In brief. Buy enough of a listed company and the law compels you to offer to buy out its public shareholders too. That compulsion is the open offer, the heart of the SAST Regulations, 2011. Two things trigger it: crossing the 25 per cent shareholding line, and acquiring "control." The first is arithmetic. The second is one of the hardest questions in Indian corporate law, as the long-running Subhkam saga shows.
When ownership of a listed company shifts, the people most exposed are the small shareholders who had no say in the deal and no seat at the table. The Takeover Code exists to protect them. Its central promise is simple: if someone acquires enough of a company to control it, the public shareholders must be offered a fair, priced exit on the same terms. Everything in the SAST Regulations, 2011 flows from that promise, and most takeover disputes are arguments about when the promise is triggered.
Why does the law force an open offer at all?
Because a change of control changes the bargain a public shareholder signed up for. The person who buys a controlling stake usually pays a premium for it, and without an open offer that premium would accrue only to the seller of the large block, while ordinary investors are left holding shares in a company now run by someone they never chose. The mandatory open offer spreads the control premium and guarantees an exit, so the SAST Regulations, 2011, which came into force on 22 October 2011 and replaced the 1997 code, are best read as a minority-protection instrument.1
What triggers a mandatory open offer?
There are two numerical triggers and one qualitative one. Under Regulation 3, an acquirer who crosses 25 per cent of the voting rights of a target must make an open offer to the public, and an acquirer already holding between 25 and 75 per cent who wishes to acquire more than a further 5 per cent in a financial year (the "creeping acquisition" limit) must do the same.1 When an open offer is triggered, its minimum size is 26 per cent of the target, so that a successful acquirer at the 25 per cent threshold can move to a clear majority while every minority shareholder is offered a regulated exit.1 The third trigger, control, does not depend on any percentage at all.
What counts as "control," and why is it the hard question?
Regulation 4 provides that, irrespective of shares or voting rights, no acquirer may acquire control over a target without making an open offer.2 "Control" is defined to include the right to appoint a majority of directors or to control management or policy decisions. The difficulty is that modern investment agreements are full of rights that sit near that line: board seats, affirmative-vote items, veto rights over major decisions. Whether those amount to "control" can decide whether a deal needs a public offer worth hundreds of crores, which is why the question has been litigated so heavily.
Positive control or veto rights? The Subhkam problem.
In Subhkam Ventures v. SEBI, the Securities Appellate Tribunal in 2010 drew a now-famous distinction: "control" means positive or proactive control, the power to actually run the company, and does not extend to negative or protective rights, such as veto powers an investor holds only to guard its investment.3 On appeal, however, the Supreme Court recorded that the SAT order was not to be treated as a precedent, leaving the position formally open.3 The positive-control idea later resurfaced when the Supreme Court, interpreting "control" in ArcelorMittal India Pvt Ltd v. Satish Kumar Gupta (2019), reasoned that mere veto or blocking rights do not by themselves amount to control.4 The practical upshot is a working rule that is influential but never finally settled, which is exactly why deal lawyers structure investor rights with such care.
What happens if you cross the line without offering?
SEBI can compel the offer late and add to its cost. The typical consequence of a missed trigger is a direction to make a delayed open offer, often with interest payable to the shareholders for the period of delay, alongside a penalty for the takeover default under Section 15H of the SEBI Act, capped after 2014 at ₹25 crore or three times the relevant amount, whichever is higher.5 Disgorgement and other directions can follow in serious cases. A failure to recognise a control trigger is therefore not a technicality; it can convert a quiet acquisition into a large, public, and expensive obligation.
How do you stay on the right side of the Code?
By engineering around the triggers before signing, not after. Acquirers test their combined holding, including that of persons acting in concert, against the 25 per cent and creeping limits, calibrate investor rights to stay within protective rather than proactive territory in light of the Subhkam reasoning, and use the exemptions the regulations provide for inter-se promoter transfers and certain other cases. The discipline is front-loaded: the time to decide whether a deal triggers an open offer is during structuring, because once the threshold is crossed the obligation is hard to undo.
Why does the open offer matter beyond the parties?
Because it sets the terms on which control of public companies can change hands in India. Too loose a trigger and minority investors are stranded by silent creep; too tight and ordinary investment becomes impossible without a costly public offer. The Code, and the unsettled law on "control" running through it, is the system's attempt to hold that balance. Where takeover enforcement sits among SEBI's other tools is set out in How Does SEBI Actually Enforce the Law?, and the wider enforcement record is mapped in How Does India's Securities Regulator Actually Work?
Sources & citations
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (in force 22 October 2011, replacing the 1997 Regulations), Regulation 3 (open-offer trigger at 25 per cent of voting rights and the 5 per cent creeping-acquisition limit) and the 26 per cent minimum open-offer size.
- SAST Regulations, 2011, Regulation 4 (open offer triggered by acquisition of control, irrespective of shares or voting rights).
- Subhkam Ventures (I) Pvt Ltd v. SEBI, Securities Appellate Tribunal, 2010 (control means positive, not negative or protective, control); the Supreme Court, on appeal, directed that the SAT order not be treated as a precedent.
- ArcelorMittal India Pvt Ltd v. Satish Kumar Gupta, Supreme Court of India, (2019) 2 SCC 1, reasoning that veto or blocking rights do not, by themselves, amount to control.
- SEBI Act, 1992, s. 15H (penalty for takeover and open-offer defaults), as amended by the Securities Laws (Amendment) Act, 2014.
About this article. Part of Legal Wires' SEBI Enforcement series, an analytical guide to India's securities enforcement record. This is general information and commentary, not legal advice; do not rely on it for any specific matter.
Prepared with AI assistance and reviewed by the Legal Wires editorial team. Regulations and judgments are cited above; where SEBI findings are described, they are the regulator's findings or allegations as recorded in its orders and, where applicable, as modified on appeal. Last reviewed: 27 May 2026.
Spotted an error? Tell us and we'll review it.