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HOSTILE TAKEOVERS IN INDIA by - (1) Tanveer Sethi, (2) Nikhil Sharma & (3) Shivam Parmar



Author – Tanveer Sethi

Course – BBALLB (International Trade & Investment Laws), 5th Year

College – University Of Petroleum And Energy Studies, School Of Law

Co-Author 1- Nikhil Sharma

Course – BBALLB, Advocate

College – Jagran Lakecity University, Bhopal

Co-Author 2-Shivam Parmar

Course – BBALLB (International Trade & Investment Laws), 5th Year

College – University Of Petroleum And Energy Studies, School Of Law




The quantity of mergers and acquisitions has blast in India since liberalization, however not many hostile takeovers have succeeded, essentially due to the convergence of promoter shareholding in organizations and on the grounds that takeover guidelines favor promoters. Hostile takeovers would work with M&A development, and the outcome of hostile takeovers is fundamental to work with corporate ability and cultivate capital market improvement. To be successful, the counter takeover components in India ought to be rehearsed as a protectionist measure and the takeover guidelines should embrace a permissive methodology towards hostile takeovers, as in the US. So, this article talks about Hostile takeovers in India in a detail manner.



In today's world, India has seen a widespread expansion in mergers and acquisitions (M&A), owing to the change in outlook in how business is directed today for exact information on the expansion in takeover action around the world. This increment has been demonstrated to emphatically affect the development of the Indian economy, however the rise of a "business opportunity for corporate control has prompted a situation wherein substitute proprietors place offers to oversee failing to meet expectations organizations, and investors are permitted to offer their portions to the most elevated bidders. It is in many cases fought that the battle for the control of inadequately represented organizations can further develop administration, and the danger of a hostile takeover is viewed as a response to the "office issue," as it holds the administration under wraps.

India Inc witnessed record Merger and Acquisition in the August 2021 estimated 219 deals aggregated to $ 8.4 billion in month of August, a record after month of 2005 which is showing positive sign of recovery. Domestic consolidation led to 68% of the deal, unicorn such as Biju’s Unacademic and Dream Sports sealed some of the M&A deal[1]


In India Hostile takeovers have been uncommon previously and will probably keep on being scant from now on. The essential deterrent to hostile offers in India is the unavoidable control of public firms by establishing families.



  1. Tender offer - A tender offer is an offer to purchase shares from an investor of an acquirer business at a greater cost than the market cost Tender offer is to acquire enough voting shares to gain control of the target firm.


  1. Proxy vote - A proxy vote is when an acquiring firm persuades current shareholders to vote out the target company's management so that it can be taken over more easily. The demonstration of the getting firm reassuring current investors to vote off the objective business administration so it will be more straightforward to take over is known as a proxy vote.



In India, the most widely recognized kinds of corporate blends are mergers and tender offers, which are like those found in the US. Since hostile transactions necessitate the employment of the tender offer route in both nations because the merger procedure requires the permission of the targeted company's board of directors[2]. The idea of a takeover didn't arise in India until the 20th 100 years, and, surprisingly, then, at that point, nobody had known about hostile takeovers. At the point when Swaraj Paul started endeavoring to get Escorts Ltd. and DCM Ltd., he thought of this proposition. Among the Indian securities exchange raider, it was the primary hostile raider. Regardless of the way that Paul's endeavors were fruitless because of the occupants' utilization of details of non-residential regulations to foil him, the requirement for a takeover code was created.

  1. Foreign Direct Investment (FDI) - Foreign Direct Investment (FDI) - Foreign ownership of Indian endeavors in the industrial area is confined by the Indian government. Numerous areas of the Indian economy were opened to foreign ownership following the progression of the Indian economy in 1991, and under the purported programmed course, FDI into specific areas could be done without the endorsement of the FIPB or the RBI.


  1. The Indian Companies Act, 2013 - The Companies Act lays out the establishment for any merger & acquisition, or a takeover. It principally influences private and unlisted organizations. Following are the relevant sections regarding takeovers –


  1. Section 186 – This part covers company investments and acquisitions of offers, as well as the methods for doing as such. It establishes the maximum investment limitations that the board of directors may make, as well as the mechanism for obtaining shareholder approval and disclosure requirements for any acquisition that exceeds those limits.


  1. Section 230(11) – This a part of section covers the purchase of shares by insiders, defined as existing shareholders who own quite 75% of the company's entire share capital. during this situation, the offer is going to be for the purchase of only the remaining shares. In essence, this section doesn't deal with hostile takeovers in the traditional sense.


  1. Section 235 & 236 – This part applies to the corporate who desire to buy the share of another company. The section does not specify a share threshold, but it is important to note that members who own 9/10ths of the target company's shares must support the resolution approving the scheme of arrangement. Another section addresses the purchase of shares by the majority shareholders through a squeeze-out of minority shareholding.


