Regulation 28 - Provision of Escrow. - Securities And Exchange Board of India(Substantial Acquisition of Shares And Takeovers) Regulations, 1997

Provision of escrow. 28. (1) The acquirer shall as and by way of security for performance of his obligations under the regulations, deposit in an escrow account such sum as specified in sub-regulation (2). (2) The escrow amount shall be calculated in the following manner,- (a) For consideration payable under the public offer,- up to and including ₹ 100 crores 25 per cent; exceeding ₹ 100 crores 25 per cent; up to ₹ 100 crores and 10 per cent thereafter. (b) For offers which are subject to a minimum level of acceptance, and the acquirer does not want to acquire a minimum of 20 per cent, than 50 per cent of the consideration payable under the public offer in cash shall be deposited in the escrow account. (3) The total consideration payable under the public offer shall be calculated assuming full acceptances and at the highest price if the offer is subject to differential pricing, irrespective of whether the consideration for the offer is payable in cash or otherwise. (4) The escrow account referred to in sub-regulation (1) shall consist of,- (a) cash deposited with a scheduled commercial bank; or (b) bank guarantee in favour of the merchant banker; or (c) deposit of acceptable securities with appropriate margin, with the merchant banker; or (d) cash deposited with a scheduled commercial bank in case of clause (b) of sub-regulation (2) of this regulation. (5) Where the escrow account consists of deposit with a scheduled commercial bank, the acquirer shall while opening the account, empower the merchant banker appointed for the offer to instruct the bank to issue a banker s cheque or demand draft for the amount lying to the credit of the escrow account, as provided in the regulations. (6) Where the escrow account consists of bank guarantee, such bank guarantee shall be in favour of the merchant banker and shall be valid at least for a period commencing from the date of public announcement until 1 [twenty] days after the closure of the offer. (7) The acquirer shall, in case the escrow account consists of securities empower the merchant banker to realise the value of such escrow account by sale or otherwise provided that if there is any deficit on realisation of the value of the securities, the merchant banker shall be liable to make good any such deficit. (8) In case the escrow account consists of bank guarantee or approved securities, these shall not be returned by the merchant banker till after completion of all obligations under the regulations. (9) In case there is any upward revision of offer, consequent upon a competitive bid or otherwise, the value of the escrow account shall be increased to equal at least 10 per cent of the consideration payable upon such revision. (10) Where the escrow account consists of bank guarantee or deposit of approved securities, the acquirer shall also deposit with the bank a sum of at least 1 per cent of the total consideration payable, as and by way of security for fulfilment of the obligations under the regulations by the acquirers. (11) The Board shall in case of non-fulfilment of obligations under the regulations by the acquirer forfeit the escrow account either in full or in part. 2 [(11A) In case of failure by the acquirer to obtain shareholders approval required under sub-regulation (3) of regulation 20, the amount in escrow account may be forfeited.] (12) The escrow account deposited with the bank in cash shall be released only in the following manner,- (a) the entire amount to the acquirer upon withdrawal of offer in terms of regulation 27 upon certification by the merchant banker; (b) for transfer to the special account opened in terms of sub-regulation (1) of regulation 29 : Provided the amount so transferred shall not exceed 90 per cent of the cash deposit made under clause (a) of sub-regulation (2) of this regulation; (c) to the acquirer, the balance of 10 per cent of the cash deposit made under clause (a) of sub-regulation (2) of this regulation or the cash deposit made under sub-regulation 3 [(10)] of this regulation, on completion of all obligations under the regulations, and upon certification by the merchant banker; (d) the entire amount to the acquirer upon completion of all obligations under the regulations, upon certification by the merchant banker, where the offer is for exchange of shares or other secured instruments; 4 [(e) the entire amount to the merchant banker, in the event of forfeiture for nonfulfillment of any of the obligations under the Regulations, for distribution in the following manner, after deduction of expenses, if any, of the merchant banker and the registrars to the offer, - (i) one third of the amount to the target company; (ii) one third of the amount to the Investor Protection and Education Fund established by the Board; (iii) one third of the amount to be distributed pro-rata among the shareholders who have accepted the offer. (13) In the event of non-fulfilment of obligations by the acquirer, the merchant banker shall ensure realisation of escrow amount by way of foreclosure of deposit invocation of bank guarantee or sale of securities and credit proceeds thereof 5 [to the Investor Protection and Education Fund established by the Board]. ------------------ Notes:- 1. Substituted for 30 by the SEBI (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2004, w.e.f. 3-9-2004. 2. Inserted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2002, w.e.f. 9-9-2002. 3. (8) substituted by the SEBI (Substantial Acquisition of Shares and Takeovers) (Second Amendment) Regulations, 2002, w.e.f. 9-9-2002. 4. Substituted by the SEBI (Investor Protection Investment Fund) Regulations, 2009, w.e.f. 19-5-2009. Prior to this substitution, clause (e) read as under: (e) the entire amount to the merchant banker, in the event of forfeiture for non-fulfilment of any of the obligations under the regulations, for distribution among the target company, the regional stock exchange and to the shareholders who had accepted the offer in the following manner, after deduction of expenses, if any, of the merchant banker and the registrars to the offer- (i) one-third of the amount to the target company; (ii) one-third of the amount to the regional stock exchange for credit of the investor protection fund or any other similar fund for investor education, research, grievance redressal and similar such purposes as may be specified by the Board from time to time; (iii) residual one-third to be distributed pro rata among the shareholders who have accepted the offer. 5. Substituted for the words to the regional stock exchange of the target company, for the credit of the investor protection fund or any other similar fund by the SEBI (Investor Protection Investment Fund) Regulations, 2009, w.e.f. 19-5-2009.