CHAPTER 1

INTRODUCTION

A. INTRODUCTION

Since the economic liberalization in India, in the year 1991, most, if not all, Mergers and
Acquisitions have been eccentric on the friendly covenants. And it is surprising that out of
such Mergers and Acquisitions, there have been only a few attempt cases of hostile takeovers,
and this is proliferated by the fact that out of such few attempts, a few have culminated into
the successful takeover of the public listed company. The reason that has been given by the
corporate law practitioners and investment bankers is that the current provisions of the
Takeover Code i.e., “Substantial Acquisition of Shares and Takeovers Regulations”, 2011,
are in favour of the promoters and are a little biased. And, it is wrongly presumed that it
exists for the prevention of a hostile takeover in India. But, if the provisions thereof are
deeply analysed it would be revealed that on the prima facie level, there is a semblance that it
exists for the prevention of hostile takeovers.

Under the takeover code what is provided is some procedures to which adherence are
required from both acquirer and the target company. Further, a playfield has been provided
thereunder such that there could be taking over by the acquirer, and there is defense from the
target company side while trying to fortify the best interests of the company. Thus, some of
the defenses are studied such that there could be pegging of the biases on the applicability or
inapplicability, if any. It would also be studied how legal and regulatory frameworks have
minimal role to play in the case of the sparse takeovers, and it is the business environment
and pattern of the shareholding that are in action.

Further, the term "takeover bid" is used to describe the direct or indirect purchase of enough
voting stock of a firm to seize managerial control. Both cordial conversations and aggressive
takeovers, in which the target firm is not consulted, are possible scenarios. In the latter
scenario, the target company will typically take precautions to thwart the acquisition.

Several countermeasures have emerged during the past half-century that targets can use to
fend off hostile takeovers. These safeguards double as bargaining chips, allowing you to
demand more favourable terms from the other party. It's possible that getting shareholder
permission to establish these safeguards is necessary in some situations, while in others it
might not be. Further, some of these defences are heavily regulated in India while others are
not, and vice versa.

Targeted businesses can reap several benefits from these protective measures. First, they buy
you some much-needed breathing room to consider your alternatives in light of the takeover
offer. The longer the process takes, the more time the target company has to determine the
true value of its assets and negotiate more favourable terms. Second, there are
countermeasures that will allow the target company to compete head-on with the bidder,
increasing the likelihood of more bids being made. Finally, these defences can result in high
transaction costs for the acquirer, which may cause them to abandon the takeover attempt or
compel them to increase their offer.

Legal frameworks in various jurisdictions govern the employment of such safeguards in

response to hostile takeovers. In court, acquirers frequently question these defences'
legitimacy. The exact use and regulation of these measures in India diverge from those in
other countries due to the distinctive nature of the Indian legal and regulatory system.

Several defences are rigorously regulated in India to guarantee equitable procedures and
shield minority shareholders' investments. Take India's securities market regulator, the
Securities and Exchange Board of India (SEBI), which has instituted rules to promote
openness and equality in takeover deals. To comply with these rules, acquirers must make
public bids to minority shareholders, giving them a chance to cash out at a reasonable price.

Poison pills, another type of defence mechanism used in India, are set off after a takeover is
finalised and have unfavourable effects on the acquirer. These methods may lead to a
decrease in the acquirer's equity or add substantial debt to the target company. Legal
challenges have been filed in India against the legitimacy and enforceability of poison tablets.

Different legal and regulatory systems in different nations provide different results when it
comes to the usage and regulation of defences in takeover circumstances. The goal in India is
to prevent aggressive takeovers while also protecting minority shareholders' rights, fostering
openness and equity, and allowing businesses to protect themselves. These defences will be
put through more and more trials in the courts as the business landscape changes, and they
will evolve to meet the new challenges they face.

B. LITERATURE REVIEW
In the chapter: The Nature of the Market for Corporate Control in India ', by Umakanth
Varottil, in a book entitled Comparative Takeover Regulation: Global and Asian
Perspectives, published by Cambridge University Press in 2017- He said that the law
governs. the environment and the provisions of the Acquisition Code namely the Principles of
Acquisition of Acquisitions and Expropriation, 2011 generally favour developers and
managers. The papers state that there is full speculation about the SEBI takeover code in
India (General Acquisition and Acquisition Act, 2011) that it is biased against existing
executives. It is not wrong to say that the Takeover Code exists to prevent malicious
hijackings in companies. However, a closer look at the provisions reveals that this is not the
case. The Asset Code provides a control framework for adherence to your appropriate process
for both- the acquirer and the target company.

Only the appropriate location is provided by the Deposit Code so that the acquirer can
attempt to take over and the target company is able to defend itself, all while trying to take
care of the company's best interests. At this stage, potential defences are being investigated to
include any bias in the use or non-use in India. It is also pointed out that the reasons for the
delay are higher than the rules and regulatory framework and can be found within the
business environment and the shareholding pattern in the country.

The author argued that the Takeover Code does not favour the promoters or executives in
office, it would be a mistake to define clauses as to say that the regulatory body, by Code,
accepts or encourages cruel takeover. Some researchers say that the main reason for the
limited occupation in India is a pattern of fixed shares and corporate controls in the hands of
the establishment family. Ownership is usually placed in the hands of family members and
acquaintances. In such a case, the company's shareholding is not subject to the harsh
treatment of the family as well as people who know will not give up any of their shares to the
beneficiaries, no matter how high the price provided. The same story is told with patterns of
global stocks. In 1999, the latest year when such data is available, 64% of large firms in the
27 countries surveyed still have their stocks fixed. In this research project, it was mentioned
that the takeover Code should have taken the pattern of the most common fixed stocks in
India and paved the way for an increase in take-off activity.

However, that will leave businesses with less focus a pattern of owning shares in a flexible
environment and endangering the interests of the company. In addition, it is not possible or
reasonable for the Download Code to limit the focus on owning shares in companies. The
maximum number of assignments one can have is already available filed by SEBI and
matching the same restrictions would conflict with management independence.

Another possibility that some scholars have pointed out is that malicious abortions do not
always occur due to ‘‘the current favourable Indian economic situation’’. although the same
condition does not exist for a long time it is true today, in view of the decline and epidemic,
the claim has some merit in forgiving previous patterns of rare hostility. This is because if
companies have high market capitalization, due to rising inflation, hostile take becomes “a
very expensive story” and it does not happen. When the alleged claim is combined with the
fact that the Indian markets are so volatile, it can be difficult to come up with a logical
conclusion a cruel take-off bid and keep pace with changing prices. This study discussed the
takeover code in India and the factors affecting hostile takeovers in India and also about the
defences available to the companies against hostile takeovers.

