Open Offer Mode of Payment: SAST Regulation 9

The open offer mode of payment is the part of an Indian takeover that decides whether accepting shareholders end up with money or with paper. Regulation 9 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, read in the consolidation last amended on 5 December 2025 (read on 21 September 2026), permits four currencies and any combination of them, then wraps the non-cash ones in conditions strict enough that most offers settle in cash anyway. Regulation 8 fixes how much is paid; Regulation 9 governs the open offer mode of payment.

What can an acquirer offer, under the open offer mode of payment rules?

Regulation 9(1) lists five options:

The debt route in clause (c) is the one with a hard floor built in: the instrument must be listed, secured, and carry a rating "not inferior to investment grade" from an agency registered with SEBI. On how those ratings are produced and surveilled, see what a credit rating is.

When does a shareholder get the right to insist on cash?

This is the provision that matters most to a public shareholder. Under the first proviso to Regulation 9(1), where shares acquired or agreed to be acquired by the acquirer and its persons acting in concert during the fifty-two weeks immediately preceding the public announcement constitute more than ten percent of the voting rights in the target and were paid for in cash, the open offer must carry an option for shareholders to require payment of the offer price in cash. A shareholder who exercises no option in the acceptance "shall be deemed to have opted for receiving the offer price in cash".

The logic is symmetry. If the seller who negotiated the deal took cash for a stake of that size, the shareholders being bought out on the same terms may take cash too. The 52 week volume-weighted average price is already a parameter in the price floor for the same reason.

Two further rules protect the cash component once it exists:

• On revision. The second proviso to Regulation 9(1) allows the mode of payment to change when the offer price is revised, but only if "the component of the offer price to be paid in cash prior to such revision is not reduced".
• On a compliance failure. Regulation 9(4) requires any legal compliance needed to issue securities as consideration to be completed no later than the start of the tendering period. If it is not, the acquirer pays the entire consideration in cash.

Which securities are good enough to be consideration?

Regulation 9(2) applies six tests to any class of shares offered under clause (b), (d) or (e):

1. the class is listed and frequently traded at the time of the public announcement;
2. it has been listed for at least two years before the public announcement;
3. the issuer has redressed at least 95 percent of investor complaints received, by the end of the calendar quarter immediately preceding the calendar month of the public announcement;
4. the issuer has been in material compliance with the listing regulations for at least two years before the public announcement, and where SEBI takes the view that it has not, the proviso requires the offer price to be paid in cash only;
5. the impact of auditors' qualifications on the issuer's audited accounts for the three preceding financial years does not exceed five percent of post-tax profit or loss for those years; and
6. SEBI has issued no direction barring the issuer from accessing the capital market or issuing fresh shares.

Test 3 and test 5 are the unusual ones. A complaint-redressal ratio and an audit-qualification ceiling are both governance screens, and both are checkable from the issuer's own filings, the quarterly corporate governance report and the audited accounts.

How are securities valued if they are the consideration?

Regulation 9(5) takes the higher of three figures for the securities being offered:

• the average of the weekly high and low of their closing prices over the six months preceding the relevant date;
• the same average over the two weeks preceding the relevant date; and
• the 60 trading day volume-weighted average market price before the public announcement, taken on the exchange where the maximum volume of trading in the shares of "the company whose securities are being offered as consideration" was recorded during the six month period prior to the relevant date.

Two details in that third limb are easy to lose. The exchange is chosen by volume in the acquirer's shares, not the target's, and the window that picks the exchange is six months, which is a different window from the 60 trading days being averaged. Regulation 9(5) then requires the ratio of exchange of shares to be certified by an independent registered valuer, wording the 2025 Amendment Regulations substituted with effect from 3 January 2026 for the older reference to an independent merchant banker or chartered accountant.

The relevant date is defined in the Explanation to Regulation 9(5): the thirtieth day prior to the date on which the meeting of shareholders is held to consider the proposed issue of shares under sub-section (1A) of Section 81 of the Companies Act, 2013. That is how SEBI's consolidation (amended up to 5 December 2025) prints it: the 2018 Second Amendment replaced "Companies Act, 1956" with the 2013 Act but kept the section number. Section 81(1A) is the 1956 Act's further-issue provision; in the 2013 Act the matching rule is Section 62(1)(c), and Section 81 of the 2013 Act is the Registrar's register of charges.

Regulation 9(6), inserted alongside the equivalent rule for the offer price, permits the effect of material price movement and confirmation of a reported event on the listed shares offered as consideration to be excluded, using the framework under Regulation 30(11) of the listing regulations.

Where shareholders are given a choice between cash and securities, Regulation 9(3) allows different pricing for each option, so long as each clears the Regulation 8 floor and the detailed public statement and letter of offer carry the justification for the difference.

How to read the mode of payment in the offer documents

The mode of payment, the cash option if any, and the justification for differential pricing are all disclosed in the detailed public statement and the letter of offer, which are published on the timeline set out in the open offer timeline and certified by the manager to the open offer. Alongside them sit the acquirer's dated SAST disclosures, which show whether the 52 week cash purchases that trigger the cash option actually happened.

Flock reads those filings from the exchange record and keeps each one dated and linked to its source. Whether a particular open offer mode of payment suits you is your call to make. This is not investment advice.