SEBI's Open-Offer Override Power: Invoked Twice, Struck Down Once

Regulation 8(16) lets SEBI require, at the acquirer's expense, "valuation of the shares by an independent merchant banker other than the manager to the open offer or an independent chartered accountant in practice having a minimum experience of ten years." The rationale consistently given in professional commentary is undervaluation risk on infrequently traded shares, where no reliable market price exists for the ordinary VWAP formula to defer to, and an acquirer's own merchant banker has every incentive to price low.

Tenneco's global acquisition of Federal-Mogul Holdings Corp. triggered an indirect open offer for the minority shareholders of Federal-Mogul Goetze (India) Ltd, an infrequently traded target. SEBI appointed an independent valuer and directed the offer price revised upward from ₹400 to ₹608.46 per share. SAT dismissed Tenneco's appeal in November 2019, and the Supreme Court dismissed the related appeal that December, leaving the higher price to stand.

A second, separate open offer for the same company followed a later restructuring: Pegasus Holdings III, LLC offered ₹275 per share, revised to ₹295.65. By letter dated 30 August 2023, SEBI invoked Regulation 8(16) explicitly and appointed an independent chartered accountant, having found the acquirer's own valuation non-compliant. SAT stayed the direction the following month, and in December 2024 SAT's final order set aside SEBI's appointment of the valuer, holding that SEBI had incorrectly applied Regulation 8(16) to the case. SEBI has appealed; the Supreme Court issued notice to Pegasus in March 2025, and the matter remains pending.

Two things are true at once. Regulation 8(16) is not dead letter: SEBI used it to force a real, material price increase in 2019, upheld all the way to the Supreme Court. And its most recent use was found by SAT to have misapplied the very provision invoked to justify it, a ruling SEBI itself is now contesting rather than accepting. The only reported instances of this power being exercised both concern the same company, which says less about how rarely the power gets used and more about how narrow the fact pattern has to be before SEBI reaches for it at all: an infrequently traded target, a merchant banker's valuation SEBI is prepared to actively distrust, and an acquirer willing to litigate the point through two more forums after losing at the first.