C. HYPOTHESIS

The following could serve as a working hypothesis for investigating the causes of hostile
takeovers in India: Significant factors contributing to the prevalence of hostile takeovers in
India include the presence of inadequate corporate governance practices, a lack of regulatory
monitoring, and the undervaluation of target enterprises.

D. OBJECTIVES OF RESEARCH

The problem or the issue that has been hereunder taken into consideration is whether, as
alleged by many, the provisions of the Takeover Code i.e., “Substantial Acquisition of Shares
and Takeovers Regulations”, 2011 are titled towards the management or promoters, or not.

E. RESEARCH QUESTIONS

This paper undertakes to deal with, analyse and answer the following questions:

 Whether the provisions of the Takeover code, i.e., Substantial Acquisition of Shares
and Takeovers Regulations, 2011 are biased and titled towards the promoters?
 What is the effect and influence of the market fluctuations, business environment and
pattern of the shareholding upon the occurrence of hostile takeovers?
 What are the defences available to the company against the takeovers; and, whether
the validity of such defence advances the interest of promoters?
F. RESEARCH METHODOLOGY
The research methodology that has been chosen and undertaken for this: Descriptive,
qualitative and analytical.

G. SIGNIFICANCE OF THE TOPIC OF RESEARCH

For several reasons, it's vital to have a firm grasp on what drives hostile takeovers in India.

 Confidence of Investors: Investors may lose faith in a company following a hostile

acquisition because they may see it as a symptom of market instability. In order to
increase investor trust, governments and market participants must first understand
what causes hostile takeovers.
 It is possible to identify areas of corporate governance that need strengthening by
looking at the elements that are linked to hostile takeovers. By exposing these gaps,
the corporate governance system in India can be improved, leading to greater
openness and responsibility among the country's businesses.
 Improvements to the regulatory framework can be found by analysing data on the
elements that influence hostile takeovers. These results are useful for policymakers
looking to better protect shareholders and other stakeholders in these types of deals by
tightening existing restrictions.

H. SCOPE AND LIMITATION

Finding and examining the causes of hostile takeovers in the Indian setting is the primary
goal of this study. Corporate governance practises, regulatory frameworks, market dynamics,
economic considerations, and industry-specific effects are only some of the many areas of
investigation.

But there are certain caveats to this study that must be taken into account-

 The availability and quality of data pertaining to hostile takeovers may vary, which
may reduce the analysis's breadth and depth.
 Due to the uncommon nature of hostile takeovers in India, the sample size of this
study may be inadequate. The results may not be applicable to broader settings
because of this.
 Factors Beyond the Company's Control: Political, social, and economic climates are
all examples of external factors that might affect hostile takeovers. It's possible that
these are important, but include them could make the study too large.
 I. POSSIBLE OUTCOMES

Several results are possible based on the analysis of factors that influence hostile takeovers in
India:

 Identification of Important Factors: The study may pinpoint particular elements that
significantly contribute to hostile takeovers in India, such as poor corporate
governance, undervaluation, inadequate regulatory monitoring, or others.
 Policy Recommendations: Based on the research's findings, policymakers may be able
to adopt or alter legislation that will lessen the likelihood of hostile takeovers and
protect stakeholders' interests.
 Enhancing Transparency and Reducing Vulnerabilities: By comprehending the
elements driving hostile takeovers, recommendations for Indian organisations'
corporate governance practices can be made.
 Investor Awareness: The findings might help make investors more aware of the risks
involved in hostile takeovers. This may enable investors to make wise choices and
take action to safeguard their assets.
 CHAPTER 2

TAKEOVER STRATEGIES AND PRACTICES

MEANING AND CONCEPT

In the late nineteenth century, in countries like the United States and the United Kingdom, the
concept of takeover, which means acquiring control of a corporation, arose. While it did
eventually catch on in India, takeover activity didn't become commonplace until the 20th
century. A takeover can be thought of as a single transaction or a series of transactions in
which one person, a group of people, or a firm gains control of another's assets. This
dominance can be attained by direct asset ownership or through taking over the target
company's management.

A takeover is often accomplished through arrangements with the majority shareholders of the
target company, as is the case with closely held companies when ownership is concentrated
among a small number of individuals. However, when shares are owned by the general
public, a takeover might occur in a number of ways. First, a takeover can occur if the
acquiring business and the target company's controllers come to terms on the deal. Second, a
controlling interest can be acquired by purchasing shares on the stock exchange. Formal
takeover bids, in which an offer is made to the shareholders of the target company to
purchase their shares, are another option for facilitating takeovers.

A takeover occurs when one entity acquires voting stock in another publicly traded
corporation through purchase or exchange. The acquirer's goal is to become the company's
majority shareholder through the purchase of current shareholders' shares at a predetermined
price. Depending on the specifics of the situation, there are a variety of means through which
a takeover can be accomplished. In accordance with the rules imposed by the government, an
individual, for instance, may acquire voting shares of a listed company through a takeover.
Sections 235 and 236 of the Companies Act, 2013 govern the acquisition process through
which a business may purchase shares of an unlisted company.

When only a few people own a large percentage of a company's stock, a takeover can be
accomplished with their consent. The acquirer can avoid going through the board of directors
by talking to the big owners individually. When a company's shares are extensively held by
the public, however, the SEBI (Substantial Acquisition of Shares and Takeover) Regulations,
2011 come into play. Guidelines and procedures for acquirers to follow are provided to
ensure transparency and fairness in the takeover process.

Buying or exchanging enough shares of a corporation to gain effective control is what we call
a "takeover." Although the idea was developed in the United States and the United Kingdom
in the late nineteenth century, it became popular in India throughout the twentieth century.
Regulatory requirements and the type of ownership structure an organisation has can have a
significant impact on the processes and procedures used during a takeover. The ultimate goal
is to acquire ownership of the target company and its assets, which can be done by formal
takeover bids, stock market acquisitions, or agreements.

WHY TAKEOVERS?

A takeover is when one firm acquires another, often by the purchase of a controlling position
in the shares of the target company. This type of acquisition is also known as a merger.
Takeovers can be amicable or hostile, but in either case, they have a tremendous impact on
the landscape of corporations, having repercussions for businesses, investors, employees, and
the economy as a whole.

There are many different motivations behind takeovers. Getting access to new markets,
technologies, or intellectual property is a typical motivation for doing something. A
company's ability to grow its operations, diversify its product offerings, and enhance its
market share can all be accomplished through the acquisition of another business. This
strategic decision enables the firm that is acquiring the other to utilise synergies and
potentially improve its position in the competitive landscape.

