SAT Quashes SEBI’s Cryptic Directive, Allows Withdrawal of TruCap Open Offer
· Free Press Journal
The Securities Appellate Tribunal (SAT) on July 8 overturned the Securities and Exchange Board of India’s (SEBI) communications concerning Marwadi Chandarana Intermediaries Brokers Ltd.’s open offer for TruCap Finance Ltd, a listed non-banking finance company.
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SAT held that SEBI cannot depend on unclear or cryptic communications when its decisions carry substantial legal and financial consequences.
The tribunal emphasized that market regulators must issue clear, reasoned directives.
The case arose after Marwadi Chandarana signed a Share Purchase Agreement (SPA) and a Securities Subscription Agreement (SSA) in May 2025 to acquire control of TruCap Finance.
The deal involved buying a 15.26% promoter stake and subscribing to fresh shares and warrants, taking its stake beyond the mandatory open offer threshold under SEBI Takeover Regulations.
Following the announcement, the acquisition agreements were terminated in September 2025, as the acquirer invoked a ‘material adverse effect’ clause after TruCap’s net worth allegedly declined over 20%, entitling Marwadi Chandarana to exit the agreements.
The acquirer subsequently sought SEBI approval to withdraw the open offer.
SEBI, however, contended that the open offer could not be withdrawn and issued comments on the draft letter of offer, effectively directing the acquirer to proceed with the open offer process.
SEBI Widens Intraday Borrowing Norms For Mutual Funds From Sept 1 To Ease Liquidity MismatchesIn its January 30, 2026 communication, SEBI described its remarks as ‘comments’ under the takeover regulations, but SAT observed that the communication functioned as an order by triggering obligations under the open offer, leaving Marwadi Chandarana exposed to regulatory compliance requirements.
Senior Advocate Janak Dwarkadas, representing Marwadi Chandarana, argued that SEBI’s communication lacked reasoning, ignored submissions demonstrating that the offer was conditional and the agreements had validly terminated, and violated principles of natural justice.
Conversely, Senior Advocate Chetan Kapadia for SEBI maintained that the communication was not an appealable order and cited nondisclosure of the material adverse effect clause in public filings as a reason why withdrawal was impermissible.
SAT found SEBI’s approach flawed, noting that the regulator had the acquirer’s withdrawal request, merchant banker’s comments, and legal submissions before issuing the directive.
The January 2026 communication, however, ignored all these inputs and directed the open offer to proceed without referencing the termination of underlying agreements or the rationale provided by the acquirer.
The tribunal remanded the matter to SEBI for fresh consideration, emphasizing the regulator’s duty to issue clear, reasoned orders in accordance with the law. SAT underscored that cryptic directives cannot be used when significant financial and legal obligations are at stake.