The increasing use of private trusts in succession planning and promoter structuring has prompted significant regulatory scrutiny, particularly in the context of listed entities. While private trusts offer benefits such as estate continuity and control centralization, their role as promoters in listed companies is subject to stringent regulations under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 ("Takeover Regulations").

This article explores the regulatory thresholds for open offer obligations, the limited scope of automatic exemptions available to trusts, and the conditions under which exemption may be sought from SEBI.

Triggering Events Under the Takeover Regulations

The Takeover Regulations prescribe certain acquisition thresholds that, when crossed, mandate the acquirer to make an open offer:

• Initial Trigger – Regulation 3(1): An open offer is triggered upon the acquisition of 25% or more of the voting rights in a listed company. This includes the aggregate holding of the acquirer and persons acting in concert (PAC).
• Creeping Acquisition – Regulation 3(2): Where the acquirer (with PAC) already holds 25% or more but less than 75%, a further acquisition of 5% or more in a financial year necessitates an open offer. The total acquisition limit is capped at 75%.

All acquisition thresholds under Initial Trigger and Creeping Acquisition shall be checked both individually and collectively as per Regulation 3(3).

• Acquisition of Control – Regulation 4: Regardless of shareholding levels, the acquisition of control—including rights to appoint a majority of directors, right to control the management or influence the policy decisions—triggers the open offer obligation.

Automatic Exemptions and the Exclusion of Trusts

Regulation 10 of the Takeover Regulations outlines specific instances where open offer obligations do not apply. These include inter se transfers among "qualifying persons", such as:

• Immediate relatives;
• Promoters named in the shareholding pattern for at least three years; and
• Group companies meeting prescribed shareholding and control criteria.

However, private trusts do not fall within the definition of qualifying persons, and hence, cannot avail of automatic exemptions due to the following reasons:

• Not Considered Immediate Relatives: Immediate relatives as per SEBI (SAST) Regulation means, any spouse of a person, and includes parent, brother, sister or child of such person or of the spouse. The definition of ‘immediate relative’ under the Takeover Regulations is restricted to natural persons and does not extend to trusts.
• Not Recognised as Promoters by Default: Promoter as per SEBI (SAST) Regulation has the same meaning as in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and includes a member of the promoter group. Trusts are not included in the definition of "promoter" or "promoter group" under the SEBI (ICDR) Regulations unless specifically disclosed and approved in the shareholding pattern.
• Lack of Eligibility as Group Companies: Trusts generally do not meet the structural requirements necessary to claim qualification under Regulation 10(1)(a)(iii).

Thus, for the acquisition of shares by a Private Trust or for inducting a Private Trust as member of Promoter and Promoter group, no automatic exemption is available under Takeover Regulations.

Exemption under Regulation 11: Conditions and Compliance Framework

SEBI permits exemption on a case-by-case basis, provided the transaction adheres to the following substantive and procedural safeguards:

Key Conditions for Grant of Exemption

• The Trust is in substance, should only be a mirror image of the promoters’ holdings and consequently, there shall be no change of ownership or control of the shares or voting rights in the target company.
• Only individual promoters or their immediate relatives or lineal descendants should be Trustees and beneficiaries.
• The beneficial interest of the beneficiaries of the trust shall not be transferred, assigned or encumbered in any manner including by way of pledge/mortgage in future.
• In case of dissolution of the Trust, the assets shall be distributed only to the beneficiaries of the trust or to their legal heirs.
• The Trustees shall not be entitled to transfer or delegate any of their powers to any person other than one or more of themselves

Undertakings and Disclosures Required

• Change in trustees / beneficiaries and any change in ownership or control of shares or voting rights held by Trust shall be disclosed within 2 days to the stock exchanges and SEBI.
• The ownership or control of shares or voting rights will be treated as vesting not only with the Trustees but also indirectly with the beneficiaries.
• The liabilities and obligations of individual transferors will not change or get diluted due to transfers to the Trust.
• The Trust shall confirm, on an annual basis, that it is in compliance with the exemption order passed by SEBI. The said confirmation shall be furnished to the company, which shall be disclosed prominently as a note to the shareholding pattern filed under LODR.
• The Trust shall get its compliance status certified from an independent auditor annually and furnish the certificate to the Stock Exchanges and SEBI

Other Conditions for seeking Exemption in case of Trust

• The proposed acquisition is in accordance with the provisions of the Companies Act, 2013 and other applicable laws.
• The transferors are disclosed as promoters in the shareholding pattern filed with the Stock Exchanges for a period of at least 3 years prior to transfer (except for holding on account of inheritance).
• There is no layering in terms of trustees / beneficiaries in case of Trusts.
• The Trust deed agreement does not contain any limitation of liability of the trustees / beneficiaries in relation to the provisions of the SEBI Act and all regulations framed thereunder.