  1. The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 - In India, the acquisition of publicly traded firms and the purchase of their shares are governed by SEBI regulations. In essence, the regulations set up a range of acquisition values above which the buyer is required to make an open offer to the shareholders. The rules cover acquiring managerial control, voluntary offers, delisting of shares, pricing standards for acquisitions, disclosures required in conjunction with such, and specific responsibilities of the acquirer and target. Some of the crucial clauses include the ones listed below:
  1. Reg. 3(1) – It states that when an acquirer obtains more than 25% of a target's shares or voting rights, a substantial acquisition has occurred, and the acquirer is required to make an open offer. When the acquirer first crosses the trigger point, this relates to the purchase of shares by outsiders or non-shareholders.


  1. Reg. 3(2) – This also apply to share consolidation by members who own 25% or more of the voting rights or shares in the company. This applies to any acquisition of 25% to 75% of the target's shares or voting rights. In such cases, an open offer must be made each time the acquirer acquires more than 5%.


  1. Reg. 4 - This provision applies to the acquisition of control, regardless of acquisition of offers. This would normally include the powers to designate another directorate.


  1. Reg. 6 – This provision has made voluntary open offers by outsiders almost impossible as the people with a minimum of 25% shareholding in the company can make voluntary open offers. Furthermore, rules such as not acquiring shares in the target firm for 52 weeks before too, during, or 6 months after making a voluntary open offer make a traditional hostile acquisition practically difficult.


  • Indirect takeovers – Regulations also apply to indirect takeover, i.e., acquisition of an unlisted company that has a controlling stake in a listed entity.


  1. Reg. 26 - This regulation forces the accompanying necessities on the objective organization: Estrangement, any huge firm resources during the offer time, taking out any critical obligations or borrowings, Offers are given or allotted, Repurchase of offers, Going into or finishing any critical agreements, Speed increase of contingent privileges, for example, worker investment opportunities, verifying of freedoms like ESOPs.


  1. Government And RBI Approval of The Foreign Acquisition - A hostile acquisition of an Indian company is now legally possible because to recent government liberalizations, which previously barred such a move due to sector-specific restrictions on Foreign Direct Investment and the requirement for FIPB and RBI permissions. A foreign purchaser may encounter two difficulties when pursuing hostile takeovers: Restrictions on Foreign Direct Investment in specific industrial sectors ("FDI caps"). Approval from either the Foreign Investment Promotion Board, a division of the Ministry of Finance, which regulates foreign investment in relation to the government's industrial policy, or from both the Reserve Bank of India and the Foreign Investment Promotion Board, which regulate foreign investment for the purposes of foreign exchange control.


  1. The Competition Act, 2002
  1. This section covers acquisitions and mergers of entities that exceed specific thresholds. In such cases, the acquirer is needed to seek authorization from India's Competition Commission (CCI). This is a lengthy procedure, and under the Competition Act, the acquirer cannot complete the transaction until 210 days have passed since the notice issued by the CCI.




  1. “Mindtree Limited (“Mindtree”) acquired by Larsen and Toubro Limited (“L&T”) - India Cement's successful acquisition of Raasi Cement, this was the second takeover to be a success. L&T has no promoters, whereas Mindtree's promoters only own 13.32 percent of the objective. In the Indian context, Mindtree's shareholding structure offers a prescription for a hostile takeover. Despite not being a promoter, Siddhartha has been Mindtree's top shareholder with a 20.32% stake. When L&T signed a share purchase agreement to buy Siddhartha's shares in Mindtree for Rs 980 per share, the takeover was put into motion. L&T would not have been required to make an obligatory offer because it fell below the 25 percent mandatory offer level outlined in the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011. L&T also put a broker order to buy up to 15% of the outstanding shares of Mindtree at a price of not more than Rs 980 per share. L&T has declared an obligatory offer to Mindtree's shareholders for an additional 31 percent of shares at a price of Rs 980 per share, to be paid in cash, as a result of its execution of the SPA and its order to the broker breaching the 25 percent barrier. After purchasing Siddhartha's 20% investment, L&T could have been able to make a voluntary offer, but it chose to go the mandatory offer way by adding market purchases made through the broker to the mix. Stake raised by L&T to 25.94 percent and queries by the SEBI’s outcome in postponing the open offer by L&T though it seems inevitable that the acquisition will proceed as contemplated”[3]


  1. RK Damani vs. VST Industries - Radhakishen Damani, a stockbroker, made an open offer for BAT-controlled VST Industries in 2001. However, ITC intervened to block the deal, playing the role of a white knight, and obtaining backing from BAT.


  1. Essel Group's bid for IVCRL - In 2012, Subhash Chandra of Essel Group aimed to get control of infrastructure firm Iragavarapu Venkata Reddy Construction Limited (IVRCL). Only 11.2% of IVRCL was owned by the target company's promoters.


