SEBI’s Special Treatment To Public Sector Banks


SEBI Chairman Mr. U. K. Sinha while talking about minimum public shareholding in public sector companies said, “Our (SEBI’s) stand as a regulator is that all cos should be treated alike on all matters, not only public float on corporate governance and all and this is what we have been telling the government,”. But the same doesn’t seem to be taken seriously either by Government or by SEBI in light of some recent exemption orders passed by SEBI.

SEBI has recently passed exemption orders in the matter of Indian Overseas Bank (‘IOB‘) and United Bank of India (‘UBI‘) whereby SEBI has exempted Government of India from making an open offer to the public shareholders of the Banks. The increase in the promoter shareholding (Government of India) to 79.56% from 73.58 and from 82% to 88.72% in case of IOB and UBI respectively is clear cut violation of MPS Norms provided under Rule 19A (1) of Securities Contracts (Regulation) Rules (‘SCRR Rules’) and proviso to Regulation 3 (2) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (‘SAST 2011’). The provisions are reproduced below for ready reference:

“19A (1) Every listed Company shall maintain public shareholding of at least twenty five per cent.”


Provided that such acquirer shall not be entitled to acquire of enter into any agreement to acquire shares or voting rights exceeding such number of shares as would take the aggregate shareholding pursuant to the acquisition above the maximum permissible non-public shareholding”

It is mentioned in the exemption order that SEBI sought clarification regarding compliance of Minimum Public Shareholding norms and it was informed to SEBI by Government of India vide letter dated September 30, 2016 as under:

As per request of SEBI, Department of Financial Services, Ministry of Finance, Government of India, being promoter of the company declares that Indian Overseas Bank will comply with Minimum Public Shareholding (MPS) requirements in terms of Securities Contracts (Second Amendment) Rules, 2014.”

In terms of the Securities Contracts (Second Amendment) Rules, 2014 (‘Rules’), those public sector companies whose public shareholding was less than 25% on August 22, 2014 (date of commencement of Rules) were allowed to increase their public shareholding to at least 25% within a period of 3 years in the manner specified by SEBI. At the time of commencement of Rules, the public shareholding of IOB was 26.20% and therefore such relaxation is not applicable to IOB. Therefore, as per Rule 19A (1) of Securities Contract Regulation Rules, Indian Overseas Bank has to maintain minimum public shareholding of 25%. Considering the above provisions, IOB is only allowed to increase its promoter shareholding up to 75% and SEBI Takeover Regulations do not permit the Bank to increase its promoter shareholding beyond 75%.

In case of UBI, Regulation 3 (2) of SAST 2011 is not applicable as the GOI is already holding more than permissible limit of 75% and the provision is applicable only to those acquirers who hold more than 25% but less than maximum permissible non-public shareholding. Consequently, the proviso to regulation 3(2) prohibiting such acquirer to acquire shares/voting rights exceeding the permissible non-public shareholding is not strictly attracted though it impinges upon the listing condition of maintaining Minimum Public Shareholding.

Therefore, in both the above cases SEBI, while granting exemption to acquirers from making open offer has either overstepped its powers or exercised its discretion which is not in the interest of public shareholders.


It is further noticed that Syndicate Bank, Dena Bank and Allahabad Bank have also made exemption applications to SEBI and SEBI has overstepped its powers and passed an exemption order. As per regulation 13 of SAST 2011, in respect of preferential allotment, the Acquirer is under an obligation to make a public announcement of Open Offer on the date on which the board of directors of Target Company authorizes preferential issue of shares, if such acquisition triggers open offer requirement. It means the triggering date of open offer is the date of Board Meeting. Syndicate Bank has passed board resolution on August 04, 2016 approving the preferential allotment to its promoter i.e. Government of India (GOI) and GOI triggered the open offer on same day as it exceeded its creeping acquisition limit of 5% (increase from 65.17% to 72.92%). Instead of making an open offer, GOI filed an exemption application with SEBI on August 17, 2016 which surprisingly approved by SEBI and exemption order is passed on September 12, 2016. SEBI has no powers whatsoever to exempt triggered open offers. In case of Allahabad Bank and Dena Bank also, though the open offer was triggered much earlier, an exemption application was filed at later date and Exemption Order was passed by SEBI. The details are as follows:

Name of the Target Company and Acquirer

Date of Board Resolution

Date of Application Filed

Date of disposal of Application

Approximate time

United Bank of IndiaAugust 09, 2016August 10, 2016October 03, 2016Nearly two months
Indian Overseas BankAugust 16, 2016August 18, 2016September 30, 2016

Exemption granted

One and Half Month
Syndicate BankAugust 04, 2016August 17, 2016September 12, 2016

Exemption granted

Less than a month
Dena BankAugust 12, 2016September 01, 2016September 21, 2016

Exemption granted

20 Days
Allahabad BankNot givenApril 11, 2016May 12, 2016

Exemption granted

One Month

In all the cases, the Exemption Order was passed in a months’ time while for disposing the other exemption applications SEBI has been normally taking substantial time. The time taken by SEBI for disposing of some of the Exemption Applications is tabulated herein below (Exemption Orders passed in 2016):

Name of the Target Company and Acquirer

Date of Application Filed

Date of disposal of Application

Approximate time

Asahi Songwon Colors Limited – Mrugesh Jaykrishna Family TrustAugust 15, 2014March 08, 2016

Exemption granted

One and Half Year
Gravita India Limited- AgarwalMarch 19, 2015April 27, 2016

Exemption granted

One Year
Wipro Limited – Hasham Investment and Trading Company Private LimitedAugust 20, 2014February 03, 2016

Exemption granted

One and half year
Diamond Power Infrastructure Limited – Mr. Amit BhatnagarJuly 14, 2015March 23, 2016

Exemption granted

8 months
Lyka Labs Limited – Narendra Gandhi and othersFebruary 05, 2015March 31, 2016

Application Rejected

More than one year

This clearly demonstrate the special and different treatment provided to Public sector undertakings over the other applicants. There is no harm in granting exemption as public sector banks are under pressure and need capital badly. The Government ought to have filed such exemption applications much before the board meetings to comply with the existing Takeover Regulations. An exemption application filed after triggering the open offer is not maintainable as has been held by SEBI in several earlier cases. There was no convincing reasons for SEBI to take a different stand in the matter of PSBs when the intention of regulations is to treat public and private sector companies at par.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Media Coverage

About Dhaval Vussonji

Ask a question

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Legal Disclaimer

User Acknowledgement

By proceeding further and clicking on the “AGREE” button herein below, I acknowledge that I of my own accord wish to know more about Dhaval Vussonji & Associates for my own information and use. I further acknowledge that there has been no solicitation, invitation or inducement of any sort whatsoever from Dhaval Vussonji & Associates or any of its members to create an Attorney-Client relationship through this knowledgesite. I further acknowledge having read and understood the Disclaimer below.


This knowledgesite ( is a resource for informational purposes only and is intended, but not promised or guaranteed, to be correct, complete, and up-to-date. Dhaval Vussonji & Associates (DVA) does not warrant that the information contained on this knowledgesite is accurate or complete, and hereby disclaims any and all liability to any person for any loss or damage caused by errors or omissions, whether such errors or omissions result from negligence, accident or any other cause.

DVA further assumes no liability for the interpretation and/or use of the information contained on this knowledgesite, nor does it offer a warranty of any kind, either expressed or implied. The owner of this knowledgesite does not intend links from this site to other internet knowledgesites to be referrals to, endorsements of, or affiliations with the linked entities. DVA is not responsible for, and makes no representations or warranties about, the contents of Web sites to which links may be provided from this Web site.

This knowledgesite is not intended to be a source of advertising or solicitation and the contents of the knowledgesite should not be construed as legal advice. The reader should not consider this information to be an invitation for a lawyer-client relationship and should not rely on information provided herein and should always seek the advice of competent counsel licensed to practice in the relevant country/state. Transmission, receipt or use of this knowledgesite does not constitute or create a lawyer-client relationship. No recipients of content from this knowledgesite should act, or refrain from acting, based upon any or all of the contents of this site.

Furthermore, the owner of this knowledgesite does not wish to represent anyone desiring representation based solely upon viewing this knowledgesite or in a country/state where this knowledgesite fails to comply with all laws and ethical rules of that state. Finally, the reader is warned that the use of Internet e-mail for confidential or sensitive information is susceptible to risks of lack of confidentiality associated with sending email over the Internet.