๐๐ฉ๐ข๐ต ๐ฅ๐ณ๐ช๐ท๐ฆ๐ด ๐ฑ๐ณ๐ฐ๐ฎ๐ฐ๐ต๐ฆ๐ณ ๐ง๐ข๐ฎ๐ช๐ญ๐ช๐ฆ๐ด ๐ต๐ฐ ๐ข๐ฅ๐ฐ๐ฑ๐ต ๐ต๐ณ๐ถ๐ด๐ต๐ด?
Promoter families are increasingly using irrevocable private trusts to consolidate shareholding, ensure smooth succession, and ring-fence governance. Also for tax benefits and preparation for managing potential wealth tax. But the critical question is – does settlement of shares into a family trust trigger open offer obligations under the SEBI (SAST) Regulations, 2011?
๐๐ก๐ ๐ซ๐ฎ๐ฅ๐๐ฌ ๐ญ๐ก๐๐ญ ๐ฆ๐๐ญ๐ญ๐๐ซ:
ยทย Regulation 3(1): Open offer required if an acquirer crosses 25% shareholding.
ยทย Regulation 4: Open offer triggered if there is an acquisition of โ๐ค๐ฐ๐ฏ๐ต๐ณ๐ฐ๐ญ,โ irrespective of shareholding.
ยท Regulation 10(1): Exempts certain inter se promoter transfers (10(1)(a)(ii)) and immediate relatives (10(1)(a)(iii)).
๐๐ซ๐จ๐๐ฅ๐๐ฆ: There is no express exemption for settlement of shares into a family trust.
๐๐๐๐โ๐ฌ ๐๐ฉ๐ฉ๐ซ๐จ๐๐๐ก ๐ฌ๐จ ๐๐๐ซ: SEBI has granted case-by-case Regulation 11 exemptions in PI Industries, Prince Pipes & Fittings, and Everest Kanto Cylinders for transfers of promoter shares to family trusts, noting that control and public shareholding remained unchanged. These orders reflect SEBIโs consistent willingness to permit trust-based succession where ownership or control does not shift, provided the Master Circular criteria are met (trust mirrors promoter holding, trustees and beneficiaries are only promoters, no layering, etc.).
Yet, even where all these conditions are satisfied, SEBI still requires a case-by-case Reg. 11 exemption, with minimal post-facto monitoring.
๐๐ก๐ฒ ๐ข๐ญ ๐ฆ๐๐ญ๐ญ๐๐ซ๐ฌ?: Currently, each family trust must apply to SEBI under Reg. 11. This takes time, costs money, and creates uncertainty, despite the outcome often being predictable. For promoter families, this adds regulatory friction to what is essentially succession planning, not a genuine change of control.
๐๐๐ ๐ฌ๐ญ๐ซ๐๐๐ญ ๐๐ข๐๐ฐ: It may be timely for SEBI to introduce a codified, automatic exemption for trust settlements where the trustees and beneficiaries are within the promoter group, provided there is no change in ultimate control or public shareholding, based on a declaration, accompanied by mandatory disclosure and post-facto monitoring. Such a move would be ease of doing business and align with the spirit of Regulation 10 (inter se exemptions), cut down repetitive exemption filings, and provide clarity to corporates planning inter-generational continuity.
Succession is inevitable. Regulation should enable it, not complicate it.
Readers are welcome to share their views with Regstreet Law Advisors at info@regstreetlaw.com
