INDIA Law and Practice Contributed by: Anuja Tiwari, Mallika Anand, Pranjal Bhattacharya and Antra Shourya, AZB & Partners
ments should be filed with the CCI as part of merger control filing.
not typical for bilaterally negotiated business transfer transactions to have implementation committees. The Takeover Regulations require the board of direc- tors of the target company to constitute a committee of independent directors, which is required to pro- vide reasoned recommendations on the open offer. This recommendation must be published at least two working days prior to the opening of the offer. Directors are required to annually disclose their inter- est in any other entities and update such disclosures in a timely manner. Although directors have a fiduciary duty to ensure their interests are not in conflict with those of the company, directors of public companies are barred from participating in meetings or voting on resolutions that they may have an interest in. 9.3 Role of the Board The key duties of the board of directors include formu- lation of corporate strategy, allocation of resources, management of risks, communication with share- holders, and overall governance of the company. The board plays an active role in M&A transactions, as it is tasked with the strategic analysis of the target to ascertain synergy with the acquirer’s business and long-term strategic goals. The board of directors plays an active role in busi- ness combinations, as it is required to approve these transactions. Other than setting up a committee as discussed in 9.2 Special or Ad Hoc Committees , in open offer transactions (where the promoters or prin- cipal shareholders are selling their shares), the target company’s board has a limited role ‒ given that the target company may not necessarily be a party to the transaction. Although it is not common for shareholders to chal- lenge the decisions of the board in case of M&A trans- actions, shareholder disputes do arise for reasons such as: • the deal violates the existing rights of the minority shareholders under the articles of association or is oppressive to them; • unfair dilution of shareholding;
9. Duties of Directors 9.1 Principal Directors’ Duties
The directors have a fiduciary duty towards the com- pany and its shareholders (including minority share- holders) to act in good faith towards the best inter- est of the company, its members, the community at large, and the environment. Directors are required to exercise due care, skill and diligence, avoid conflicts of interest, and not seek undue gains. Independ- ent directors have additional responsibilities, which include the obligation to report unethical and corrupt behaviour. There are no special duties or obligations prescribed for directors in business combinations involving unlist- ed companies. However, for listed companies, direc- tors have the following obligations during an open offer process: • the board of directors is expected to ensure that the business of the target company is conducted in the ordinary course; • persons representing the acquirer are precluded from being appointed as directors of the listed company during the offer period; • existing directors who may be representing the acquirer must not participate or vote on any matter in relation to the open offer; and • after the closure of an open offer, the directors must assist the acquirer in the verification of the shares tendered for acceptance under the open offer. 9.2 Special or Ad Hoc Committees The decision as to whether to establish special or ad hoc committees for business combination transac- tions depends upon the company and the complexity of the transaction. In merger and demerger transac- tions, parties can choose to constitute transaction implementation committees, which usually represent both of the involved parties equally and may include the directors of the companies involved. However, it is
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