Why these three belong together: they describe the life cycle of an emerging listed company. It raises capital on the SME platform, its promoters and investors cross shareholding thresholds as it grows, and every complaint from its new public shareholders is tracked by SEBI on SCORES.
1. Statutory Overview and Legislative Intent
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST)
The Takeover Code ensures that when control of a listed company changes, or a person builds a substantial stake, public shareholders get information in time and an exit opportunity at a fair price. Its main components are:
- Regulation 3(1): an acquirer who, with persons acting in concert (PAC), acquires shares or voting rights entitling them to exercise 25% or more of voting rights must make a public announcement of an open offer.
- Regulation 3(2): an acquirer already holding 25% or more but less than the maximum permissible non-public shareholding cannot acquire more than 5% of voting rights in any financial year without an open offer (the creeping acquisition limit).
- Regulation 4: acquisition of control, irrespective of shareholding, triggers an open offer.
- Regulation 7: the open offer must be for at least 26% of the total shares of the target company.
- Regulation 10: exemptions, including inter se transfers among qualifying promoters, with prior and post-acquisition reporting.
- Chapter V (Regulations 29 to 31): disclosure of shareholding and encumbrances.
SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR), Chapter IX
Chapter IX governs initial public offers by small and medium enterprises on the SME platforms of BSE and NSE (BSE SME and NSE Emerge). The intent is to give small businesses access to equity capital with lighter costs, while protecting retail investors through higher minimum application sizes, mandatory underwriting and market making. SEBI tightened the SME framework through the ICDR amendments notified in March 2025 after concerns about inflated issues and misuse of proceeds.
SCORES 2.0 and investor grievance redressal
SCORES is SEBI's online platform for complaints against listed companies and registered intermediaries. Under the SEBI circular of 20 September 2023 on redressal of investor grievances through SCORES and linking it with Online Dispute Resolution, the system was redesigned with strict timelines, auto-routing and auto-escalation. The upgraded SCORES 2.0 platform went live in 2024.
2. Applicability and Threshold Matrix
A. Takeover Code thresholds
| Trigger | Regulation | Consequence | Time limit |
|---|
| Acquirer with PAC reaches 5% or more | 29(1) | Disclosure of aggregate shareholding and voting rights to the company and each exchange | Within 2 working days of receipt of intimation of allotment or acquisition |
| Holder of 5% or more: change of more than 2% (acquisition or disposal), aggregated from the last disclosure | 29(2) | Disclosure to company and exchanges | Within 2 working days |
| Holder with PAC of 25% or more, and promoters with PAC (annual) | 30(1) and 30(2) | Annual disclosure of aggregate shareholding as on 31 March | Within 7 working days from the end of the financial year, unless covered by system-driven disclosures as notified by SEBI |
| Promoter creates, invokes or releases encumbrance | 31(1) and 31(2) | Disclosure of details of encumbered shares | Within 7 working days |
| Encumbrance by promoter group of 50% or more of their holding, or 20% or more of total share capital | 31(1) proviso | Detailed reasons for encumbrance disclosed | Along with the encumbrance disclosure |
| Promoters' annual declaration on encumbrances | 31(4) | Declaration that no encumbrance other than those disclosed | Within 7 working days from the end of the financial year |
| Crossing 25% | 3(1) | Open offer for at least 26% | Public announcement on the date of agreement or decision to acquire |
| Creeping acquisition above 5% in a year (holders of 25% to 75%) | 3(2) | Open offer | As above |
| Acquisition of control | 4 | Open offer | As above |
B. SME IPO eligibility under ICDR Chapter IX (as amended in 2025)
| Parameter | Requirement |
|---|
| Post-issue paid-up capital | Issuers with post-issue face value capital up to Rs. 10 crore must list on the SME exchange; those above Rs. 10 crore and up to Rs. 25 crore may choose the SME exchange |
| Profitability | Operating profit (EBITDA) from operations of at least Rs. 1 crore in at least two of the three preceding financial years |
| Offer for sale | Offer for sale component cannot exceed 20% of the total issue size, and a selling shareholder cannot sell more than 50% of his or her pre-issue holding |
| General corporate purposes | Capped at 15% of the issue size or Rs. 10 crore, whichever is lower |
| Use of proceeds | Proceeds cannot be used to repay loans taken from promoters, promoter group or related parties |
| Minimum application size | Set so that the minimum application value exceeds Rs. 2 lakh, which in practice means at least two lots for individual investors |
| Minimum number of allottees | At least 200 allottees, failing which the issue fails and money is refunded |
| Underwriting and market making | Issue 100% underwritten (merchant banker to underwrite at least 15% on own account); compulsory market making for at least three years from listing |
| Promoter lock-in | Minimum promoter contribution of 20% locked in for three years; excess promoter holding released in phases (50% after one year and the balance after two years) |
| Exchange norms | BSE SME and NSE Emerge prescribe additional criteria such as operating track record, positive net worth, free cash flow tests and absence of regulatory actions; check the exchange eligibility page at the time of filing |
C. SCORES 2.0 timelines
| Stage | Who acts | Time limit |
|---|
| Lodging a complaint | Investor | Within 3 years from the date of the cause of action |
| Resolution and Action Taken Report | Listed company or intermediary | Within 21 calendar days of receipt |
| Auto-escalation if no ATR | System escalates to the designated body (stock exchange or depository) | Immediately after the 21-day period |
| First review on investor dissatisfaction | Designated body | Investor may seek review within 15 days of the ATR; designated body acts within the time set by SEBI |
| Second review | SEBI | Investor may seek a second review if still dissatisfied |
| Online dispute resolution | Investor through the SMART ODR portal | Available if the grievance remains unresolved |
3. Step-by-Step Compliance and Filing Workflow
A. Filing a SAST disclosure
- Track the combined holding of the acquirer and PAC after every trade or allotment, including warrants and convertible securities on a fully diluted basis where relevant.