TYPES OF TAKEOVER STRATEGIES

1. Friendly Takeover: The term "friendly takeover" refers to the process of acquiring a
company that occurs with the approval and cooperation of the company that is being
acquired. In this kind of takeover, the management teams of both the company being
acquired and the company being targeted engage in negotiations and eventually come
to an agreement. In most cases, the majority of the target company's shareholders will
back the proposal to acquire the business being targeted.

The two groups engaged in a friendly takeover will work together to come to an
agreement on the terms and conditions of the acquisition in order to complete the
 process. This strategy differentiates it from hostile takeovers, in which the acquiring
business skips negotiations and instead approaches the target company's shareholders
directly in an effort to gain control of the target company.

Because of the agreed nature of a friendly acquisition, the transition between the two
companies and the integration of their operations can be more seamless. There is a
chance for the management teams to coordinate their efforts, think strategically
together, and evaluate the potential for synergies and benefits. Because there is an
understanding and agreement between all of the stakeholders engaged in this sort of
takeover, it has the potential to reduce the number of disagreements and interruptions
that occur within the target firm.

In general, a friendly takeover is a win-win situation for all parties involved, as it

allows the acquiring firm and the target company to work together towards common
goals while also protecting the target company's shareholders' best interests.

2. Hostile Takeover: A hostile takeover is when an acquiring firm attempts to seize

control of a target company without first delivering a formal acquisition proposal or
receiving the approval of the management of the target company. In this scenario, the
target company's management is not informed of the acquiring company's intentions.
In this kind of acquisition, the acquirer pursues its goals in a manner that is both
unilateral and covert, going against the wishes of the management that was already in
place.

It is common for the purchasing firm to sidestep the negotiation process and go
straight to the shareholders of the target company during a hostile takeover. These
aggressive strategies are used by the acquiring company to seize control of the target
company. These actions are characterised by their confrontational nature due to the
fact that they are carried out without the collaboration or agreement of the
management of the company that is the focus of these actions.

Hostile takeovers are given their moniker due to the fact that they are antagonistic
against the existing management and completely disregard the preferences and
strategies of that management. The acquirer may attempt to win control of the target
 company by making bids to shareholders directly or by utilising other strategies, such
as proxy fights or tender offers.

In contrast to amicable takeovers, which include cooperation and negotiation, hostile

takeovers frequently result in friction and tension within the company that is being
targeted for acquisition. It's possible that management will object to the acquisition
and take a variety of preventative steps to thwart the hostile takeover attempt.

In a nutshell, a hostile takeover describes the aggressive pursuit of control of a target

firm by an acquirer without the consent or cooperation of the management of the
target company, which results in situations that are confrontational and controversial.

3. Bailout Takeover: The acquisition of a financially troubled company by a profitable

corporation in order to prevent the liquidation of the financially troubled company is
referred to as a bail-out takeover. This particular style of takeover provides the
successful business with a number of benefits. The favourable price at which the
failing company might be acquired is one of the main advantages that can be gained.
Because most of the company's creditors are financial institutions and banks, the ill
company's industrial assets have been placed under a charge, which means that the
creditors have an incentive to get as much as they can back from their investment. As
a result of this, they may decide to sell the assets of the firm, which would include the
company's shares, and solicit offers from possible buyers.

Before giving their blessing to a bail-out takeover, banking institutions conduct a

thorough analysis of the financial standing of any possible acquirers. They take into
consideration the overall financial soundness and capability of the purchaser. This
review assures that the company that is acquiring the sick company is capable of
successfully turning the company around and assuring that it will be profitable in the
long term.

Overall, what constitutes a bail-out takeover is a concerted effort on the part of the
financially struggling company, the profitable acquiring company, and the financial
institutions and banks that give their approval. It provides an opportunity for the firm
that is purchasing it to purchase important assets at an appealing price while
 simultaneously preventing the liquidation and the loss of the company that is
experiencing financial difficulties.

COMPANIES ACT PROVISIONS

The Securities and Exchange Board of India (Substantial Acquisition of Shares and
Takeovers) Regulations, 2011 (SEBI Takeover Code), and the Companies Act, 2013 govern
the rules and procedures for takeovers in India.

The right of a company to buy shares of another company is defined under the Companies
Act, 2013. The broad authority of a corporation to acquire shares is addressed in Section 186,
while the specific authority to acquire shares from people who have not sold or agreed to sell
their shares is addressed in Sections 235 and 236. No approval of an acquisition plan or
contract by shareholders representing 90% or more of the outstanding shares is required for
these clauses to take effect. The acquiring company need not be publicly traded; it could be a
private limited company instead.

Takeovers and the acquisition of a majority of a company's shares are further governed by the
SEBI Takeover Code, which came into effect in 2011. Takeovers, as well as the acquisition
of a significant stake, disclosure requirements, open offer responsibilities, and the
involvement of merchant bankers and intermediaries, are all governed by this code. A
complete framework for takeover activities in India is ensured by the SEBI Takeover Code
and the Companies Act, 2013.

Takeover of Listed Companies

The Securities and Exchange Board of India (SEBI) promulgated the "Substantial Acquisition
of Shares and Takeovers" laws in 2011 to regulate the acquisition of companies listed on
recognised stock exchanges in India. Any person wishing to acquire a sizeable share in a
listed company must abide by the rules and specifications set forth in these regulations.
However, it's crucial to remember that if an acquisition results in an indirect change in
control of a listed business, even the acquisition of an unlisted company may be subject to the
restrictions.

The Takeover Regulations also apply when an acquiring business buys the foreign parent
company of a listed company, in addition to the direct acquisition circumstances. This
guarantees that SEBI will properly regulate and oversee any change in ownership or control,
regardless of the location of the purchasing business.
Any prospective acquirer must have a thorough awareness of the compliance standards
established in the SEBI regulations before preparing to buy a publicly traded firm. This
involves being conversant with the pertinent clauses of the Companies Act as well as the
Listing Agreement, a contract between a listed business and the stock exchange on which it is
listed.

Additionally, there can be additional compliance obligations under the Foreign Exchange
Management Act (FEMA) if the buyer is a person residing outside of India. A law known as
FEMA was passed in order to control foreign exchange operations and ease India's external
trade and payments. To guarantee that foreign investments are undertaken in conformity with
the guidelines established by the Reserve Bank of India (RBI) and other pertinent authorities,
certain restrictions have been put in place.

Acquirers can smoothly complete the takeover process and make sure that all legal and
regulatory requirements are satisfied by understanding and following to the compliance
requirements under the SEBI regulations, the Listing Agreement, the Companies Act, and
FEMA. This thorough approach promotes accountability and openness throughout the
purchase process, protecting the interests of all parties involved.

