INDIA Law and Practice Contributed by: Kunal Chandra, Kabeer Mathur, Chinmay Bilgi, Sharnam Vaswani and Rajdeep Mukherjee, Trilegal
9. Defensive Measures 9.1 Hostile Tender Offers
and provide a reasoned recommendation to public shareholders. 8.2 Special or Ad Hoc Committees Forming ad hoc committees to streamline due dili - gence and mitigate conflicts is a standard practice in unlisted M&A. In public takeovers, the Takeover Regulations mandate the target’s board to constitute a Committee of Independent Directors (CID). The CID is tasked with providing unbiased written recommenda - tions regarding the fairness of the open offer to assist public shareholders. 8.3 Business Judgement Rule While India lacks a codified “business judgement rule”, Indian courts and tribunals apply an equivalent judicial doctrine. Courts consistently defer to the com - mercial wisdom and judgement of the board in M&A situations, fundamentally refusing to interfere provid - ed that it can be established that the directors acted reasonably, with due care, absent of fraud, and in the Seeking independent outside advice is both a best practice and, frequently, a statutory requirement. The CID in a public takeover is explicitly authorised and expected to engage external financial and legal advis - ers to formulate their public recommendations. Fur - thermore, for court-approved restructuring schemes and open offer pricing calculations, regulations require independent fairness opinions from SEBI-registered merchant bankers. 8.5 Conflicts of Interest Conflicts of interest are subjected to severe statutory scrutiny by SEBI and the MCA. Directors possessing any direct or indirect pecuniary interest in an M&A transaction must fully disclose the nature of their inter - est immediately and are prohibited from participating in board deliberations or voting on the matter. Failure to abstain invalidates the decision and attracts severe penal consequences. bona fide interests of the company. 8.4 Independent Outside Advice
Hostile tender offers are legally permissible but excep - tionally rare in India. The corporate landscape is heav - ily characterised by family-owned conglomerates with tightly concentrated promoter shareholdings, which present significant structural and voting barriers to hostile acquisitions. 9.2 Directors’ Use of Defensive Measures SEBI strictly regulates and limits a target board’s capacity to deploy defensive “poison pill” measures. Once a public offer is initiated, the target’s board is subject to the “frustrating action” rule; they must operate strictly within the ordinary course of busi - ness. During the pendency of an open offer, targets are prohibited from alienating material assets, issuing new securities, or incurring debt outside the ordinary course, unless such actions have the prior approval from shareholders via a special resolution. 9.3 Common Defensive Measures Given the regulatory constraints on structural defenc - es, the most viable and commonly deployed defen - sive measure is the “white knight” strategy, where the target board actively procures a friendly third-party investor to launch a superior counter-offer or acquire a blocking stake. Pre-emptive consolidation of pro - moter shareholding via “creeping acquisitions” is also a widely used baseline defence. 9.4 Directors’ Duties When confronting a hostile bid, directors are bound by their overarching fiduciary duties of care and skill to all stakeholders. Their primary regulatory mandate is to refrain from frustrating the bid independently and instead ensure that the CID evaluates the hostile offer with objectivity, subsequently providing a transparent, reasoned recommendation that allows shareholders to make an informed choice. 9.5 Directors’ Ability to “Just Say No” Directors are prohibited from unilaterally rejecting and blocking a legally compliant takeover offer. The regulatory framework strips the board of the power to arbitrarily reject an acquirer; they must treat hostile bids symmetrically with friendly offers regarding basic
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