COVID-19 was declared a Public Health Emergency of International Concern by the World Health Organization on January 30, 2020,[1] and a complete mayhem broke out in the Indian capital markets. The stock market crashed in an unprecedented manner with the market losing 26 per cent in dollar terms between February 1, 2020 and April 9, 2020.[2] The Sensex underwent a similar plunge in line with the global indices,[3] with a fall of two thousand points becoming a daily affair.[4]Amidst this hyper volatility, the Securities and Exchange Board of India (“SEBI”) introduced a series of relaxations in corporate compliances and deadlines under various regulations, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“SAST Regulations”) vide its circular[5] dated March 27, 2020. However, the extended deadlines and clarifications with respect to the SAST Regulations were only limited to the disclosure of shareholding by every person, acting in concert with other persons, crossing the threshold of 25 percent voting rights,[6] and disclosures regarding encumbrances on shares.[7] SEBI, thereby, omitted to address an immensely important aspect pertaining to the SAST Regulations, i.e. the withdrawal of open offers that have already been filed with SEBI.

In light of the adverse economic impact that the COVID-19 crisis has had on the prices of securities and finances of target companies impending a takeover, a wave of applications for withdrawal of takeover offers being filed by acquirers by invoking the standard Material Adverse Change (“MAC”) clause in the acquisition agreement, as per Regulation 23(1)(c) of SAST Regulations would be a logical consequence. In the absence of acquisition agreements, the acquirers may adopt an alternate route, i.e. requesting SEBI to exercise its discretionary powers under Regulation 23(1)(d) of the SAST Regulations for allowing withdrawal of the open offers.

The authors discuss the scheme for withdrawal of open offers under SAST Regulations, and argue that while a MAC claim may not succeed under Regulation 23(1)(d), there are greater chances of such claims succeeding under Regulation 23(1)(c). To establish this, the authors have divided the paper into four parts – Part I highlights the legal requirements for withdrawing an offer under Regulation 23; Part II explains the criteria for establishing a MAC claim; Part III analyses whether the dwindling financial conditions of the target due to the global economic downfall owing to COVID-19 can constitute a MAC; and finally, in Part IV, the authors conclude by affirming that clearly drafted MAC clauses in acquisition agreements are the best guarantee for acquirers seeking to withdraw their offers in the aftermath of the COVID-19 crisis. The authors have also emphasized upon the need for SEBI to issue clarifications regarding withdrawal of open offers in light of the pandemic.


Regulation 23(1)(c) of the SAST Regulations provides that if any condition stated in the acquisition agreement attracting the obligation to make the open offer is not met for reasons outside the reasonable control of the acquirer, the non-fulfillment of such condition would entitle the acquirer to withdraw the offer.[8] MAC clauses find a place in almost every standard acquisition agreement, and squarely fit within the definition of “conditions mentioned in the agreement.” It is highly likely that acquirers would try to ensure that there exists an acquisition agreement with the target company, before the offer is made, so that in the event of any adverse developments such as COVID-19, relief is ensured under Regulation 23(1)(c). However, such an arrangement might not always pan out, especially in cases of hostile bids.

In such situations, in the absence of any contract between the parties, the only recourse remains under Regulation 23(1)(d), which accords SEBI with the discretion to allow acquirers to withdraw the offer in “such circumstances” wherein it deems fit.[9] The SAST Regulations, however, are based on the premise of maintaining the sanctity of an open offer, i.e. an offer once made, must only be withdrawn in exceptional circumstances. Therefore, in order for SEBI to depart from the norm of ensuring completion of open offers, the acquirer must establish that there exists a grave circumstance preventing the execution of the offer.[10] Furthermore, the Supreme Court has consistently held that mere financial distress faced by the acquirer cannot be accepted as a valid ground for withdrawing an offer.[11] An open offer is in the nature of a business risk taken by the acquirer, and he must not be provided an easy way out simply because his calculated decision may prove to be economically unviable in the future.[12]

