The Competition Act, 2002 ("CCI Act") and Securities and Exchange board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Code") are the two prominent legislations that are focused on and govern the mergers and acquisitions space in India. The CCI Act had been introduced with the intent of governing anti-competitive practices in India and to ensure that combinations (i.e., transactions) do not have an adverse effect on, and should not be likely to cause, appreciable adverse effect on competition in markets in India. On the other hand, the Takeover Code has been enacted to ensure that public shareholders of a listed company are treated fairly and equitably in relation to a substantial acquisition in, or takeover of, a listed company thereby maintaining stability in the securities market.

The Competition Commission of India had introduced the Competition (Amendment) Act, 2023 ("Amendment Act") making various changes to the provisions relating to regulation of combinations under the Act, which inter alia include (i) a new notification criteria; (ii) provision for certain relations for transactions involving implementation of an open offer or purchase of securities on a regulated stock exchange, subject to certain conditions. In view of the significant changes introduced by the Amendment Act, the CCI has published the draft Competition Commission of India (Combinations) Regulations, 2023 ("Draft Combination Regulations"). The Draft Combination Regulations will repeal and replace the Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011.

Section 6A has been introduced as per the Amendment Act whereby an acquirer is permitted to implement the open offer or an acquisition of shares or securities by way of a secondary transaction, either as a single transaction or a series of transactions if (i) the notice for the combination transaction has been given to the CCI as per the CCI Act and the regulations thereunder; and (ii) the acquirer does not exercise any ownership or beneficial rights or interest in relation to such shares or convertible securities (including voting rights and receipt of dividends or any other distributions), except as may be specified by regulations, till such time that the combination is approved by the CCI.

On the other hand, as part of the Draft Combination Regulations the CCI has proposed regulation 6 whereby the acquirer of any shares pursuant to section 6A of the CCI Act could (i) avail economic benefits such as dividend or any other distribution, subscription to rights issue, bonus shares, stock-splits and buy-back of securities; (ii) dispose the shares or securities acquired; and (iii) exercise voting rights in matters relating to liquidation and/or insolvency proceedings. The aforementioned has been permitted provided that the acquirer or any of its affiliate shall not, directly or indirectly, influence the enterprise whose shares or securities are being acquired, in any manner whatsoever.

As per regulation 18(11) of the Takeover Code, an acquirer's obligation to complete an open offer is subject to the acquirer having obtained all the statutory approvals that are required to complete the open offer. While the term 'statutory approvals' has not been defined under the Takeover Code, the term has, in practice, been used to refer to any and all statutory as well as regulatory approvals that would be required by an acquirer to complete the intended transaction (or the combination for the purposes of the CCI Act) which has triggered the open offer. Basis the erstwhile open offers made, it has been noted that statutory approvals often consist of approvals from a variety of governmental authorities (including authorities such as CCI, RBI, TRAI, IRDAI as the case maybe), and also includes the condition of the consent of the shareholders of the target company.

In terms of a acquirer's ability to withdraw the open offer made, while SEBI does not generally permit an acquirer to withdraw an open offer once made, the Takeover Code has granted limited exceptions to acquirers to withdraw the open offer, which includes failure of the acquirer to obtain the statutory approval that the acquirer would require to undertake the open offer.

Basis the present structure of the SEBI regulations, it would appear that acquirers would be restricted from proceeding with the open offer in the absence of all the requisite statutory approvals. Further, considering that acquirers are required to make open offers for 26% of the share capital of the target company, an acquirer would have to ascertain its obligations assuming a situation wherein all the shares, in relation to which the open offer has been made, have been tendered (including whether the acquirer in such a situation would be deemed to be in control of the target company for the purposes of the SEBI regulations). Additionally, while the Draft Combination Regulations restrict the acquirer from exercising voting rights, CCI would have to bring about clarifications in order to enable parties to navigate as to whether an acquirer holding 26% shareholding would be considered to have 'influence' on the target company for the purposes of regulation 6 of the Draft Combination Regulations, considering that 26% shareholding would constitute a significant minority holding and the standard transaction documents containing standstill provisions pertaining to the operations of the target company.

In conclusion, it would appear that while the proposals put forth by the CCI aim to bring about ease in the ability of acquirers to conclude transactions, it will have to be seen as to how SEBI brings about amendments in its regulations so as to facilitate the same goal. Further, it would also have to be seen how SEBI enables acquirers to deal in the shareholding acquired in situations wherein the acquirer fails to obtain the statutory approvals required to undertake the primary transaction.

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