INDIA Law and Practice Contributed by: Raj Ramachandran, Varun Sriram, Krutamana Pisipati, Aadhitya Logeshen and Abheejit V, JSA
10.4 Disclosure of Transaction Documents The public announcement must include the nature of the proposed acquisition, such as the purchase or allotment of shares, or any other means of acquir- ing shares, voting rights in, or control over the target company. The detailed public statement pursuant to the pub- lic announcement should contain such information as may be specified in order to enable shareholders to make an informed decision with reference to the “open offer”. The public announcement and the detailed public statement should not omit any relevant information or contain any misleading information. 11. Duties of Directors 11.1 Principal Directors’ Duties The duties of directors are contained in the Indian Companies Act, 2013, which inter alia include: • acting in accordance with the articles of associa- tion of the company; • acting in good faith in order to promote the objec- tives of the company for the benefit of its members (including minority shareholders of the company); and • acting in the best interests of the company, employees, and the community. 11.2 Special or Ad Hoc Committees The board of directors are typically permitted to estab- lish special or ad hoc committees. In line with Table F of the Indian Companies Act of 2013 (which is the model articles of association that a company can adopt), “the board of directors may delegate any of its powers to committees consisting of such member or members of its body as it thinks fit. Any commit- tee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the board of directors”.
Some of the common committees formed are: • the audit committee; • nomination and remuneration committee; • stakeholders’ relationship committee; • corporate social responsibility committee; and/or • investment committee. Boards are also increasingly establishing data-privacy and competition compliance sub-committees to man- age regulatory risks in data & technology-intensive businesses. A director of a company who has a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company should disclose that and the director should not participate in the matter. In certain cases, ad hoc committees are constituted to deal with the conflicts involved. 11.3 Board’s Role The board is required to act in a fiduciary capacity in the interests of the company. Shareholder litigation challenging a board’s recommendation for a merg- er or acquisition is uncommon, especially when the companies are promoter-driven and the interests of minority shareholders are not significantly harmed by the transaction. Shareholder litigation would arise where minority shareholders consider the transaction value inad- equate, including where there is a conflict of inter- est or related parties are involved, or where there are disproportionate terms and economic benefits to the various stakeholders. A buyer should ensure that the transaction structure is clear and duly disclosed, and that the consideration paid to the various stakeholders In promoter-driven companies in India, there is typi- cally an overlap of board and shareholder interests. However, where there are specific considerations and provisions governing directors independent of the company, directors do seek independent advice. A financial advisor typically provides a holistic opinion on the transaction, and the board often resigns follow- ing the change in ownership of the company. is proportionate to their shareholding. 11.4 Independent Outside Advice
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