Recent SEBI Exemption Orders: Case Studies

Case Study on direct transfer of shares to Trust:

Balrampur Chini Mills Limited (Order dated April 30, 2025)

The promoter Mr. Vivek Sarogi who is holding 30.76% shares sought to transfer his shareholding in Balrampur Chini Mills to a newly created family trusts as part of their succession planning. The trust consisted solely of family members and lineal descendants, with no change in control or public shareholding.

Key Details

• Current Shareholding Structure: Total promoter group holding of 42.87%, with Mr. Vivek Saraogi holding 30.76% individually
• Proposed Transfers:
• Mr. Vivek Saraogi to transfer 5,24,48,387 shares (25.98%) to Saraogi Family Trust
• Mr. Vivek Saraogi to transfer 42,84,531 shares (2.12%) to Saraogi Trust
• Total transfer: 5,67,32,918 shares (28.10%)
• Trust Structure:
• Saraogi Family Trust: Settled by Mr. Vivek Saraogi with trustees being Vivek Saraogi, Sumedha Saraogi, and Avantika Saraogi; beneficiaries include spouse, daughter, and lineal descendants
• Saraogi Trust: Settled by Mr. Vivek Saraogi with Ms. Stuti Dhanuka as trustee; beneficiaries include sister, daughter, and lineal descendants

SEBI’s Decision

• Exemption granted from open offer requirements under Regulations 3(1) and 4 of SAST Regulations, 2011
• Conditions imposed include:
• Compliance with Companies Act, 2013 and other applicable laws
• Filing a report with SEBI within 21 days of completing the acquisition
• Compliance with trust structure requirements in SEBI Master Circular
• One-year validity period for implementing the proposed acquisitions

Case Study on indirect transfer of shares to Trust:

Sandhar Technologies Limited (Order dated April 30, 2025)

Sandhar Technologies Limited, a company listed on both the BSE and NSE, is the target company in the proposed transaction. The trusts involved are the Hazelnut Family Trust and the Cream & Cookies Family Trust. The transaction involves a direct acquisition of shares in Sandhar Technologies Limited, as well as an indirect acquisition through the transfer of shares in promoter group companies.

Key Details

• Current Shareholding Structure: Total promoter group holding of 70.38%, with Jayant Davar holding 54.92% individually
• Proposed Direct Transfers:
• Monica Davar to transfer 26,22,930 shares (4.36%) to Hazelnut Family Trust
• Jayant Davar to transfer 26,22,930 shares (4.36%) to Cream & Cookies Family Trust

• Proposed Indirect Transfers: Monica Davar and Jayant Davar’s entire shareholding in four promoter group companies to the Acquirer Trusts
• Trust Structure:
• Hazelnut Family Trust: Settled by Monica Davar with trustees being Monica Davar and Jayant Davar; beneficiaries include husband, son, and lineal descendants
• Cream & Cookies Family Trust: Settled by Jayant Davar with trustees being Jayant Davar and Monica Davar; beneficiaries include wife, son, and lineal descendants

SEBI’s Decision

• Exemption granted from open offer requirements under Regulations 4 and 5(1) of SAST Regulations, 2011
• Conditions imposed include:
• Compliance with Companies Act, 2013 and other applicable laws
• Filing a report with SEBI within 21 days of completing the acquisition
• Compliance with trust structure requirements in SEBI Master Circular
• One-year validity period for implementing the proposed acquisitions

Disclaimer

This article is intended for educational purposes only and does not constitute legal advice. The views expressed are personal and should not be relied upon without consulting a qualified legal practitioner. Further kindly note the exemption orders referred are not binding precedents.