Indirect Acquisition of Shares and Control under the SEBI Takeover Regulations

Introduction

The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) regulate substantial acquisitions of shares or voting rights in, and acquisitions of control over, companies whose shares are listed on recognised stock exchanges in India. The framework applies not only where an acquirer directly acquires shares in an Indian listed company, but also where the acquisition takes place through an upstream entity or an intermediary corporate structure.

An indirect acquisition may arise where an acquirer obtains shares, voting rights or control in a company or other entity that, in turn, holds shares or exercises control over an Indian listed company. The fact that the acquirer does not directly purchase shares in the listed target does not, by itself, take the transaction outside the SAST Regulations. Regulation 5 addresses such transactions and is intended to prevent the use of multi-layered corporate structures to circumvent the open-offer requirements.

For parties undertaking domestic or cross-border mergers and acquisitions, identifying whether a proposed transaction constitutes an indirect acquisition is therefore an important part of transaction structuring and regulatory due diligence. The classification of the acquisition as a deemed direct acquisition or a standard indirect acquisition can also affect the timing of the public announcement, the detailed public statement and the determination of the open-offer price.

What constitutes an indirect acquisition?

Regulation 5(1) of the SAST Regulations provides that an acquisition of shares, voting rights or control in any company or other entity will be treated as an indirect acquisition of shares, voting rights or control over an Indian listed target where the acquisition enables the acquirer, together with persons acting in concert (“PACs”), to exercise or direct the exercise of voting rights or control over the target company to an extent that would otherwise trigger an open-offer obligation under the Regulations.

The provision is relevant where the acquisition takes place at the level of a parent company, holding company or another intermediate entity, whether incorporated in India or overseas. For instance, where an acquirer purchases a foreign holding company that owns a controlling stake in an Indian listed company, the transaction may constitute an indirect acquisition under Regulation 5, even though no shares of the Indian target are directly transferred to the acquirer.

The analysis must consider the rights and interests acquired through the corporate structure, including the voting rights and control that the acquirer is able to exercise over the Indian target. The involvement of multiple entities or jurisdictions does not, on its own, prevent the application of the SAST Regulations.

2. Deemed direct acquisition and standard indirect acquisition

Regulation 5(2) distinguishes between indirect acquisitions based on the economic significance of the Indian listed target within the entity or business being acquired. Where any one of the prescribed parameters is in excess of 80%, the indirect acquisition is treated as a direct acquisition of the target company for all purposes of the SAST Regulations, including the timing, pricing and other open-offer compliance requirements.

The three parameters are:

• Net asset value: The proportionate net asset value of the target company as a percentage of the consolidated net asset value of the entity or business being acquired.
• Sales turnover: The proportionate sales turnover of the target company as a percentage of the consolidated sales turnover of the entity or business being acquired.
• Market capitalisation: The proportionate market capitalisation of the target company as a percentage of the enterprise value of the entity or business being acquired.

The prescribed calculations are based on the most recent audited annual financial statements. For the market-capitalisation test, the target company’s market capitalisation is calculated using the volume-weighted average market price of its shares over the 60 trading days preceding the earlier of (i) the date on which the primary acquisition is contracted; or (ii) the date on which the intention or decision to undertake the primary acquisition is announced in the public domain. The relevant stock exchange is the exchange on which the target company’s shares recorded the highest trading volume during that period.

The satisfaction of any one of these three tests is sufficient to classify the transaction as a deemed direct acquisition. It is not necessary for all three parameters to exceed 80%. Where none of the prescribed parameters is in excess of 80%, the transaction is treated as a standard indirect acquisition. This distinction is significant because the SAST Regulations prescribe different timelines for the public announcement and detailed public statement, as well as a separate pricing methodology for standard indirect acquisitions.

3. Open-offer triggers in an indirect acquisition

An indirect acquisition may attract an open-offer obligation under Regulation 5 read with Regulations 3 and 4 of the SAST Regulations. Regulation 3(1) prescribes the initial threshold of 25% of the voting rights in the target company. Where an acquirer, together with its PACs, acquires shares or voting rights entitling it to exercise 25% or more of the voting rights in the target company, an open-offer obligation may arise, subject to the applicable provisions and exemptions.

Regulation 3(2) governs further acquisitions by an acquirer that already holds 25% or more of the voting rights but less than the maximum permissible non-public shareholding. Such an acquirer may not acquire additional shares or voting rights entitling it to exercise more than 5% of the voting rights in a financial year without triggering an open-offer obligation. The prescribed calculation is based on gross acquisitions, and subsequent disposals are not ordinarily available to offset acquisitions for this purpose.

