SEBI Mulls Mandatory Disclosure Norms for Target Companies in Open Offer Cases
India’s market regulator, the Securities and Exchange Board of India (SEBI), is considering a significant overhaul of the Takeover Code that could reshape how open offers are executed in hostile or non-cooperative acquisition scenarios. According to sources familiar with the discussions, SEBI may soon make it obligatory for target companies to share key information and cooperate with acquirers during an open offer process.
The proposed change is expected to be part of a broader review of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, following the submission of a final report by the Committee to Review the Takeover Code. A consultation paper outlining the proposed amendments is likely to be released in the coming weeks.
Why SEBI Is Looking to Tighten Open Offer Framework
Under the current Takeover Regulations, the onus of ensuring accuracy and adequacy of disclosures rests largely on the acquirer. The acquirer is required to confirm that the public announcement, detailed public statement, letter of offer and post-offer advertisements are “true, fair and adequate” and not misleading in any material aspect.
However, the existing framework does not impose any explicit obligation on the target company to cooperate with the acquirer or to provide information necessary for completing the open offer. This gap has generally not posed issues in friendly transactions, where the seller is an existing promoter or where the target company’s management supports the transaction.
The challenge arises in hostile bids or cases where the target company’s management is not aligned with the acquirer. In such situations, access to critical information—ranging from regulatory approvals to operational data—becomes difficult, increasing execution risk and prolonging timelines.
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Past Corporate Disputes Triggered the Review
Sources said the current review was prompted by a past corporate episode involving a non-banking financial company (NBFC), where the target company allegedly failed to cooperate with the acquirer. Despite repeated requests, the target entity did not seek mandatory regulatory approvals from the Reserve Bank of India, a key condition for completing the open offer.
The standoff eventually escalated into a prolonged legal battle, forcing SEBI to step in and issue specific directions to the target company with a defined timeline.
A legal expert aware of the committee’s deliberations said, “The committee was of the view that a provision regarding imposing certain obligations on the target company should be introduced in the Takeover Regulations, which would make the target company liable to cooperate for the purpose of an open offer.”
Board-Level Responsibility Likely to Be Introduced
If implemented, the revised Takeover Code is expected to place clear responsibility on the board of the target company. The board may be mandated to:
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Share relevant information required for the open offer
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Cooperate with the acquirer during the offer process
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Seek and facilitate statutory approvals from regulators in a time-bound manner
According to another legal source, SEBI may tweak Regulation 9 of the Takeover Code by adding two provisos to formally introduce these obligations.
Such a move would bring Indian takeover regulations closer to global standards. Jurisdictions such as the UK already impose explicit duties on target companies under the UK Takeover Code, ensuring smoother execution of takeover bids and protecting shareholder interests.
Wilful Defaulters May Be Barred From Competing Offers
Another key change under consideration is the treatment of wilful defaulters in takeover situations. Currently, SEBI regulations prohibit wilful defaulters from making an open offer but still allow them to submit a competing offer under Regulation 20.
SEBI is reportedly evaluating whether this exemption should be removed altogether. The rationale is that wilful defaulters may not be in a position to meet financial obligations under takeover regulations, and allowing them to acquire control may not be in the best interest of shareholders or the company.
As one source put it, “Allowing wilful defaulters to make competing offers raises concerns around credibility, funding certainty and governance outcomes.”
If implemented, this change would tighten eligibility norms and reduce regulatory ambiguity.
Part of a Larger Takeover Code Overhaul
The proposed amendments form part of a wider effort to modernise India’s takeover framework. Earlier reports on the committee’s draft recommendations indicated several other potential changes, including:
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Clarifying the definition of ‘control’, explicitly excluding “negative control” or mere protective rights unless exercised with intent
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Reducing open offer timelines from 62 days to 42 days to improve efficiency
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Improving disclosure clarity to reduce disputes and litigation
These reforms aim to balance investor protection with ease of doing business, while aligning Indian regulations with global best practices.
What Happens Next
SEBI is expected to release a consultation paper after receiving the committee’s final report, inviting public and stakeholder feedback before finalising the amendments. Market participants, legal experts and investment bankers are likely to scrutinise the proposals closely, given their potential impact on mergers and acquisitions activity.
An email seeking SEBI’s comments on the proposed changes did not receive a response.
For investors, the proposed reforms could enhance transparency, reduce execution risk in open offers, and strengthen shareholder protection—especially in contentious takeover situations. If adopted, the changes would mark one of the most consequential updates to India’s takeover regime in recent years.
