On May 28, 2018, the Securities Appellate Tribunal ("SAT") passed an order in which it opined that ‘bulk deal’ has not been defined either in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Regulations”) or in SEBI circulars.
Regulation 11(2) of the Takeover Regulations provides that where an acquirer holds between 55% to 75% of the shareholding of a target company, an open offer has to be made to acquire additional shares. However, the proviso to this sub-regulation provides that an additional 5% shares can be acquired without making an open offer if the acquisition is made through open market purchase in normal segment and not through bulk/block/negotiated deal, or preferential allotment.
There is no definition of bulk deal provided under the Takeover Regulations. However, in SEBI Circular dated January 14, 2004, reiterated in another circular dated September 02, 2005, it is provided that with a view to impart transparency in bulk deals, disclosures have to be made with respect to all transactions in a scrip where total quantity bought is more than 0.5% of the number of equity shares of that company listed on the stock exchange.
In this context, SAT was posed with the question whether the expression ‘bulk deal’, as mentioned in the proviso to Regulation 11(2) of the Takeover Regulations, disentitles an acquirer from acquiring additional shares upto 5% without triggering an open offer requirement, if the additional shares acquired in a single transaction is in excess of 0.5% shares of the target company.
SAT opined that the directions given in the 2004 Circular are in the context of imparting transparency in bulk deals and it cannot be held that the said circular, or even the 2005 Circular, defined the expression ‘bulk deal’. However, SAT held that even assuming that ‘bulk deal’ has been defined as stated in the 2004 Circular, the interpretative circular of SEBI issued on August 06, 2009 clearly states under Regulation 11(2) the acquisition of up to 5% additional shares can be done in a single tranche. Therefore, the restriction under Regulation 11(2) to not acquire shares via bulk deal will not apply, and buying/selling above 0.5% of the total shares of the target company will not trigger an open offer requirement.
The expression ‘bulk deal’ has also been used in the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 in regulations dealing with open offer price and completion of acquisition pursuant to an open offer, i.e. Regulation 8(10) and 22(2A). This interpretation of SAT, albeit in the form of an opinion, would allow acquirers to use the open market purchase route for transactions above 0.5% of the shares of the target company without falling foul of the provisions of the said regulations.