Separately, Regulation 4 requires an open offer where an acquirer acquires control over the target company, irrespective of whether shares or voting rights are acquired. Accordingly, a transaction may trigger an open offer even if the acquirer does not cross the 25% shareholding threshold, where it results in the acquisition of control.

These provisions apply to indirect acquisitions as well. An upstream acquisition must therefore be assessed not only by reference to the percentage of shares acquired in the parent or intermediary entity, but also by reference to the voting rights and control that the acquirer obtains over the Indian listed target.

4. Assessment of control through intermediary entities

The definition of “control” under Regulation 2(1)(e) of the SAST Regulations includes the right to appoint a majority of the directors or to control the management or policy decisions of a company. Such rights may be exercised directly or indirectly, individually or jointly, including through shareholding, management rights, shareholders’ agreements, voting agreements or other arrangements.

In an indirect acquisition, the assessment of control requires examination of the rights obtained at each relevant level of the corporate structure and their effect on the listed target. The analysis should not be confined to the percentage of shares acquired in the immediate holding company.

Control may arise through majority shareholding or contractual rights that confer the ability to determine the composition of the board or influence the management and policy decisions of the target. However, the existence of affirmative or veto rights does not automatically establish control. The nature, scope and commercial context of the rights must be examined to determine whether they amount to control within the meaning of the Regulations.

Accordingly, transaction documents should be reviewed for provisions relating to board composition, appointment and removal rights, management authority, business plans, strategic decisions, voting arrangements and other governance matters. The assessment is particularly important where an investor acquires a minority stake in an upstream entity but obtains substantive rights that may affect the management or policy decisions of the Indian listed target.

5. Public announcement and detailed public statement: applicable timelines

The timing requirements differ depending on whether the indirect acquisition is treated as a deemed direct acquisition under Regulation 5(2) or as a standard indirect acquisition.

Deemed direct acquisition

Where any of the 80% parameters under Regulation 5(2) is satisfied, the transaction is treated as a direct acquisition for all purposes of the SAST Regulations. Accordingly, the public announcement is required to be made on the earlier of the date on which the primary acquisition is contracted and the date on which the intention or decision to undertake the primary acquisition is announced in the public domain. The detailed public statement must then be published within five working days of the public announcement, in accordance with the applicable provisions.

Standard indirect acquisition

Where none of the 80% parameters is satisfied, Regulation 13(2)(e) permits the public announcement to be made within four working days from the earlier of the date on which the primary acquisition is contracted and the date on which the intention or decision to undertake the primary acquisition is announced in the public domain.

The detailed public statement must be published within five working days of completion of the primary acquisition, in accordance with the proviso to Regulation 13(4). This sequencing recognises that, in a standard indirect acquisition, the acquirer may not obtain the ability to exercise or direct the exercise of voting rights or control over the Indian target until the primary transaction is completed. If the acquirer does not ultimately obtain that ability, the Regulations clarify that it is not required to publish the detailed public statement for the open offer.

The distinction between these timelines is important for cross-border transactions, where the primary acquisition may be subject to foreign regulatory approvals, closing conditions or other completion requirements. The transaction documents and the public-announcement timetable should therefore be coordinated at an early stage.

6. Determination of the open-offer price

Regulation 8 prescribes the methodology for determining the minimum offer price. The applicable provision depends on whether the indirect acquisition meets the parameters under Regulation 5(2).

Deemed direct acquisitions

Where an indirect acquisition satisfies any of the 80% parameters under Regulation 5(2), Regulation 8(2) applies in the same manner as it does to a direct acquisition. The offer price is determined by reference to the highest of the prescribed benchmarks, including the negotiated price under the agreement triggering the open offer, the volume-weighted average price paid or payable by the acquirer or PACs during the preceding 52 weeks, the highest price paid or payable during the preceding 26 weeks, and the applicable market-price benchmark for frequently traded shares. Where the shares are infrequently traded, the valuation methodology under Regulation 8(2)(e) applies.

Standard indirect acquisitions

Where none of the 80% parameters under Regulation 5(2) is satisfied, Regulation 8(3) prescribes a separate pricing methodology. The relevant benchmarks include:

• The highest negotiated price per share of the target company, if any, under the agreement triggering the open-offer obligation.
• The volume-weighted average price paid or payable by the acquirer or PACs during the 52 weeks preceding the earlier of the date on which the primary acquisition is contracted and the date on which the intention or decision to undertake it is announced in the public domain.
• The highest price paid or payable by the acquirer or PACs during the 26 weeks preceding that earlier date.
• The highest price paid or payable for any acquisition by the acquirer or PACs between that earlier date and the date of the public announcement for the open offer relating to the target company.
• The volume-weighted average market price of the target company’s shares for the 60 trading days preceding that earlier date, where the shares are frequently traded.
• The per-share value computed under Regulation 8(5), where applicable.

