P) Ltd, (2005) 5 SCC 465; Subhkam Ventures (I) (P) Ltd v SEBI (SAT, 15 January 2010); Daiichi Sankyo Co. Ltd v Jayaram Chigurupati, (2010) 7 SCC 449