- When a threshold is crossed, prepare the disclosure in the format specified by SEBI (separate formats for Regulation 29(1), 29(2) and 31).
- Send the disclosure to the target company and file it on the listing portals of every exchange where the shares are listed, within two working days (or seven for encumbrances).
- The target company also places the disclosure before the board and keeps it on record. Exchanges publish it, and depositories cross-check promoter encumbrance data.
B. Open offer, in outline
- Appoint a SEBI-registered merchant banker as manager to the offer and create an escrow account (at least 25% of consideration for the first Rs. 500 crore and 10% thereafter).
- Make the public announcement on the trigger date, publish the detailed public statement within five working days, and file the draft letter of offer with SEBI.
- Price the offer at the highest of the parameters in Regulation 8 (negotiated price, volume-weighted average price paid by the acquirer in the previous 52 weeks, highest price paid in 26 weeks, and 60-day volume-weighted market price for frequently traded shares).
- Dispatch the letter of offer, run the tendering period of ten working days, and pay shareholders within ten working days of closure of the tendering period.
C. Taking a company to the SME exchange
- Readiness review: convert to a public company, align the Articles, restate three years of audited financials (peer reviewed auditor), complete statutory filings, appoint independent directors and a company secretary, and dematerialise all shares including promoter holdings.
- Appoint intermediaries: lead manager (merchant banker), registrar to the issue, legal counsel, market maker, underwriter and banker to the issue.
- Draft offer document: prepare the draft red herring prospectus or draft prospectus under ICDR and file it with the SME exchange for in-principle approval. The draft is placed in the public domain for comments for the period specified in ICDR before final observations are issued.
- Exchange approval and RoC filing: obtain in-principle approval, file the red herring prospectus with the Registrar of Companies, and open the issue (minimum three working days).
- Allotment and listing: finalise the basis of allotment, ensure at least 200 allottees, credit shares and list within the T+3 timeline.
- Post-listing: comply with LODR as applicable to SME entities (half-yearly results under Regulation 33 within 45 days; corporate governance provisions under Regulations 17 to 27 are relaxed under Regulation 15(2)), and report deviations in use of proceeds.
D. Migration from SME to main board
- Under ICDR Regulation 277, an SME-listed company may migrate if its shareholders approve by special resolution through postal ballot, with votes in favour at least twice the votes against, and it meets the main board eligibility criteria and the exchange's migration norms.
- Where a further issue would increase post-issue paid-up capital beyond Rs. 25 crore, the issuer must comply with the main board requirements.
E. Handling a SCORES complaint as a listed entity
- Register on SCORES, keep the nodal officer's credentials current, and configure email alerts.
- On receipt, acknowledge, investigate with the RTA (for issues such as dividend, transfer, transmission or duplicate certificates) and correspond with the investor.
- Upload a complete Action Taken Report with supporting documents within 21 calendar days. A generic response is treated as non-redressal.
- Track first and second reviews and respond to the designated body and SEBI within their timelines.
- Report the quarterly statistics under LODR Regulation 13(3).
