The Hindu Business Line : Penalties in the takeover process

The Regulations have laid down the general obligations of acquirer, target company and the Merchant Banker. For failure to carry out these obligations as well as for failure/non-compliance of other provisions of the Regulations, the Regulations have laid down the penalties. These penalties include

* Forfeiture of the escrow account.

* Directing the person concerned to sell the shares acquired in violation of the regulations.

* Directing the person concerned not to further deal in securities.

* Levy monetary penalties.

* Initiate prosecution proceedings.

* Directing appointment of a merchant banker for the purpose of causing disinvestment of shares acquired in breach of regulations.

* Directing transfer of any proceeds or securities to the Investors Protection Fund of a recognised stock exchange.

* Directing the target company or depository to cancel the shares where an acquisition of shares pursuant to an allotment is in breach of regulations.

* Directing the target company or the depository not to give effect to transfer or further freeze the transfer of any such shares and not to permit the acquirer or any nominee or any proxy of the acquirer to exercise any voting or other rights attached to such shares acquired in violation of regulations.

* Debarring any person concerned from accessing the capital market or dealing in securities for such period as may be determined by the Board.

* Directing the person concerned to make public offer to the shareholders of the target company to acquire such number of shares at such offer price as determined by the Board.

* Directing disinvestment of such shares as are in excess of the percentage of the shareholding or voting rights specified for disclosure requirement under the Regulations 6,7 or 8.

* Directing the person concerned not to dispose of assets of the target company contrary to the undertaking given in the letter of offer.

* Directing the person concerned, who has failed to make a public offer or delayed the making of a public offer in terms of these Regulations, to the shareholders, whose shares have been accepted in the public offer made after the delay, the consideration amount along with interest at the rate not less than the applicable rate of interest payable by banks on fixed deposits.

Further, the Board of Directors of the target company would also be liable for action in terms of the Regulations and the SEBI Act for failure to carry out their obligations specified in the Regulations.

Action can also be initiated for suspension, cancellation of certificate of registration against an intermediary such as the Merchant Banker to the offer.

Are mergers and amalgamations of companies also covered under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997?

No, only takeovers and substantial acquisition of shares of a listed company fall within purview of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. Mergers and Amalgamations are outside the purview of SEBI as they are a subject matter of the Companies Act, 1956.

What is the Takeover Panel?

An acquirer who proposes to acquire shares through a mode which is not specifically covered under Regulation 3 may seek exemption from the applicability of the provisions of the offer process by making an application. SEBI has constituted a panel consisting of independent persons to examine such applications, which is called the Takeover Panel.

www.sebi.gov.in

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