Where the offer price cannot be determined under the prescribed parameters in Regulation 8(3), Regulation 8(4) requires the fair price to be determined by an independent registered valuer, taking into account relevant valuation parameters, including book value, comparable trading multiples and other customary valuation methods.

Regulation 8(5) also requires the acquirer to compute and disclose in the letter of offer the per-share value of the target company taken into account in the primary acquisition, together with a detailed description of the methodology adopted, where any one of the specified proportionate net asset value, sales turnover or market-capitalisation parameters is in excess of 15%, based on the most recent audited annual financial statements. This disclosure requirement is distinct from the 80% threshold used to classify an indirect acquisition as a deemed direct acquisition.

The valuation provisions were amended in December 2025 to provide for the involvement of an independent registered valuer in the circumstances specified under Regulation 8(2)(e) and Regulation 8(4). The amended framework should be considered when determining the offer price for transactions involving infrequently traded shares or where a fair-price determination is required.

7. Interest adjustment for standard indirect acquisitions

Regulation 8(12) provides for an interest adjustment in the case of an indirect acquisition other than an indirect acquisition referred to in Regulation 5(2). In such cases, the offer price is required to be enhanced by an amount calculated at 10% per annum for the period between the earlier of (i) the date on which the primary acquisition is contracted; or (ii) the date on which the intention or decision to undertake the primary acquisition is announced in the public domain, and the date of the detailed public statement, provided that the period exceeds five working days.

The provision is intended to account for the time between the announcement or contracting of the primary acquisition and the publication of the detailed public statement. It is important to note that this specific interest adjustment does not apply to indirect acquisitions falling within Regulation 5(2), which are treated as direct acquisitions for the purposes of the Regulations.

The interest adjustment should be factored into transaction valuation and open-offer funding arrangements at the structuring stage, particularly where the primary transaction is expected to involve a lengthy completion process.

8. Exemptions and regulatory consequences

Certain acquisitions may be exempt from the open-offer obligation under Regulation 10, subject to satisfaction of the specific statutory conditions and applicable disclosure requirements. These include specified inter se transfers between qualifying persons, certain acquisitions pursuant to schemes of arrangement sanctioned by the competent authority, qualifying acquisitions under a resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, 2016, and certain other categories expressly recognised under the Regulations.

The availability of an exemption must be assessed against the precise facts of the transaction and the conditions attached to the relevant provision. The fact that a transaction is structured as an internal reorganisation, a transfer within a corporate group or an acquisition pursuant to a foreign restructuring does not, by itself, establish that the exemption is available.

Where a transaction does not fall within an automatic exemption, an application may be made to SEBI under Regulation 11 seeking an exemption from the open-offer requirement. The grant of such an exemption is discretionary and subject to SEBI’s consideration of the circumstances and the interests of investors and the securities market.

Failure to comply with the open-offer requirements may result in regulatory and monetary consequences. Under Regulation 32, SEBI may issue directions including requiring divestment of shares acquired in violation of the Regulations, restricting the exercise of voting or other rights attached to such shares, directing that transfers of the shares not be given effect to, restricting access to the securities market, or directing the acquirer to make the open offer and pay interest for the delay.

In addition, Section 15H of the SEBI Act, 1992 provides for a monetary penalty where a person fails to make the required public announcement, make the public offer or comply with the payment obligations prescribed under the takeover framework. The penalty may extend to ₹25 crore or three times the amount of profits made out of the failure, whichever is higher, subject to the statutory minimum.

Conclusion

Indirect acquisitions under the SAST Regulations require careful assessment of the ownership, voting rights and control flowing through the entire corporate structure. The absence of a direct transfer of shares in an Indian listed company does not, by itself, remove the transaction from the scope of the takeover framework.

For transaction parties, the distinction between a deemed direct acquisition and a standard indirect acquisition is particularly important. It determines the applicable public-announcement and detailed-public-statement timelines, the relevant offer-price benchmarks and whether the 10% interest adjustment under Regulation 8(12) applies.

Accordingly, parties proposing domestic or cross-border acquisitions involving an entity that holds shares or control in an Indian listed company should assess the Regulation 5 thresholds, the nature of the rights being acquired, the applicable pricing methodology and potential open-offer obligations before signing the primary transaction documents. Consulting experienced capital markets lawyers in India at an early stage can help identify regulatory and execution risks, address disclosure requirements and incorporate the financial and procedural implications of an open offer into the transaction structure.

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Last Updated on 3 November, 2026