Case Law

The Delhi High Court shed light on the use and restrictions of Section 235 of the Indian
Companies Act in the matter of AIG (Mauritius) LLC v. Tata Televentures (Holdings) Ltd.
(2003) 43 SCL 22 (Del.). A cell phone firm named C was the subject of the lawsuit. There
were two groups of shareholders: the T group owned roughly 92% of the stock, while the A
group owned the remaining shares. The T group founded a new business, O, in which it
controlled a 99.99% stake. Then, Company O made a bid to buy Company C's shares, citing
Section 235's requirements. According to the offer, the remaining shares would be purchased
for the same price if bids totaling 90% or more of firm C's capital were submitted.

The court investigated whether Section 235 would apply in this case. In essence, the plan
described two scenarios: (1) an offer to buy a company made to its shareholders in which
90% or more shareholders accept the offer; and (2) an offer to buy shares made to a group of
shareholders holding 90% or more shares only, with the remaining shareholders wanting their
shares to be included in the offer. If the offeror so chooses, or if the remaining shareholders
so demand, Section 235 permits the forced acquisition of shares of the remaining
shareholders on the same terms. The court acknowledged that Section 235 does have room
for abuse and expropriation, particularly if a majority party uses it to eliminate minority
shareholders by acquiring their shares for pennies on the dollar.

Even if purchases made under Section 235 may seem extreme and involve expropriation, the
court recognised the justification for them. It would be unreasonable for a tiny minority to
prevent a plan from moving forward if 90% of shareholders approve it. The court ruled that
even while the tiny group's motivations might not be mercantile or commercial, it is not
illegal to expect them to agree with the majority's decision. The court emphasised that the act
must be fair and genuine in it to be allowed, nevertheless. The offeror should be a minority-
free, autonomous individual or organisation. The court ruled that departing from this
condition would be unlawful and a violation of fundamental rights. The court declined the
proposition in this case because the offeror was not a separate company.

The case of AIG (Mauritius) LLC v. Tata Televentures (Holdings) Ltd. offers crucial advice
on how Section 235 should be applied to ensure fairness and safeguard the rights of minority
shareholders. It emphasises the necessity of an impartial offeror and provides protections
against the use or abuse of the provision for private advantage.

TAKEOVER BIDS

A takeover bid is an offer made to shareholders of a publicly listed company who do not own
a major portion of the company's shares to purchase those shareholders' shares at a stated
price over a designated timeframe. This offer can only be made to shareholders who do not
hold a large number of the company's shares. A bid like this one is made with the intention of
acquiring a sufficient number of shares in order to acquire voting control over the target firm.
A corporation will use this tactic as a strategic move in order to acquire managerial control
and influence over another company. This is accomplished by purchasing a controlling
position in the shares of the target company. The bidder intends to strengthen their position
within the target company in order to exert more control over its day-to-day operations and
decision-making procedures by using this strategy.

TYPES OF TAKEOVER BIDS

1. Mandatory Bid
The SEBI New Takeover Code of 2011 requires an acquirer to make an open offer to the
target company's shareholders whenever it obtains or agrees to obtain control over a target
company, or when it acquires shares or voting rights that would exceed certain threshold
limits. Unless the acquirer publicly announces an open offer to purchase shares in accordance
with the regulations, Regulation 3(1) states that no acquirer may acquire shares or voting
rights in a target company, along with the shares or voting rights held by them and
individuals acting in concert with them, if doing so would allow them to exercise 25% or
more of the voting rights in the target company.

According to Regulation 3(2), if an acquirer, along with individuals acting in concert with
them, has already purchased and holds shares or voting rights in a target company that allow
them to exercise 25% or more of the voting rights but less than the maximum permissible
non-public shareholding, they are not permitted to purchase any more shares or voting rights
in the target company within a financial year that would allow them to exercise more than 5%
of the voting rights, unless an open offer is made. It should be highlighted that the acquirer is
not allowed to purchase shares or voting rights that would exceed the maximum permitted
non-public shareholding, nor is it allowed to enter into any agreements to do so.

An acquirer must now make an offer for at least 26% of the total outstanding shares of the
target firm under the New Takeover Code of 2011. Within ten working days following the
completion of the tendering process, this offer must be submitted. In final analysis, the SEBI
New Takeover Code of 2011 establishes guidelines for potential buyers who want to take
over a target firm or a sizable percentage of its shares or voting rights. It stipulates that an
acquirer must make a public notification of an open offer to purchase shares from the target
company's shareholders if they individually or together obtain or agree to acquire voting
rights that would surpass certain threshold limits. The rule also establishes a minimum
criterion for the percentage of shares that must be offered in the open offer and prohibits
acquirers from acquiring additional shares or voting rights beyond certain thresholds without
making a public offer. These rules seek to safeguard fairness and transparency in takeover
negotiations as well as to safeguard the interests of target firm shareholders.

2. Voluntary Bid

The notion of a voluntary bid was introduced by the Takeover Code of 2011 and allows a
potential acquirer to publicly publish an open offer to buy additional shares of a firm if the
acquirer already possesses more than 25% but less than the maximum allowable limit of
shares. Following the completion of the open offer, the acquirer's total shareholding should
not, however, exceed the maximum allowable non-public shareholding limit.

In order to exercise an extra 10% of the target company's total shares, the acquirer must make
an offer to purchase a minimum number of shares. The goal of this provision is to make it
easier for a company's major shareholders and promoters to pool their stock. A significant but
not majority shareholding acquisition can now make a public offer to raise their stake in the
firm thanks to the adoption of the voluntary bid clause. This presents a chance for the target
company's promoters and major shareholders to increase their sway over the business.

The Takeover Code encourages openness and equity in the acquisition process by permitting
voluntary offers. By doing so, the acquirer makes sure that all shareholders are informed of
and welcome to take part in the open offer to raise their shareholding. The purpose of the
voluntary bid clause in the Takeover Code of 2011 is to allow major shareholders and
promoters to consolidate their shares in a firm while still protecting the rights of smaller
shareholders.

3. Competitive Bid

When an interested party other than the initial acquirer makes public announcements about
making a bid to purchase a company, this is known as a competitive offer. The acquirer who
made the initial public announcement must submit their Detailed Public Statement (DPS)
within 15 business days of the date of the competing bid. If another suitor makes a competing
offer, the prospective acquirer can change the conditions of their open offer to make it more
attractive to the target company's shareholders. Offer prices may be changed by bidders until
three business days before the offer is opened. Timelines for all events, such as the opening
and closing of rival offers, must be consistent to provide a level playing field.

