Disinvestment & Government Acquisitions — SAST Special Provisions

Topic 53 — Government as Acquirer, PSU Disinvestment, IBC Acquisitions & Special Exemptions | SEBI Law Officer

Government acquisitions and PSU disinvestment transactions involve special considerations under the SAST Regulations. When the Government acquires shares in a listed company — through nationalisation, strategic investment, or exercise of statutory powers — the standard open offer mechanism may be inappropriate or impractical. Similarly, when the Government divests its stake in a PSU through strategic sale, the acquirer's obligations under SAST must be balanced with the public policy objectives of the disinvestment programme. SEBI has developed specific frameworks to address these scenarios.

1. Government as Acquirer — Overview

The Central Government or State Governments can acquire shares in listed companies through:

Strategic investment (direct purchase from market or from promoters).
Exercise of statutory powers (nationalisation under specific legislation).
Debt-equity conversion in a company undergoing financial stress.
Acquisition pursuant to a court/NCLT order in restructuring proceedings.

General rule: Government is not exempt from SAST unless a specific exemption applies. If the Government's acquisition crosses 25% or constitutes 'control', the open offer obligation in principle applies.

2. Regulation 10(1)(f) — Acquisitions Pursuant to Statutory Obligations

Regulation 10(1)(f): Acquisition of shares or voting rights pursuant to a scheme of arrangement under applicable law, or acquisition in pursuance of a statutory obligation, shall be exempt from the obligation to make a public announcement.

This exemption covers acquisitions where the Government (or any person) acquires shares as a legal compulsion — not a voluntary strategic decision:

Nationalisation under a specific statute (e.g., nationalisation of banks under Banking Companies (Acquisition and Transfer of Undertakings) Act).
Acquisition pursuant to Companies Act Section 230-232 scheme sanctioned by court/NCLT.
Acquisition by order of court in winding-up/insolvency proceedings.

3. PSU Disinvestment — Strategic Sale to Private Acquirer

When the Government sells a controlling stake in a PSU to a strategic private acquirer, the acquirer's SAST obligations are triggered:

Disinvestment Type	SAST Obligation for Private Acquirer
Strategic sale: Government sells control stake (>25%) to private acquirer	Private acquirer must make mandatory open offer for 26% of remaining public shareholders
Financial divestment: Government sells minority stake through market sale/OFS	If acquirer/PAC crosses 25% — mandatory open offer. Otherwise, no open offer.
Initial Public Offer (IPO) of PSU shares	Not an 'acquisition' — IPO is the first listing; SAST does not apply
SEBI waiver under Regulation 10(4)	Private acquirer in a strategic disinvestment can apply to SEBI for exemption if open offer would frustrate the disinvestment policy

4. IBC (Insolvency & Bankruptcy Code) Acquisitions and SAST

One of the most significant developments in recent SAST jurisprudence is the intersection with the Insolvency and Bankruptcy Code, 2016. When a listed company undergoes Corporate Insolvency Resolution Process (CIRP) under IBC:

Resolution applicant's acquisition: The resolution applicant (new investor who takes over the company under the IBC resolution plan) will typically acquire control and/or more than 25% of the reorganised entity. Does SAST apply?
SEBI's position and exemption: SEBI has issued circulars providing that acquisitions pursuant to an IBC resolution plan (NCLT-approved) are eligible for exemption under Regulation 10(1)(c) (scheme sanctioned by NCLT) — subject to disclosure obligations.
Key condition: The resolution plan must be NCLT-approved and the acquisition must flow directly from the plan — not from subsequent off-market transactions.

📖 Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta (2019) 2 SCC 1

Facts: Arcelor Mittal sought to acquire Essar Steel (listed company) through the IBC CIRP process. SEBI was concerned about SAST applicability — whether Arcelor Mittal would need to make an open offer.

Held: The Supreme Court (IBC context) held that IBC provisions would have supremacy over other laws including SEBI regulations in the context of resolution plans. NCLT-approved resolution plans override conflicting obligations under SAST — subject to SEBI being notified and given opportunity to be heard in NCLT proceedings.

Ratio: IBC resolution plan acquisitions, when NCLT-approved, override SAST open offer obligations by virtue of IBC's 'notwithstanding' clause (Section 238 IBC). SEBI should participate in NCLT proceedings to protect listed company shareholders' interests.