However, post the amendment of the SAST Regulations in 2011 and the introduction of clause (c) under Regulation 23, the impossibility test laid down by the Supreme Court in accordance with the interpretation of the previous code appears to be diluted. The incorporation of this ground clearly indicates a marked change in the earlier approach of the legislature, which had initially provided only for exceptional grounds like the lack of statutory approval[13] or death of the acquirer for withdrawing the offer.[14] It can therefore be concluded that the absurdly high standard of impossibility which an acquirer had to establish in order to successfully plead his case under Regulation 23(1)(d) has now been diminished to that of a genuine, unforeseeable difficulty in performing the offer.


A material adverse change can be defined as an event or circumstance that has had, or is reasonably expected to have, a substantially adverse impact on the company’s business, assets, liabilities or results of operations.[15] In order to successfully establish the occurrence of a MAC, two criteria must necessarily be fulfilled, namely, the change must be “material” in nature, and it must be of a significant duration. A breach is considered as material if it goes to the root or essence of the agreement between the parties, or impacts the fundamental purpose of the contract and defeats the object of the parties in entering into the contract.[16] Both the quantitative and qualitative facets of the agreement are considered while evaluating the materiality of the change. Further, the adverse change is usually considered to be of a significant duration if it has a lasting impact on the company’s business, i.e. it “substantially threatens the overall earnings potential of the target in a durationally significant manner.”[17]A short-term hiccup in earnings shall not suffice and the adverse change in the target’s business should be consequential to the company’s long-term earning power over a commercially reasonable period which is likely to be measured in years rather than months. It is evident that since the determining factors are subjective in nature, it is generally quite difficult to successfully plead the occurrence of a MAC. Moreover, the outcome of the case becomes heavily dependent on the peculiar facts and circumstances of each case.


The effectiveness of the MAC clause in aiding the acquirer’s claim for withdrawing an open offer under Regulation 23(1)(c) shall depend on how the contingencies and occurrences are worded in the clause. MAC clauses should explicitly define the materiality threshold by specifying certain situations which would be considered as materially adverse enough to terminate the agreement. Such detailed clauses curb the Court’s discretion in deciding the seriousness of the adverse change undergone by the target company, and there is a greater likelihood of the Court ruling in favor of the acquirer. For instance, MAC clauses providing for “financial downturn during epidemics” or “decline in the profit of the target company by more than 40% in a quarter” as conditions constituting a material adverse change may prove quite effective in establishing a claim for withdrawal of offer filed due to the COVID-19 pandemic.

However, MAC clauses in acquisition agreements usually do not define what constitutes a material change.[18] The concerned parties find it efficient to leave the term undefined because the resulting uncertainty generates productive opportunities for renegotiation.[19] In such circumstances where the materiality threshold is not specified, the acquirer has a greater burden to establish the occurrence of a MAC, since the true meaning of the widely worded clause is open to the Court’s or SEBI’s interpretation. Similar difficulties will be faced by acquirers claiming for withdrawal under Regulation 23(1)(d), which itself is too vaguely worded to conclusively determine if a MAC claim would be accepted by the Courts. While a MAC would constitute a ground for withdrawing the offer by virtue of the existence of an acquisition agreement under Regulation 23(1)(c), the validity of a MAC claim as an independent ground under Regulation 23(1)(d) is highly uncertain.

The length of the quarantine, business interruption, the impact on the concerned industry as a whole, and furlough or other adverse events will be the relevant factors in determining a MAC in such cases. While the exact time horizon that will be deemed significant is factual, the Courts and SEBI may consider the identity of the target and its investment horizon before arriving at a conclusion. Nonetheless, since the COVID- 19 crisis has given rise to rare and worrisome market turmoil, it is quite possible that SEBI reconsiders its usual stand and allows acquirers to withdraw the offers in the larger interest of the securities market. This would especially hold true where the target companies dependent on supplies from China and similarly affected countries have suffered a greater loss as compared to those targets constituting service providing companies, which might have received a softer blow.