The purpose of this rule is to encourage healthy competition throughout an acquisition and to
safeguard the interests of target business shareholders. Shareholders can profit from the
evaluation of several proposals and the possibility of improved terms by permitting
competing offers and enabling the adjustment of terms. Timelines for competing bids are
synchronised to promote openness and fairness. In general, shareholders gain from the
introduction of competing proposals and the opportunity of amending conditions because it
raises the probability of receiving favorable terms and maximizes the value of their
investments. As a result, the acquisition process is more streamlined, equitable, and
competitive among potential buyers.
 4. Conditional Bid

An acquirer's offer that is subject on meeting certain conditions is called a "conditional bid."
The acquirer's desired minimum number of shares to be acquired under the terms of the
conditional offer is represented by the minimum level of acceptance. The acquirer is under no
obligation to accept any shares tendered in response to the conditional offer if the number of
shares falls below the minimum level of acceptance stipulated by the acquirer. In a
conditional offer, the acquirer will not purchase any shares of the target firm through the open
offer or the Share Purchase Agreement (SPA) that triggered the open offer if the minimum
level of acceptance is not met.

With this clause, the acquirer can need a certain percentage of shareholders to accept the offer
before proceeding. This way, the acquirer may guarantee that a majority of the target
company's shares will be tendered for the purchase to proceed. The acquirer may decide not
to go through with the purchase if a certain threshold of support is not met.

A conditional offer is meant to give the purchaser some leeway and safeguards. This protects
the buyer from overpaying for a minority stake in a company that may not give them any
meaningful control or strategic advantages. It also shields the buyer from having to make an
unfavorable stock purchase if the market conditions or shareholder response are less than
ideal. Shareholders should give serious thought to the threshold of acceptance required by a
conditional offer. As a result, shareholders may be left with few choices if the number of
shares offered falls short of the minimum required by the acquirer.

IMPORTANT PROVISIONS AND IMPLICATIONS OF SEBI NEW CODE, 2011

1. Initial Threshold Limit for Triggering of an Open Offer

According to India's Takeover Code of 1997, any acquirer who acquires 15% or more of the
voting rights of a target firm, whether acting alone or in conjunction with others, must make
an open offer to the shareholders. This measure was included to safeguard minority
shareholder interests and promote openness during any material change in ownership. The
New Takeover Code of 2011 raised the threshold for an open offer to 25% from the previous
10%. Strategic investors, such as private equity funds and minority overseas investors, can
now grow their participation in listed businesses to a maximum of 24.99%, which has far-
reaching ramifications. They now have a larger say in the company's operations thanks to
their increasing shareholding.

An acquirer with 24.99% of the shares has a greater probability of blocking any special
resolution of the corporation. Promoters of publicly traded companies with a small number of
shares may worry that their companies will be taken advantage of by acquirers now that they
have more sway than before. While the previous criterion of 15% necessitated an open offer,
the new threshold of 25% allows listed firms to attract more investors without this necessity.
As a result, the investment process becomes more appealing to potential investors and
reduces costs for the listed company.

This change gives strategic investors more leeway in acquiring a larger stake in a publicly
traded firm without having to make a mandatory open offer to the company's shareholders.
This adjustment is in response to the changing landscape of investment and is meant to entice
more capital into publicly traded businesses. A regulatory framework and minority
shareholder protections are still in place according to the New Takeover Code of 2011. The
code still mandates acquirers to comply with transparency requirements and protects minority
shareholders even though the bar for triggering an open offer has been raised.

There are benefits and drawbacks to the New Takeover Code of 2011's higher bar for
triggering an open offer. While this is good news for strategic investors looking to increase
their influence over publicly traded companies, it is a cause for concern for promoters who
hold a relatively small percentage of the company's shares. Nonetheless, the shift will likely
help both listed companies and potential investors by making the investing process more
appealing and cost-effective.

2. Creeping acquisition

Creeping acquisition was made possible by India's Takeover Code of 1997, which did away
with the need for an open bid by allowing acquirers to gradually raise their shares in a target
business. There were two levels for this clause: 15% to 55% and 55% to the maximum
allowable amount of 75%. According to the 1997 rule, acquirers holding between 15% and
55% of the shares were permitted to acquire up to 5% more shares or voting rights each fiscal
year without having to make a public statement. On the other hand, acquirers controlling
between 55% and 75% of the shares had to disclose any subsequent share purchases to the
public. However, if the acquisition was undertaken through open market acquisitions or as a
result of the listed company's share buyback programmed, they were permitted to acquire up
to an additional 5% of shares without making a public statement.

The situation was made simpler by the Takeover Code of 2011 by adding a single threshold.
According to the new regulation, any acquirer holding 25% or more but less than the
maximum allowable limit is permitted to buy an additional 5% worth of shares or voting
rights each fiscal year without having to make a formal notice or conduct an open offer. This
modification clarifies the regulations for both acquirers and promoters. The Takeover Code
of 2011 also specifies how to calculate the cost of acquiring these extra voting rights. As a
result, the calculation of the incremental growth in shareholding is obvious.

Both investors and promoters will benefit from this modification to the takeover code.
Without having to buy shares on the stock market, investors can gradually increase their
ownership in the company, which may result in cost savings and a more regulated process for
earning greater voting rights. Promoters, on the other hand, are able to keep a larger stake in
the business without worrying about dilution brought on by regular open offers. The
Takeover Code of 2011's streamlined provision eliminates regulatory complexity and offers a
simpler framework for creeping acquisitions. It promotes long-term investment plans, permits
promoters to maintain control, and gives investors the chance to progressively expand their
ownership position in the company.

The Takeover Code of 2011 eliminates multiple thresholds and let acquirers to add up to 5%
more shares or voting rights each fiscal year without making a public notice, simplifying the
requirements for creeping acquisition. By giving them freedom and a more effective
procedure for raising shareholding in listed businesses, this shift benefits both investors and
promoters.

3. Indirect acquisition

Since indirect acquisitions weren't properly addressed in the original Takeover Code, the
2011 revision created a thorough structure to deal with this problem. This provision's primary
purpose is to treat as an indirect acquisition of voting rights or control any acquisition of
shares or control over a company that would give an individual or group of individuals the
ability to exercise a certain percentage of voting rights or control over the company, which
would otherwise require a public announcement for an open offer.
To put it another way, an acquisition is considered indirect if it allows an individual or group
to acquire sufficient voting rights or control over a firm to normally necessitate a public
disclosure and open bid. The purpose of this clause is to ensure that no one shareholder or
group of shareholders can exert undue influence or control over the business.

