Open Offer Escrow Account under SEBI (SAST) Regulations, 2011

Meaning and Purpose:
Escrow Account means a bank account which is required to be opened by an acquirer who proposes to make public announcement of offer in pursuance of regulation 3, 4, 5 and 6 of SEBI (SAST) Regulations, 2011. The Regulations have made detailed provisions regarding the Escrow Account. These provisions are contained in regulation 17 of SEBI (SAST) Regulations, 2011. Regulation 17(1) of SEBI (SAST) Regulations, 2011 provides that “Not later than two working days prior to the date of the detailed public statement of open offer for acquiring shares, the acquirer shall create an escrow account towards security for performance of his obligations under these regulations, and deposit in escrow account such aggregate amount as specified. The purpose of these provisions is to ensure that the acquirer has sufficient funds to pay the consideration under the offer and he has secured sufficient financial arrangement.

I. Timing of opening of Escrow Account: [Regulation 17(1)]
The Acquirer shall open an escrow account atleast two working days prior to the date of Detailed Public Statement.

II. Amount to be deposited in Escrow Account: [Regulation 17(1)]

Sl. No.
Consideration payable under
the Open Offer
Escrow Amount
a.      
On the first Rs. 500 Crores
25% of the consideration
b.      
On the balance consideration
An additional amount equal
to 10%

It is further provided that where offer is made conditional upon minimum level of acceptance, then higher of following two shall be deposited in the Escrow Account:

Hundred percent of the consideration payable in respect of minimum level of acceptance
Fifty per cent of the consideration payable under the open offer

If the Acquirer makes any upward revision in the open offer, whether by way of increase in offer price, or of the offer size, then the Acquirer shall make corresponding increases to the amount kept in escrow account prior to making such revision. [Regulation 17(2)]

III. Mode of Deposit in Escrow Account: [Regulation 17(3)]
    (a) Cash Deposit with any scheduled commercial bank
    (b) Bank guarantee issued in favor of the manager to the open offer by any scheduled commercial bank
    (c) Deposit of frequently traded and freely transferable equity shares or other freely transferable securities with appropriate margin subject to compliance with regulation 9(2).
Important Points:

      Applicable Regulation
Details
17(4)
Bank Guarantee or Deposit of Security
Deposit at least 1% of the total consideration payable in cash with schedule commercial bank as part of Escrow Account.
17(5)
Cash deposit
Empower the manager to the open offer to instruct the bank to issue a banker’s cheque or demand draft or to make payment of the amounts lying to the credit of the escrow account
17(6)
Bank Guarantee
The bank guarantee shall be in the favor of manager to the offer and shall be kept valid throughout the offer period and additional 30 days after the payment to the shareholders who have tendered their shares have been made.
17(7)     
Securities
Manager to the Open Offer shall be empowered to realize the value of escrow account by way of sale or otherwise.
Further in case of any shortfall in the amount in the escrow account, such shortfall shall be made good by the Manager.

IV. Release of amount from Escrow Account
The amount lying in escrow account can be released in the following cases only:
    1. In case of withdrawal of offer, the entire amount can be released only after certification by the merchant banker.
    2. The amount deposited in escrow account is transferred to special bank account opened with the Bankers to an issue; however the amount so transferred shall not exceed 90% of the cash deposit.
    3. The balance 10% is released to the acquirer on the expiry of thirty days from the completion of all obligations under the offer.
    4. The entire amount to the acquirer on the expiry of thirty days from the completion of all obligations under the offer where the open offer is for exchange of shares or other secured instruments.
    5. In the event of forfeiture of amount, the entire amount is distributed in the following manner:
        5.1 One third of the amount to Target Company;

          5.2 One third of the escrow account to the Investor Protection and Education Fund established under SEBI (Investor Protection and Education Fund) Regulations, 2009;

            5.3 Residual one third is to be distributed to the shareholders who have tendered their shares in the offer.
        Prepared by: Ms. Ruchi Hans

        For any professional query, please contact:

        Ms. Divya Vijay
        +911140622248,
        Email:-divya@indiacp.com

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