However, one would have to keep in mind that the other relaxations given to companies by the Government of India with respect to various filings, payment of due, etc. might weaken the claim for withdrawal of open offer. This is because such relaxations shall prove useful in facilitating the concerned target companies in providing impetus to their operations amidst the pandemic, thereby, weakening claims for withdrawal.


SEBI’s efforts aimed at infusing stability into the securities market through various relaxations in meeting with the compliances are commendable. However, the grey area regarding withdrawal of takeover offers under SAST Regulations needs to be addressed as well by way of circulars. With respect to withdrawal under Regulation 23(1)(d) where an acquisition agreement is absent, a clarification should be provided regarding necessary conditions to be satisfied in order to merit SEBI’s exercise of discretion of allowing withdrawal on account of COVID-19.  Such clarification shall facilitate the acquirers and various investors to make an informed decision regarding the withdrawal. Additionally, these measures shall be beneficial for SEBI while dealing with the possible frivolous withdrawal requests that may be filed on the pretext of the pandemic which actually do not merit consideration.

A partial restriction on proceeding against the target for withdrawal during the lockdown might also prove to be useful, similar to temporary protection being provided to companies against debt enforcement during the havoc.  In the event where the acquirer’s finances have made it difficult to carry out the offer obligations, extended deadlines for completion of offer and provision for renegotiating offer price, wherever necessary, should be provided  by SEBI vide circulars. This shall further the aim of completion of offer as envisaged under the SAST Regulations. The withdrawal of open offers affects the interests of investors and companies alike. Therefore, care must be taken by SEBI to balance the commercial perspective with the legal one in the testing times of Coronavirus pandemic.


[1] ‘Rolling Updates on Coronavirus Disease (COVID-19) (World Health Organisation, 7 May 2020) <> accessed 5 May 2020

[2]Aprajita Sharma, ‘Coronavirus Impact: India Worst Hit Stock Market; China Least Affected Business Today (New Delhi, 13 April 2020) <> accessed 5 May 2020

[3]Riju Mehta, ‘How the Coronavirus Will Lockdown Indian Stock Market Indefinitely’ Economic Times (New Delhi, 23 March, 2020) <> accessed 5 May 2020

[4]Yagnesh Kansara, ‘Why Coronavirus will Lockdown Indian Stock Market Indefinitely’ (Outlook India , 30 March 2020) < > accessed 5 May 2020

[5]‘Circular No.: SEBI/HO/CFD/DCR1/CIR/P/2020/49’ (Securities and Exchange Board of India, 27 March 2020) <> accessed 5 May 2020

[6] SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, regs 30(1) and 30(2)

[7] SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, reg 31(4)

[8]SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, reg 23(1)(c)

[9] SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, reg 23(1)(d)

[10] Nirma Industries Ltd v SEBI (2013) 8 SCC 20

[11]SEBI v Akshya Infrastructure Pvt Ltd AIR 2014 SC 1963

[12]Pramod Jain and Ors v SEBI (2016)10 SCC 243

[13]SEBI (Substantial Acquisition of Shares and Takeovers) Regulations 2011, reg 23(1)(a)

[14]Ibid,  reg 23(1)(b)

[15]In re IBP, Inc. Shareholders Litigation  789 A 2d 14, Del Ch 2001

[16]Akorn, Inc v Fresenius Kabi  2018 Del Ch LEXIS 325

[17] In re IBP, Inc. Shareholders Litigation  789 A 2d 14, Del Ch 2001

[18] Frontier Oil v Holly Corp 2005 WL 1039027

[19]Eric L. Talley, ‘On Uncertainty, Ambiguity, and Contractual Conditions’ (2009) 34 Del J Corp L 755, 788

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