4. Statutory Due Dates and Frequency Table
| Compliance | Provision | Frequency | Time limit |
|---|
| Acquisition disclosure at 5% | SAST 29(1) | Event | 2 working days |
| Change disclosure exceeding 2% | SAST 29(2) | Event | 2 working days |
| Encumbrance creation, invocation or release | SAST 31(1), 31(2) | Event | 7 working days |
| Annual shareholding disclosure | SAST 30 | Annual | 7 working days from 31 March (unless system-driven disclosure applies) |
| Promoters' annual encumbrance declaration | SAST 31(4) | Annual | 7 working days from 31 March |
| Exemption: prior intimation to exchanges | SAST 10(5) | Event | At least 4 working days before the proposed acquisition |
| Exemption: post-acquisition report to exchanges | SAST 10(6) | Event | Within 4 working days of the acquisition |
| Exemption: report to SEBI with fees | SAST 10(7) | Event | Within 21 working days of the acquisition |
| SME half-yearly financial results | LODR 33(3) | Half-yearly | Within 45 days from the end of the half year (60 days for the annual audited results) |
| Market making obligation | ICDR Chapter IX | Continuous | 3 years from listing |
| Resolution of SCORES complaint | SEBI circular, 20 September 2023 | Event | 21 calendar days |
5. Interest, Late Fees and Penal Consequences
| Provision | Default | Consequence |
|---|
| SEBI Act, Section 15H | Failure to make a public announcement for an open offer, or to make disclosures under SAST, or to pay offer consideration | Penalty of not less than Rs. 10 lakh, which may extend to Rs. 25 crore or three times the profit made, whichever is higher |
| SAST Regulation 32 and SEBI Act Section 11B | Breach of open offer obligations | Directions to make the open offer with interest at 10% per annum for the delay, to divest shares, or debarment |
| SEBI Act, Section 15A(b) | Failure to make disclosures within time | Rs. 1 lakh per day, maximum Rs. 1 crore |
| ICDR and SEBI Act Section 15HA and 15HB | Misstatements in offer documents, diversion of IPO proceeds | Penalties up to Rs. 25 crore or three times profit for fraudulent practices; refund directions; debarment of promoters and directors |
| SEBI Act, Section 15C | Failure to redress investor grievances | Rs. 1 lakh per day of failure, maximum Rs. 1 crore |
| LODR SOP (Regulation 13(3)) | Late quarterly grievance statement | Rs. 1,000 per day |
6. Practical Audit Pitfalls and Best Practices
- Identify persons acting in concert broadly. Family members, group companies and parties with common objectives may be PAC even without a formal agreement. Aggregate their holdings before testing thresholds.
- Count indirect acquisitions. Acquiring control of a holding company can trigger an open offer for the listed subsidiary under Regulation 5.
- Watch encumbrance definitions. Non-disposal undertakings and similar arrangements are treated as encumbrances under Regulation 28(3).
- SME use of proceeds is under the microscope. Track deployment against the objects stated in the offer document, report deviations, and avoid any flow of money back to promoters or related parties.
- Plan market maker spreads and inventory. Thinly traded SME stocks attract surveillance measures; good disclosures and investor relations help maintain liquidity.
- Keep SCORES responses specific. Attach evidence such as dividend payment proofs, transmission documents or RTA confirmations. Generic replies trigger escalation and count as unresolved.
- Prevent complaints at source: keep the IEPF transfer process, unclaimed dividend reminders and KYC updation drives running. Most investor complaints relate to dividends and share transmission.
Illustration: tracking the 2% change under Regulation 29(2)
| Date | Transaction | Holding after transaction | Cumulative change since last disclosure | Disclosure? |
|---|
| 1 April | Last disclosure filed | 6.00% | 0.00% | Baseline |
| 12 May | Purchase of 1.20% | 7.20% | 1.20% | No |
| 3 June | Sale of 0.30% | 6.90% | 1.50% (purchases and sales both count as change) | No |
| 18 June | Purchase of 0.60% | 7.50% | 2.10% | Yes, within 2 working days of 18 June |
After the 18 June disclosure, the counter resets and the next 2% change is measured from that disclosure. Practitioners differ on whether purchases and sales should be netted or aggregated; the conservative approach shown above aggregates gross changes. Where the holder and persons acting in concert cross 25% at any point, Regulation 3(1) is triggered and the open offer process starts immediately.
7. Statutory References and Official Sources
- SEBI Act, 1992: Sections 11, 11B, 15A, 15C, 15H, 15HA and 15HB.
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011: Regulations 2(1)(q) (persons acting in concert), 3, 4, 5, 6, 7, 8, 10, 28 to 32.
- SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018: Chapter IX (Regulations 228 onwards, including 229, 260, 261, 268, 277 and 280), as amended by the ICDR (Amendment) Regulations, 2025.
- SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015: Regulations 13, 15(2) and 33 as applicable to SME-listed entities.
- SEBI circular dated 20 September 2023 on redressal of investor grievances through the SEBI Complaints Redressal System (SCORES) and linking it to the Online Dispute Resolution platform; SEBI master circular on Online Resolution of Disputes in the Indian Securities Market (31 July 2023, as amended).
- Official portals: sebi.gov.in; scores.sebi.gov.in; smartodr.in; BSE SME at bsesme.com; NSE Emerge at nseindia.com/emerge.
Authored by Vipin