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Open offer exemptions likely for forfeiture of party paid shares

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Capital markets regulator Securities and Exchange Board of India (Sebi) on Thursday proposed to waive open offer obligations for companies in which there is an increase in voting rights of a stakeholder as a result of the expiry of call notice period and the forfeiture of partly paid shares.
In a discussion paper, Sebi said, “Increase in voting rights of any shareholder as a result of forfeiture of partly paid-up shares held by some shareholders is passive in nature as the process is initiated due to non-payment of call money by defaulting shareholders.”
Similarly, accrual of voting rights to the remaining shareholders, computed on pro rata basis, upon the expiry of call notice issued to the shareholders holding partly paid-up shares is also passive in nature, Sebi said.
At present, if a member fails to pay any call, or instalment of a call, on the day appointed for payment, the company’s board may serve him a notice requiring payment of such amount, together with any interest which may have accrued.
The market regulator explained that any increase in voting right of a stakeholder due to unpaid dues of another shareholder should be considered passive in nature. This is because voting rights on partly paid-up shares are considered to be in proportion to the actual amount paid for these shares and, under current rules, no individual can exercise any voting right in respect of any share on which any call or other sums are yet to be paid.
Additionally, Sebi justified that any increase in voting rights on the expiry of call notice period may not be permanent and some shareholders may pay up the calls even after the expiry of call notice period.
“Since the actual increase in voting rights is evident only on forfeiture of shares, the open offer obligations in such cases would trigger on the date of forfeiture of partly paid-up shares. However, the same is not explicitly provided for,” the Sebi paper read.
Sebi proposed to amend the takeover regulations to provide a general exemption from the open offer obligations in the cases of increase in voting rights as a result of the expiry of call notice period and the forfeiture of shares in line with general exemptions available with respect to rights issues, buybacks, etc.
HT Mint, New Delhi, 28th August 2015

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