INDIA Law and Practice Contributed by: Anand Lakra, Shivpriya Nanda, Zain Pandit and Ami Shah, JSA Advocates & Solicitors
6.10 Squeeze-Out Mechanisms A squeeze-out in the Indian context entails the majority shareholders of a company enabling themselves to buy out the equity of minority shareholders of the company. A commonly used squeeze-out mechanism in India is the reduction of share capital, which involves the acquisition of company shares by majority shareholders and the cancellation of those shares. Such a scheme of reduction requires approval from the NCLT and of the shareholders of the company. However, such schemes could result in disgruntled sharehold - ers questioning the valuation before the NCLT. The NCLT recently dismissed the application by Philips India Limited to undertake a selec - tive capital reduction of the shares held by the minority shareholders after complaints from the minority shareholders were received in relation to the valuation and the NCLT held that the cap - ital reduction was not in accordance with the requirements set out in the Act. 6.11 Irrevocable Commitments Generally, with respect to unlisted companies, principal shareholders can obtain commitments to tender shares or vote on resolutions of the company without any restrictions as such. How - ever, with respect to listed entities, any voting arrangements may result in such persons being treated as persons acting in concert and accord - ingly could result in the shareholding of such persons being clubbed with the acquirer for the purpose of the calculation of thresholds under the Takeover Regulations. Once such persons are categorised as persons acting in concert with the acquirer, as prescribed by the Takeo - ver Regulations, their obligations in terms of the Takeover Regulations are joint and several.
While break-up fees are not observed very often in transactions in India, provisions such as non- solicitation, exclusivity and confidentiality are typically used to derive comfort in Indian M&A transactions. Additionally, in accordance with the Takeover Regulations, the target is required to conduct the business in the ordinary course during the offer period (ie, the period starting from the date on which the binding agreement is executed and ending on the day of completion of payments to the public shareholders under the open offer). 6.8 Additional Governance Rights Apart from the ownership rights in terms of equity shareholding in a target, investors also seek to assert control of and to obtain govern - ance rights with respect to a target. These could include the appointment of nominee directors on the board of a company, the right to appoint key managerial personnel (KMP), the right to a say in policy making, including through amendments in charter documents. Such rights help investors influence decision-making and governance in a company. However, any special rights acquired by an investor in a listed entity is subject to shareholder approval every five years. Lastly, it is pertinent to note that in listed companies, a minimum public shareholding of 25% is required as a continuous listing requirement and therefore an acquirer can only acquire up to 75%. Any increases in the shareholding above 75% will result in sell-down obligations. 6.9 Voting by Proxy It is very common for shareholders to vote by proxy in India and this concept is also recog - nised in law. Proxies are entitled to vote at all shareholder meetings.
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