INDIA Law and Practice Contributed by: Kunal Chandra, Kabeer Mathur, Chinmay Bilgi, Sharnam Vaswani and Rajdeep Mukherjee, Trilegal
Structural Hurdles Beyond statutory requirements, concentrated pro - moter ownership is a defining structural feature of the Indian listed company landscape. Promoter groups frequently retain controlling stakes, reducing the avail - able free float and making gradual open market accu - mulation an impractical route to acquiring meaningful influence. As a result, hostile acquisitions are rela - tively uncommon in India – most control transactions are negotiated directly with promoters or significant shareholders. Contractual Transfer Restrictions Agreements between shareholders of listed com - panies may contain transfer restrictions. While SEBI does not permit discriminatory transfer restrictions in a listed company’s articles of association – as these would impede the free transferability of listed secu - rities – contractual provisions between shareholders are enforceable, though they cannot bind the compa - ny or third parties that are not party to the agreement. 4.4 Dealings in Derivatives Dealings in equity derivatives such as futures, options and swaps are permitted under the Securities Con - tracts (Regulation) Act, 1956 and are actively traded on stock exchanges. These instruments allow inves - tors economic exposure to the price movements of listed securities without directly acquiring the underly - ing shares. However, derivatives cannot be structured in a man - ner that confers beneficial ownership, voting rights or control over a listed company while circumventing regulatory obligations. If a derivative structure pro - vides economic exposure equivalent to share own - ership or involves rights over the underlying shares, SEBI may treat the arrangement as an acquisition for the purposes of the Takeover Regulations, potentially triggering disclosure requirements or open offer obli - gations. In addition, SEBI prescribes market-wide and client-level position limits for derivatives, which con - strain the extent to which investors can build signifi - cant economic exposure through derivative positions. For single-stock derivatives, the market-wide position limit is linked to free-float and liquidity metrics, with a minimum threshold of INR500 crore and no absolute cap. Client-level limits are prescribed as a percentage
of open interest and market-wide position limits, vary - ing by participant category. 4.5 Filing/Reporting Obligations Derivative transactions that confer economic exposure or rights similar to those associated with ownership of equity shares may trigger disclosure obligations under the Takeover Regulations, in the same manner as those applicable to share acquisitions. According - ly, such transactions will be subject to the 5% initial disclosure threshold trigger and the 2% incremental disclosure requirement applicable to acquisitions of shares or voting rights. Under the PIT Regulations, promoters, members of the promoter group and designated persons are also required to disclose trades in derivatives linked to the company’s securities when the aggregate value of such trades exceeds INR10,00,000 in a calendar quarter. From a competition law perspective, derivative trans - actions do not generally require disclosure or merger control notification unless they result in the acquisition of control or beneficial ownership of shares that meet the thresholds prescribed under the Competition Act, 2002. (Refer to 2.4 Antitrust Regulations .) 4.6 Transparency Listed Company Acquisitions Where an acquisition of shares triggers an open offer – by virtue of an initial acquisition of a 25% stake, subsequent acquisitions of 5% or more in a financial year, or acquisition of control – the acquirer is required to issue a detailed public statement articulating the strategic purpose of the acquisition, intentions regard - ing corporate control, and granular details regarding post-acquisition business plans and funding sources. Below the open offer threshold, acquirers are required to disclose acquisition of shares resulting in holdings of 5% or more of the share capital of company and every 2% acquired thereafter – such disclosures are limited to shareholding details and do not require dis - closure of intent or control.
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