  1. Harish Bhasin vs DCM Shriram Industries - Harish Bhasin, a stockbroker, acquired 25% of DCM Shriram Industries in 2007 by combining open market purchases with an open offer. The promoters responded by granting themselves warrants and raising their share.



  1. The Poison Pill: The Poison Pill is where the Objective Organization weakens its portions such that the Acquirer can't get a controlling offer without causing monstrous costs.


  1. The White Knight: As the name proposes, this is the Objective Organization's knight in sparkling protective layer. On the off chance that the leading group of the Objective Organization accepts that it will not be able to forestall a threatening takeover, it can look for a more amicable organization to purchase a controlling stake in the Objective Organization before the unfriendly bidder can do as such.


  1. Sale of Assets: If a board feels undermined, it might likewise auction key resources and diminish tasks to make the exchange less appealing to a threatening bidder.


  1. Shark Repellents: An organization can cause extraordinary corrections to its legitimate sanction that to get enacted exclusively in the event of a takeover being endeavored. These corrections are made to shield the governing body from failing to keep a grip on the organization.


  1. Pac-man Defense: Consistent with its terminology, the pac-man safeguard is the point at which the Objective Organization purchases stock the Acquirer organization and at last oversees the Acquirer, in this way forestalling a takeover.


  1. Greenmail: Greenmail is a protection wherein the Objective Organization repurchases its own portions at a higher cost than normal from the Acquirer.


The UK has unequivocally dismissed administrative prudence for a shareholder-centered way to deal with takeover guideline, while the US Takeover Code is less inviting. To keep those offers under control, target organization chiefs can send various safeguards. Rather than the UK's quite shareholder-arranged takeover guidelines, the directors of partnerships in US with both a grouped board and a death wish have practically complete tact to dismiss an undesired takeover endeavor. The difference in takeover safeguards is generally striking. When a takeover bid has been acknowledged, UK chiefs are not qualified for take any "disappointing activity" without the investors' understanding. Like each and every other guard, Death wishes are explicitly disallowed, exchanging stocks to obstruct a bid or consenting to a lock-up concurrence with a favored bidder hindering objective shareholders' ability to assess the benefits of a takeover offer. Be that as it may, different attributes in UK regulations, like guidelines against compelling staggered sheets, guarantee that implanted guards are not used to the degree that they are in the US. The Shareholder Freedoms Plan is the most common protection instrument in Canadian firms. A few hundred Canadian organizations have executed freedoms plans. The Canadian toxic substance pills are in a general sense like US pills, where a 'flip-in occasion' happens when an individual purchases except if a 'allowed offer' is made, a particular extent of the backer's stocks (regularly 20%), which causes serious weakening. Provided that the pill is set up for over a half year is the shareholder understanding fundamental.



Hostile takeovers are not banned in the code, and they are not deterred by the same token. The Indian lawmakers' definitive point was to protect the interests of investors during such an arrangement. Be that as it may, policymakers took on an extremely defensive system simultaneously, making forceful takeovers give off an impression of being a feared phantom. Major financial entertainers overall didn't incline toward this unduly protectionist mentality because of globalization patterns and opening up homegrown business sectors to abroad opponents. To summarize, this article endeavors to evaluate and investigate the new open doors also, issues given by India's procurement administrative system. Comparatively the post-bid safeguards, one can contend, offer assurance; nonetheless, they can misfire on the objective. For example, the leading group of the objective can't continue to involve greenmail for each potential bidder. And, surprisingly, different procedures like white knights can end up being antagonistic, as in the case with Lady Macbeth's procedure. Accordingly, wariness ought to be paid.


The significance of hostile takeover laws cannot be overstated, as they are essential in regulating the full range of mergers and acquisitions activities. Whether the takeover is hostile or friendly is irrelevant, as hostility ultimately becomes a threat as perceived by management, and that hostility ultimately becomes a threat because what management perceives as hostile may be in the best interests of the shareholders and other stakeholders[4]. Regulators should create clauses and standards based on principles in the Takeover Code that govern the responses that a target board may make considering the increased likelihood of hostile takeover battles in India's future and the absence of takeover defenses like the poison pill and staggered board. While one might say that hostile takeovers expand the worth of the objective investors; a few hostile takeovers could propel capability, some could achieve a misallocation of financial assets, and some may be unbiased, all things considered .


[1] Reporter, B., 2021. India Inc sees 219 deals worth $8.4 bn in August, record volumes since 2005. Business-standard.com.

[2] Mathew, Shaun J. "Hostile Takeovers in India: New Prospects, Challenges, and Regulatory Opportunities." Columbia Business Law Review, vol. 2007, no. 3, 2007, p. 800-843. Hein Online.

[3] The Economic Times. 2021. Mindtree completes acquisition of the NXT Digital Business from L&T.

[4] See India Rejects ICI Bid for Stake in Asian Pain/ts, Ltd, ASIA PULSE, Nov. 3, 1997.


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