How to participate in a takeover or spin-off on Zerodha

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A takeover occurs when an entity (acquirer) gains effective control of a listed company by acquiring a substantial portion of its shares or voting rights. Under Indian law, this triggers the acquirer’s obligation to make an open offer to remaining public shareholders under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (SAST Regulations). A spin-off is a form of corporate restructuring in which a company separates a subsidiary or division into an independent listed entity, distributing shares of the new company to existing shareholders.

These two corporate actions are conceptually distinct:

  • A takeover is primarily driven by an external acquirer seeking control; it results in a mandatory open offer to public shareholders.
  • A spin-off (structurally a demerger in Indian law) is initiated by the company itself; it results in new shares being credited to existing shareholders without any consideration.

Zerodha handles both types automatically or via the exchange platform, depending on the action.

Conflict-of-interest disclosure: WebNotes is an independent information publisher with no commercial arrangement with Zerodha.

Part 1: Takeover and the mandatory open offer

What triggers a takeover open offer?

Under the SAST Regulations:

  • 25% trigger: When an acquirer (with persons acting in concert) crosses 25% shareholding in a listed company, a mandatory open offer for at least 26% of the total shares is required.
  • Creeping acquisition trigger: When an existing holder with 25% to 75% acquires more than 5% in a financial year, an open offer is required.
  • Indirect acquisition trigger: Acquiring a company that in turn holds more than a specified threshold in a listed Indian company also triggers an open offer obligation.

The investor’s options in a takeover open offer

Public shareholders have three options:

OptionActionOutcome
Tender shares in the open offerSubmit shares via Kite during the offer windowExit at the open offer price (if accepted)
Hold shares and continueNo actionRemain as minority shareholder under new controlling owner
Sell in secondary marketPlace a regular CNC sell order on KiteExit at the market price (may be at premium if arbitrageurs are active)

The choice depends on:

  • Whether the open offer price is above or below the current market price.
  • Whether the new acquirer’s plans for the company are favourable to minority shareholders.
  • The likelihood of partial acceptance if the open offer is oversubscribed.

Tendering shares in a takeover open offer on Zerodha

The process is identical to tendering in any SEBI-mandated open offer. Refer to How to tender shares in an open offer on Zerodha for the full step-by-step procedure, including:

  • Accessing the open offer in Kite > Corporate Actions.
  • Entering quantity and submitting the tender.
  • The Rs 20 plus GST corporate action order fee.
  • Settlement timeline (T+5 to T+10 from offer close).
  • Withdrawal rights during the offer period.

Post-takeover: continued holding

If you do not tender and the acquirer succeeds in taking the company to 90% or more shareholding, the company may be delisted. In that scenario, SEBI mandates a post-delisting exit window at the discovered price (see how to participate in a delisting offer). If the acquirer remains below 90%, the company stays listed, and you continue as a minority shareholder.

Part 2: Spin-off (demerger)

What is a spin-off?

In Indian corporate law, a spin-off is implemented as a demerger under Sections 230-232 of the Companies Act, 2013, approved by the National Company Law Tribunal (NCLT). The parent company (Company P) separates a business unit or subsidiary into a newly incorporated or existing entity (Company D, the demerged entity). Existing shareholders of Company P receive shares of Company D in a ratio set by the scheme.

Investor experience on Zerodha

  1. No action required: Like a bonus issue, the spin-off share credit is automatic. Shareholders who hold Company P shares on the record date (set after NCLT approval) receive Company D shares credited to their Zerodha demat account.

  2. Record date: The board of Company P announces the record date after the NCLT order becomes effective. Check NSE/BSE corporate action disclosures for the record date and the spin-off ratio (for example, 1 share of Company D for every 3 shares of Company P held).

  3. Hold before record date: Ensure Company P shares are settled in the Zerodha demat account before the record date (purchase one trading day before under T+1 settlement).

  4. Credit timeline: Company D shares are credited to the Zerodha demat account within 15 to 30 working days of the record date, depending on NCLT formalities and CDSL processing.

  5. Listing of Company D: Company D lists on NSE and BSE after the scheme becomes effective. The listing date is typically disclosed in the scheme documents. Shares appear in Console holdings under the new ISIN once credited.

  6. Price adjustment for Company P: Company P’s share price adjusts downward to reflect the value transferred to Company D. The exchange adjusts the reference price on the ex-demerger date.

Fractional entitlements in spin-offs

If the spin-off ratio produces fractional share entitlements, the fraction is typically settled in cash by the company at the reference price. See how to handle fractional share entitlements for details.

Tax treatment

Takeover open offer proceeds

Open offer proceeds are taxable as capital gains:

  • Sale consideration = open offer price.
  • Cost = original purchase price.
  • Holding period from original purchase to settlement date.
  • STCG (held 12 months or less): 15% under Section 111A.
  • LTCG (held more than 12 months): 10% under Section 112A on gains above Rs 1 lakh.

Spin-off (qualifying demerger)

For a qualifying demerger under Section 2(19AA) of the Income Tax Act, 1961:

  • Receipt of Company D shares is not a taxable event (not a transfer under Section 47(vid)).
  • The original cost of Company P shares is apportioned between Company P and Company D in the ratio of net book values.
  • The holding period for Company D shares runs from the original purchase date of Company P shares.

If the spin-off does not qualify as a demerger under Section 2(19AA) (for example, if it is structured as a sale rather than a transfer as a going concern), the transaction may be taxable in the year of the swap. Consult a chartered accountant for non-standard restructurings.

What can go wrong

Takeover open offer

Missed tender window: The open offer window is fixed (typically 10 working days). No extension is granted for individual shareholders who miss the deadline.

Partial acceptance: If more shares are tendered than the acquirer requires, acceptance is pro-rata. Unaccepted shares are returned; you remain a minority shareholder under the new owner.

Spin-off

Delay in Company D share credit: NCLT formalities and CDSL processing can delay the credit. If Company D shares are not credited within 45 working days of the record date, raise a support ticket with Zerodha.

Company D not listed promptly: There may be a gap between the credit of Company D shares and the listing on NSE/BSE (the SEBI-mandated listing timeline is within 60 days of the NCLT order in most cases). During this window, the shares are in the demat account but not tradeable.

References

  1. SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Regulations 3, 4, 7, 8.
  2. Companies Act, 2013, Sections 230-232, scheme of arrangement for demergers/spin-offs.
  3. Income Tax Act, 1961, Sections 2(19AA), 47(vid), qualifying demerger tax neutrality.
  4. Income Tax Act, 1961, Sections 111A, 112A, capital gains on open offer proceeds.
  5. SEBI Circular SEBI/HO/CFD/DIL2/CIR/P/2018/011, exchange settlement for open offers.
  6. NCLT Rules, 2016, scheme approval process.
  7. Zerodha support documentation, corporate action handling on Kite and Console.

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The WebNotes Editorial Team covers Indian capital markets, payments infrastructure and retail investor procedures. Every article is fact-checked against primary sources, principally SEBI circulars and master directions, NPCI specifications and the official support documentation published by the intermediary in question. Drafts go through a second-pair-of-eyes review and a separate compliance read before publication, and revisions are tracked against the SEBI and NPCI rule changes referenced in the methodology section.

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