According to the latest audited annual financial statements, if the target company's
proportionate net asset value, sales turnover, or market capitalization exceeds 80% of the
consolidated net asset value, sales turnover, or enterprise value of the entity or business being
acquired, then the Takeover Code treats the acquisition as if it were a direct one. As such, the
acquisition would be subject to the same obligations as a direct purchase, including those
related to time, pricing, and other compliance requirements.

Indirect acquisitions that result in considerable control or ownership of the target company
are intended to be subject to the same regulatory requirements and safeguards as direct
acquisitions under this clause. The Takeover Code ensures openness and fairness in takeover
transactions through the use of financial criteria and thresholds to decide when an indirect
acquisition should be classified as a direct acquisition.

The Takeover Code of 2011 corrects a flaw in its predecessor by adopting a methodical
strategy to deal with indirect purchases. A direct acquisition is defined as an acquisition that
results in a substantial increase in voting rights or control over a corporation and that also
meets the prescribed financial standards. This guarantees transparency and protects the
interests of all shareholders by making sure that such transactions are subject to the same
obligations and compliance requirements as direct purchases.

4. Voluntary Offer

The Takeover Code of 2011 established the voluntary offer, which allows an acquirer with
more than 25% but less than the maximum permissible limit to publicly declare an open bid
for additional shares. This provision allows the purchaser to consolidate their corporate
shares, especially for large shareholders and promoters. Under this rule, an acquirer can
voluntarily declare an open offer to buy more shares if their position in a firm exceeds 25%
but is below the maximum non-public shareholding limit. After the open offer, the acquirer's
aggregate shareholding cannot exceed the non-public shareholding limit.

The clause requires the acquirer to make a voluntary offer for at least enough shares to
exercise an additional 10% of the target company's total shares. This allows the acquirer to
raise their corporate stake significantly. The voluntary offer concept helps large shareholders
and promoters consolidate their shareholdings. They can gain more shares and control the
company by announcing an open offer publicly. This rule acknowledges the strategic value of
large owners and promoters in a company's growth and development.

The Takeover Code allows shareholders to align their interests and solidify their positions
through voluntary bids, which may improve corporate stability, long-term planning, and
decision-making. The purchaser must comply with statutory requirements for public
notification and open offer to acquire more shares, which ensures transparency. In essence,
the voluntary offer clause in the 2011 Takeover Code allows acquirers with more than 25%
but less than the maximum legal limit to publicly declare an open offer to acquire more
shares. The acquirer should be able to exercise 10% more target company shares based on the
number of shares purchased. This clause helps large owners and promoters consolidate their
shares, boosting firm stability and strategic decision-making.

5. Size of the Open Offer

The Takeover Code of 1997 established a minimum threshold for acquirers to make an open
offer for at least 20% of the voting capital of the target company. This code addressed the
laws surrounding acquisitions and open offers in India. Within 15 days of the public offer's
closing, this offer has to be submitted. The Takeover Code of 2011 brought about major
modifications to the regulations, though. The new mandate established by the Takeover Code
of 2011 mandates that an acquirer must submit an offer for a minimum of 26% of the total
outstanding shares of the target firm. The deadline for submitting this offer is the tenth
working day after the tendering period's conclusion. A special circumstance has arisen as a
result of the expansion of the open offer from 20% to 26% and the initial criterion from 15%
to 25%.

Let's look at an illustration to better comprehend this. To get a 35% shareholding in the target
firm under the Takeover Code of 1997, an acquirer would have needed to increase their stake
by 20% through an open offer while holding 15% of the shares. However, under the
Takeover Code of 2011, an acquirer might obtain a simple majority in the target firm by
amassing a 51% shareholding after purchasing an additional 26% of the company's shares
through an open offer. The regulator's objective to encourage investors to buy sizeable
holdings in a company is evident by the rise in the open offer size and the initial threshold.
The Takeover Code of 2011 aims to give more control and decision-making authority to
individuals who are prepared to make sizeable investments in a target firm by enabling
acquirers to obtain a simple majority.

This change in rules may have been made to encourage long-term investment and active
management involvement in the acquired company. It enables acquirers with a sizable
ownership to have an impact on the company's corporate governance, strategic direction, and
decision-making procedures. In conclusion, regulators consciously worked to encourage
investment and provide acquirers with the option to win a simple majority in the target firm
as seen by the amendments made to the Takeover Code between 1997 and 2011. The new
regulations aim to give investors who are prepared to make sizeable commitments in the
company's future more control and influence by increasing the open offer size and the initial
threshold. These modifications are intended to promote long-term investment and promote
active involvement in the operation of the acquired firm.

6. Important exemptions from the requirement of open offer

Inter-se transfer -The Takeover Code of 1997 recognized intra-group transfers of shares,
including those falling under the definition of a group as defined in the Monopolies and
Restrictive Trade Practices Act of 1969, relatives as defined in the Companies Act of 2013,
and qualifying Indian promoters and foreign collaborators who were shareholders. However,
the Takeover Code of 2011 amended the categorization of these groupings and redefined
inter se transfers.

Inter se transfers are defined under the Takeover Code of 2011 as transfers between the
following qualifying persons:

(a) Close relatives.

(b) Promoters, as demonstrated by the target company's shareholding structure filed at least
three years prior to the proposed acquisition.

(c) Companies, their subsidiaries, holding companies, other subsidiaries of the holding
company, and individuals owning at least 50% of such firms' equity interests, etc.

(d) Persons acting in concert for at least three years prior to the proposed purchase and
disclosing this in listing agreement filings.

Certain conditions must be completed for an inter se transfer to be exempt from the
requirements of an open offer under the Takeover Code of 2011. If the target company's
shares are commonly traded, the purchase price per share cannot exceed 25% of the volume-
weighted average market price for the 60 trading days preceding the notification of inter se
transfer. In the event of infrequently traded shares, the acquisition price should not exceed
25% of the price obtained by taking valuation characteristics such as book value and
comparable trading multiples into account.

The Takeover Code of 2011 retains the exemption from the open offer requirement for an
increase in shareholding arising from a rights issue. Two requirements, however, must be
met. For starters, the buyer cannot surrender their rights under the rights issue. Second, the
price of the rights offering cannot be greater than the price of the target firm prior to the
rights issue.

These sections of the Takeover Code of 2011 seek to simplify and clarify the rules governing
inter se transfers and rights issues. The code establishes a framework to ensure openness and
fairness in such transactions by defining inter se transfers among particular qualifying people
and creating conditions for exemption. Exemptions for rights issues stimulate capital infusion
into the target firm while placing constraints to prevent unfair advantage or manipulation of
the acquisition process. Overall, these revisions help to make India's takeover environment
more structured and controlled.

