SAT Rejects SEBI's Mandate on Open Offer: Market Regulator Must Provide Reasons Before Forcing Acquisition

SAT Rejects SEBI's Mandate on Open Offer: Market Regulator Must Provide Reasons Before Forcing Acquisition​

The Securities Appellate Tribunal (SAT) has delivered a landmark ruling, setting aside previous communications issued by the market regulator, SEBI. The tribunal ruled that SEBI cannot issue directives with significant legal and financial consequences without providing clear rationale. This decision underscores the critical need for procedural due diligence in corporate takeover matters.

The dispute centers around Marwadi Chandarana Intermediaries Brokers Ltd's attempt to acquire control of TruCap Finance Ltd, a listed NBFC. The SAT found fault with SEBI’s communication approach, stating that the regulator must pass reasoned and speaking orders in line with the law.

Genesis of the Takeover Dispute​

The conflict arose following Marwadi Chandarana's engagement into a Share Purchase Agreement (SPA) and a Securities Subscription Agreement (SSA) back in May 2025. The transaction involved acquiring a stake equivalent to 15.26 percent from promoters, alongside subscribing to fresh shares and warrants. This holding size necessitated a mandatory open offer under the SEBI Takeovers Regulations.

Following the announcement of the required open offer, the entire acquisition agreement was terminated in September 2025. The acquirer subsequently sought approval from SEBI to withdraw the open offer process.

Material Adverse Effect Triggers Withdrawal Request​

Marwadi Chandarana claimed that a ‘material adverse effect’ clause had been triggered, which allowed them to terminate the underlying agreements. This claim stemmed from allegations that TruCap's net worth had declined by more than 20 percent. Despite this material event, SEBI reportedly informed the merchant banker that the open offer could not be withdrawn under the existing regulations.

SEBI subsequently issued a communication on January 30, 2026, offering comments on the draft letter of offer. This document directed the acquirer to proceed with the mandated offer process.

SAT Stresses Need for Speaking Orders from Regulator​

The tribunal examined the situation and found that SEBI's January 30, 2026 communication effectively operated as an order. Although SEBI initially labeled it merely "comments" under the takeover regulations, its substantive effect was prescriptive.

Senior Advocate Janak Dwarkadas, representing Marwadi Chandarana, contended that SEBI’s response was devoid of cogent reasons and violated principles of natural justice. The core argument held that the open offer should have been conditional, a condition precedent which had failed beyond the appellant's control.

SAT observed that by the time the communication was issued, SEBI possessed the acquirer's withdrawal request, along with independent comments from the merchant banker explaining why termination was justifiable. However, this communication made no mention of these submissions or the transaction’s termination status.

Tribunal Directs SEBI to Pass Reasoned Order​

The tribunal emphasized that statutory market regulators are duty-bound to issue speaking orders in accordance with established legal principles. The court noted that directing the acquirer to dispatch a letter of offer would subject it to serious civil consequences, including having shareholders tender their shares.

Given these severe outcomes, SAT held that SEBI's communication was "akin to an order" and could not have been issued without recording thorough reasons. Consequently, the tribunal set aside both communications previously issued by SEBI.

The regulator has now been directed to pass a reasoned or speaking order following careful consideration of the acquirer’s request for withdrawal. The tribunal, however, clarified that it had not examined the merits of the dispute itself, limiting its judgment strictly to procedural compliance.