SEBI Clarifies Takeover Rules: Share Count from Agreement Date, Not Demat Credit

In a significant interpretation that addresses a grey area in takeover regulations, the Securities and Exchange Board of India (SEBI) has clarified that share acquisitions shall be counted from the date of agreement or trade execution rather than the date of demat account credit. This informal guidance, issued in response to a query from Pritish Nandy Communications (PNC), offers clarity to promoter groups and market participants regarding the application of creeping acquisition norms under SEBI’s Substantial Acquisition of Shares and Takeovers (SAST) Regulations. The development comes amid growing scrutiny over timing loopholes in acquisition disclosures, especially in light of delayed demat credits arising from non-trading days straddling financial year-ends.

March Trade, April Credit: The Regulatory Ambiguity That Sparked the Query

The request for guidance stemmed from a specific scenario involving PNC’s promoter group company, Ideas.Com Private Limited, which executed three equity market transactions on March 26, 27, and 28, 2025, acquiring a cumulative 4.87 percent stake in PNC. Due to market holidays on March 29, 30, and 31, the largest of these transactions—representing 4.31 percent of shares traded on March 28—was credited only on April 2, 2025, raising uncertainty over whether the acquisition would be considered part of FY25 or FY26. Given that financial year-end holdings influence the creeping acquisition limit, this demarcation held significance. SEBI’s informal stance has now clarified that the intention and agreement to acquire, as reflected in trade execution, is the operative date for takeover calculations.

Highlights

• Transactions were executed in March 2025 but credited after fiscal year-end due to trading holidays.

• The promoter group acquired 4.87% stake in Pritish Nandy Communications through three trades.

• Credit for the largest tranche (4.31%) was received on April 2, 2025, raising ambiguity about acquisition year.

• SEBI clarified acquisition date is determined by trade execution, not demat credit.

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SEBI’s Interpretation: Intention to Acquire Trumps Execution Lag

According to SEBI’s informal guidance, the key trigger under Regulation 3(2) of the Takeover Code is the intention to acquire shares or voting rights, rather than the physical completion or transfer of those shares. The regulator reinforced that the public announcement requirement and creeping acquisition calculations should stem from the date the trade is placed or agreement to acquire is executed. This interpretation underscores the regulatory emphasis on transparency and timely disclosures. The clarification draws a sharper line between transactional formalities and the regulatory substance—discouraging the use of trading calendars or holidays to defer disclosure obligations or gain unintended regulatory leniency.

Highlights

• SEBI emphasized “intention to acquire” as the determinant for takeover compliance.

• Creeping acquisition limits apply from the execution date of the trade, not demat credit date.

• Public announcements, where required, must precede the acquisition order placement.

• The regulator aims to block timing-based regulatory arbitrage via delayed crediting.

Implications for Creeping Acquisition Strategy and Threshold Calculations

Under the current SAST framework, companies that hold 25–75 percent of shares or voting rights are allowed to acquire up to 5 percent more in a financial year without triggering an open offer—a process known as creeping acquisition. In this case, PNC’s promoter group had a 54.84 percent stake as of March 31, 2024. If the March 28 transaction were deemed part of FY26, it would have conflicted with the group’s intention to acquire an additional 5 percent during that year, potentially breaching regulatory limits. SEBI’s clarification ensures that acquisitions are rightly attributed to the year in which intent and trade execution occurred, thereby preserving the sanctity of the creeping acquisition window and preventing unintentional violations of takeover norms.

Highlights

• Promoter stake in PNC stood at 54.84% as of March 31, 2024.

• Creeping acquisition allows up to 5% additional stake annually between 25–75% holding.

• Attribution to FY25 ensures promoters retain 5% limit for FY26 acquisitions.

• Clarification aligns acquisition attribution with regulatory compliance boundaries.

Informal Guidance: A Crucial Tool for Regulatory Clarity with Limitations

While SEBI’s informal guidance in this instance has offered welcome clarity, the mechanism itself is not binding and comes with significant disclaimers. Market participants seeking such clarifications must pay a ₹25,000 fee, and responses are provided by the concerned department without any formal legal sanctity. Nonetheless, such guidance serves as a vital interpretative aid for listed companies, promoters, and compliance officers navigating nuanced regulatory issues. In a fast-evolving market ecosystem, where timing, structure, and method of acquisition can affect compliance posture, these informal opinions provide necessary direction, albeit with cautionary caveats.

Highlights

• Informal guidance carries advisory value but lacks statutory authority.

• Requires payment of ₹25,000 and submission of detailed context for SEBI review.

• SEBI responses include disclaimers and are non-binding on future cases.

• Plays a pivotal role in clarifying complex, grey regulatory areas for stakeholders.

Regulatory Experts Applaud SEBI’s Transparent Approach to Ambiguity

Commenting on the latest clarification, Pavan Kumar Vijay, Founder of Corporate Professionals, emphasized that SEBI’s interpretation aligns with the spirit of the takeover code and investor protection. By prioritizing the date of trade execution over settlement date, the regulator ensures that acquirers cannot exploit calendar-based arbitrage to avoid disclosure or sidestep creeping acquisition norms. Experts also view this as a reinforcement of SEBI’s evolving regulatory stance, which focuses on substance over form and aims to standardize disclosure integrity across market participants. The guidance is expected to influence future acquisition planning and bring more predictability in timing-related compliance decisions.

Highlights

• SEBI lauded for focusing on “substance over form” in regulatory compliance.

• Experts believe the guidance strengthens investor protection and disclosure norms.

• Decision discourages manipulative use of trade holidays to delay regulatory triggers.

• Future acquisition strategies likely to align more closely with trade execution dates.