Scheme of arrangement - When acquiring shares or control through a scheme of

arrangement or reconstruction, the Takeover Code of 1997 created a blanket exemption that
removed the obligation of making an open bid. This meant that in such situations, the
acquiring business was not required to make an open offer to the shareholders of the target
company.

A major shift, however, was implemented by the Takeover Code of 2011 by distinguishing
between situations in which the target company is a direct party to the scheme and those in
which it is not a party to the scheme but is nevertheless affected by the involvement of its
parent shareholders. A target company is not a party to the scheme but is affected by the
activities of its parent shareholders; in this case, an exemption from the open offer
requirement is only permitted under specified conditions.

First, if the cash portion of the total consideration paid under the programme is 25% or less,
the exemption will apply. The acquirer is not required to make a public offer if the cash
consideration makes up 25% or less of the total consideration.
Second, the shareholders who had all voting rights before to the plan must continue to own
33% or more of the voting rights of the combined firm after the restructuring in order for the
exemption to be granted. By imposing this stipulation, the existing owners will be guaranteed
a substantial amount of control and influence over the reorganised organization.

Therefore, the Takeover Code of 2011 modifies the exemption from the open offer
requirement that applies to acquisitions made under schemes of arrangement or
reconstruction. If the cash component of the total consideration is 25% or less and the
existing shareholders hold 33% or more voting rights of the combined entity after the
restructuring, then the acquirer is exempt from making an open offer, even if the target
company is not directly involved in the scheme but is affected due to the involvement of its
parent shareholders. These clauses are an attempt to find common ground between the
acquiring business and the target company's current shareholders.

Buyback of shares - Exemptions for the increase in voting rights of shareholders as a result
of buybacks were significantly revised between 1997 and 2011 under the Takeover Code.
There was no carve-out for price bumps like this in the code prior to 1997. However, a new
provision was included to the 2011 version that makes exceptions possible under certain
circumstances.

If an acquirer's stock is less than 25% at the outset but rises above this level as a result of a
repurchase, triggering the necessity for an open offer, the 2011 Takeover Code gives the
acquirer 90 days to make the offer. During this time, the purchaser can reduce their interest to
below 25% without making a public bid. To avoid making an open offer, the acquirer can
alter their shareholding using this provision.

However, an acquirer can still request an exemption from making an open offer if its initial
shareholding was already above 25% and the growth in holdings owing to a buyback would
exceed the allowable creeping acquisition limit of 5% each financial year. This exception,
however, is only valid under specific circumstances.

Firstly, the acquirer shouldn't have supported the resolution to buy back shares under Section
68 of the Companies Act, 2013. This stipulation removes any possibility of a conflict of
interest by guaranteeing that the buyer did not play a direct role in the decision to repurchase
shares.
Second, a postal ballot should have been used if shareholders were to vote on a resolution
authorising the buyback. Since postal ballots enable more shareholder engagement, this
mandate highlights the need of openness and fairness in the voting process.

Finally, the acquirer shouldn't be able to seize control of the target firm as a result of the rise
in voting rights from the buyback. This requirement is meant to prevent any one shareholder
from gaining an unfair advantage over the rest.

The acquirer is given 90 days from the date of the increase in voting rights to decrease their
stake if these conditions are not met. This dilution should be executed in a way that brings the
acquirer's voting rights below the level at which an open offer would be required. The
Takeover Code of 2011 provides exclusions for the rise in voting rights of shareholders
owing to buybacks under certain conditions. Under some circumstances, these exemptions
allow acquirers to make changes to their shareholding without being required to make a
necessary open offer.

7. Other Important Changes

Several major revisions to the prior regulations were implemented as a result of the Takeover
Code of 2011. The definition of "share" was one area that saw a significant change after the
modification. Preference shares were removed from the definition of shares in the Takeover
Code of 1997 in 2002. Nonetheless, preference shares are now considered "shares" under the
Takeover Code of 2011. The term "share" will hereafter be used broadly to refer to any
security that entitles the holder to vote.

The payments for non-competition clauses were also changed significantly. Payments to the
promoters of a target firm were not included in the offer price up to a maximum of 25% of
the offer price under the Takeover Code of 1997. Regardless of whether it is explicitly
specified in the agreement or any ancillary agreement, the price paid for shares of a company
must now include any money paid for shares, voting rights, or control over the firm under the
Takeover Code of 2011. This entails factors like 'control premium,' 'non-compete fees,' and
similar factors.

The Takeover Code of 2011 also addressed the roles and responsibilities of the board of
directors and independent directors. The Takeover Code of 1997 gave target company boards
of directors the option to consult with independent merchant bankers or special committees of
independent directors before forwarding their recommendations to shareholders on open
offers. The board of directors, however, is required by the Takeover Code of 2011 to form an
independent directors' committee. The target company is obligated to make public the
committee's written, reasoned recommendations for the open offer, and the committee has the
authority to seek outside professional counsel.

In conclusion, the previous regulations were drastically altered by the Takeover Code of
2011. It required the board of directors to establish a committee of independent directors to
provide written recommendations on open offers, broadened the definition of shares to
include preference shares with voting rights, and eliminated an exemption for non-compete
fees in determining the offer price. The purpose of these changes was to make takeover deals
more open, fair, and governed in general.

FINANCIAL AND ACCOUNTING ASPECTS OF TAKEOVER

The planning and implementation of a takeover relies heavily on financial and accounting
considerations. Whether the buyer is an individual or a corporation, there are factors to think
about. If an individual acquirer purchases a sufficient number of shares in a firm to exercise
control, that acquirer must reflect the value of those shares in their own books of account.
Their end-of-year personal Return of Income must reflect this purchase of shares in the target
company. The acquirer must do this to properly report their tax status and stay in good
standing with the IRS.

When a corporation is the buyer, however, the takeover dynamics change. Once the acquired
shares are recorded in the target company's register of members, the acquiring company
becomes the holding company and the target business becomes a subsidiary of the holding
company. The definitions of a holding company and a subsidiary company under the
Companies Act, 2013 are based on the ownership of equity share capital, therefore this is in
line with those rules.

This new status has major repercussions from a fiscal and accounting point of view. The
parent firm is obligated to include the subsidiary's financial statements into its own. To do
this, the financial data from both organizations must be combined. After an acquisition, a
consolidated financial statement provides a clear picture of the group's health and
performance as a whole.

In addition, the acquisition itself must be recorded in a manner consistent with generally
accepted accounting principles. The acquisition could be recorded using the purchase
technique or the pooling of interest’s method, depending on the particulars and the relevant
accounting frameworks (such as Generally Accepted Accounting Principles or International
Financial Reporting Standards). The acquirer's approach of recording acquired assets,
liabilities, and goodwill depends on the chosen approach.

