INDIA Law and Practice Contributed by: Anish Mashruwala, Utsav Johri, Megha Upadhyaya and Sahil Unadkat, JSA
9. Takeover Finance 9.1 Regulated Targets
10. Jurisdiction-Specific Features 10.1 Other Acquisition Finance Issues Disclosure of an Encumbrance on Listed Shares Under the Takeover Regulations, shares taken by way of an encumbrance are treated as acqui- sitions and are required to be disclosed. Simi- larly, shares released from an encumbrance are treated as a sale and also must be disclosed. The Takeover Regulations have been amended, and define “encumbrance” widely to include: • any restriction on the free and marketable title to shares, by whatever name called, whether executed directly or indirectly; • a pledge, lien, negative lien or non-disposal undertaking; or • any covenant, transaction, condition or arrangement in the nature of encumbrance, by whatever name called, whether executed directly or indirectly. Disclosure requirements apply to: • any acquisition of shares or voting rights of 5% or more, and thereafter any change in shares or voting rights so disclosed where that change is above 2% when compared to the last disclosure; and • any encumbrance created by the promoter on the shares of the listed entity. The SEBI, in its frequently asked questions on the Takeover Regulations, clarified that the pro- moter of a listed company has to disclose, with- in specified timelines, detailed reasons for an encumbrance on the shares of the listed com- pany if the combined encumbrance by the pro- moter along with persons acting in concert with the promoter equals or exceeds either 50% of
Other than in relation to the acquisition of a listed target (see 9.2 Listed Targets ), there are no specific regulatory requirements to demon- strate certain funds. Indian sellers may, in certain cases, expect bidders to demonstrate that they have binding commitments before selecting a winning bidder and executing definitive docu- mentation. Under the IBC, a resolution applicant (bidder for the company under a CIRP) is required to submit performance security after approval of its bid. The performance security will be forfeited if the resolution applicant fails to implement the reso- lution plan. 9.2 Listed Targets If the acquisition of a listed company triggers the requirement of making an open offer by the acquirer under the Takeover Regulations, the acquirer must fund an escrow account with the required funds in accordance with these regula- tions. The funds can be provided in the form of cash deposited in an escrow account, a bank guarantee issued in favour of the manager of the offer by any scheduled commercial bank, or the deposit of frequently traded and freely trans- ferable securities with an appropriate margin. Where the acquirer proposes to fund the escrow account by availing of financing, the manager of the offer may need to be satisfied that the financing is available.
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