5. Government-to-Government Transfers

Transfers between government entities — from one PSU to another, or from Government to another government entity — may not trigger SAST obligations, particularly when:

The transfer is pursuant to a specific statute or Cabinet decision.
The transfer is between entities where the Government is the ultimate controlling entity in both.
SEBI has granted specific exemption under Regulation 10(4) for the transfer.

SEBI's TRAC typically examines government-to-government transfers carefully — ensuring that public shareholders are not disadvantaged by the restructuring.

6. SEBI's TRAC Framework for Government Disinvestment Exemptions

The Takeover Regulations Advisory Committee (TRAC) — constituted by SEBI — examines applications for exemption under Regulation 10(4). For government disinvestment transactions, TRAC considers:

Whether the transaction serves a legitimate public policy objective (disinvestment policy, restructuring, PPP).
Whether public shareholders will receive adequate protection through alternative mechanisms (delisting, restructuring scheme, etc.).
Whether the private acquirer receiving the government stake should bear the open offer obligation or whether an exemption is justified by the transaction structure.
Whether the transaction has been through adequate public scrutiny (Cabinet Committee on Economic Affairs (CCEA) approval for major disinvestments).

7. Model Examination Questions

Q1. How does the SAST Regulations framework apply to government disinvestment transactions? Discuss with reference to exemptions and IBC intersection.

Government Disinvestment & IBC Acquisitions under SAST

Model Answer — GOVERNMENT AS ACQUIRER: Government acquisitions pursuant to statutory obligations are exempt under Regulation 10(1)(f). Voluntary strategic investments by the Government that cross 25% or result in control are NOT automatically exempt — SEBI can grant Regulation 10(4) exemption. PSU DISINVESTMENT TO PRIVATE ACQUIRER: When the Government sells control in a PSU to a private strategic acquirer, the private acquirer must make a mandatory open offer for 26% of remaining shareholders under Regulation 3(1)/4 UNLESS an exemption is granted under Regulation 10(4) (TRAC). TRAC considers: public policy objective; shareholder protection alternatives; transaction structure. IBC INTERSECTION: Resolution applicants acquiring listed companies through NCLT-approved plans are exempt under Regulation 10(1)(c) (NCLT scheme). In Arcelor Mittal v. Satish Kumar Gupta (2019 SC), the Court held that IBC's 'notwithstanding' clause (Section 238 IBC) gives resolution plans supremacy over conflicting SAST obligations — but SEBI should participate in NCLT proceedings. SEBI circulars have confirmed IBC resolution plan acquisitions are eligible for SAST exemption subject to disclosure. GOVERNMENT-TO-GOVERNMENT: Transfers between Government entities may be exempt under Regulation 10(1)(f) or Regulation 10(4) — case-by-case examination by TRAC.

🎯 EXAM POINTERS — Topic 53: Disinvestment & Government Acquisitions

Government acquisitions pursuant to STATUTORY OBLIGATIONS: exempt under Regulation 10(1)(f).
Voluntary Government strategic investment crossing 25%: NOT automatically exempt — Regulation 10(4) (TRAC) needed.
PSU strategic sale to private acquirer: private acquirer MUST make mandatory open offer UNLESS Reg 10(4) exemption granted.
IBC resolution plan acquisitions: exempt under Regulation 10(1)(c) (NCLT scheme) — subject to SEBI being heard.
Arcelor Mittal v. Satish Kumar Gupta (2019 SC): IBC Section 238 'notwithstanding' = IBC plan overrides SAST.
SEBI should participate in NCLT proceedings to protect listed company shareholders in IBC cases.
TRAC factors for disinvestment exemptions: public policy; shareholder protection; CCEA approval; transaction structure.
Government-to-government transfers: case-by-case — may use Regulation 10(1)(f) or Regulation 10(4).
Disinvestment through OFS/market sale: SAST applies if 25% threshold crossed by acquirer/PAC.
PSU IPO: NOT a 'acquisition' — first listing; SAST does not apply to the IPO itself.

← Topic 52: Competing Offers & Shareholders' Rights | Next → Topic 54: Takeover Panel (TRAC) & Manager to Open Offer

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