In general, whether the acquirer is an individual or a firm, financial and accounting details are
crucial to the success of a takeover. Accurate and transparent reporting of the financial
impact of the takeover is ensured by properly registering the investment or purchase in the
books of account, representing it in tax returns, consolidating financial statements, and
adhering to applicable accounting standards. These procedures are crucial for the acquiring
business to remain compliant, communicate effectively with its stakeholders, and make sound
decisions.

STAMP DUTY ON TAKEOVER DOCUMENTS

Stamp duty is paid primarily on the Instruments of Transfer in a takeover. The sellers and the
buyers both sign this contract, which must follow the guidelines established by the
Companies (Central Government) General Rules and Forms, 1956. Each transfer instrument
must have a Share Transfer Stamp attached and cancelled in order to satisfy the stamp duty
requirement.

Stamp duty on Instruments of Transfer is normally charged at a rate of 0.50 Paise per one
hundred Rupees, or a portion thereof, of the sale price of the underlying shares. Accordingly,
0.50 Paise of stamp duty must be paid by affixing and cancelling Share Transfer Stamps on
the transfer instrument for every hundred Rupees or portion thereof involved in the sale of
shares. It should be noted that no stamp duty is due when shares are transferred through a
depository. When stock is transferred electronically, neither physical transfer documents nor
stamp duty must be paid, hence the exemption applies.

Compliance with legal requirements surrounding the payment of stamp duty can be ensured
by the parties participating in a takeover by following to the stamp duty regulations and
affixing the relevant Share Transfer Stamps on the Instruments of Transfer. The legitimacy
and openness of the share transfer transaction are bolstered by this procedure.

PAYMENT OF CONSIDERATION

In order to hold monies relating to the open offer, the acquirer is required under Regulation
21(1) of the specified regulations to open a separate escrow account at a federally chartered
bank. This account will be used to guarantee that the acquirer has the funds necessary to pay
the agreed-upon consideration amount to the shareholders. The acquirer shall deposit the
leftover sum into the special escrow account in addition to the cash transferred per clause (b)
of sub regulation (10) of regulation 17. In addition, the acquirer authorizes the offer manager
to administer the acquirer's special escrow account for the purposes of these rules.

In accordance with rule 21(2), the purchaser must compensate all owners who accepted the
open offer by tendering their shares. This consideration may be paid in cash or satisfied by
the issuance, exchange, or transfer of securities, as appropriate. The acquirer is responsible
for making this payment no later than ten business days after the completion of the tender
period.

Regulation 21(3) deals with unclaimed funds in the special escrow account referred to in
paragraph (1) after seven years have passed from the date of deposit. To the Investor
Protection and Education Fund (formed under the Securities and Exchange Board of India
(Investor Protection and Education Fund) Regulations, 2009) any such unclaimed funds shall
be remitted.

This clause safeguards the special escrow account in the event that money remain in it after
the entitled shareholders have had an extended length of time without accessing or
withdrawing them. Instead, these contributions go to the Investor Protection and Education
Fund, which was established to keep investors secure and provide them with information.

By providing a system to guarantee the timely payment of consideration in open offers, these
rules hope to safeguard shareholders' interests. Transparency and investor protection are
enhanced by the unique escrow account requirement and the opportunity to transfer
unclaimed balances to the Investor Protection and Education Fund.
 CHAPTER 3

INSTANCES OF HOSTILE TAKEOVERS

There have been very few hostile takeovers in Indian business history. Among them are:

1. In 1983, an industrialist named Swaraj Paul who was located in London began an
ambitious endeavour with the goal of gaining control of the management of two
prominent Indian corporations known as Escorts Limited and DCM. Through the use
of a tactical manoeuvre, he attempted to acquire substantial stock in both of the firms
by trading them on the stock market. This bold move laid the groundwork for a slew
of intricate legal conflicts and protracted court proceedings that would ultimately
impact the future of these businesses.

The promoters of the enterprises put up a vigorous fight against Swaraj Paul's efforts
to acquire control of them, which resulted in a turbulent period of time. The promoters
were aware of the potential challenge to their power and were aware of the necessity
to defend the interests of their enterprises, so they embarked in a vigorous legal
struggle in order to keep control of the situation. The legal proceedings were laborious
and drawn out, requiring a great number of hearings, discussions, and negotiating
sessions.

After an extended period of time spent in courtroom battles, the parties involved
eventually decided to try mediating their dispute in order to come to an agreement.
 The parties were able to locate areas of agreement and establish terms that were
satisfactory to both of them through the use of mediation, which provided a more
cooperative approach. During this procedure, Swaraj Paul and the proprietors of
Escorts Limited and DCM engaged in fruitful conversation, which ultimately resulted
in the parties reaching an agreement over a settlement.

The resolution to this high-stakes issue that was reached through mediation proved to
be a turning point in the conflict. Swaraj Paul consented to the terms of the settlement,
which stated that he would sell any shares that he had bought back to the various
company promoters at a price that was settled upon by both parties. This settlement,
which effectively returned management control of Escorts Limited and DCM to the
companies' original promoters, ensured the continued stability and operation of both
businesses.

In 1983, Swaraj Paul made an unsuccessful bid to acquire Escorts Limited and DCM.
This event, which occurred in 1983, is a key chapter in the annals of India's business
history. It shines a light on the power struggles that can emerge in the business sector
and the essential role that legal and mediation processes play in resolving such
conflicts. In the end, the parties were able to find a middle ground thanks to the
agreement that was achieved through mediation. This protected the interests of all of
the stakeholders who were involved and established a precedent for the resolution of
future disputes in the context of the Indian business landscape.

2. India Cements Limited (ICL) made a hostile takeover proposal for Raasi Cements
Limited (RCL) in the year 1998. The bid consisted of an offer of Rs. 300 per share,
despite the fact that the stock was only trading at Rs. 100 on the Bombay Stock
Exchange (BSE) at the time. The promoters of RCL had already sold their stock to
ICL, which meant that there was limited possibility for other shareholders to join in
the open offer. As a result, this decision incited discontent among investors, who felt
as though they had been duped.

As a result of the hostile bid, the investors developed feelings of mistrust and
unhappiness with the situation. They were of the opinion that the promoters had acted
in their own self-interest, paying little attention to the concerns of the minority
 stockholders. The problem was made worse by the fact that ICL was able to
effectively buy the financial institutions linked with RCL through the use of an open
offer, bringing their total ownership stake in the company up to 85%. This made the
situation much more difficult to deal with.

The manner in which ICL handled the acquisition process brought into question its
fairness and transparency as a result of this action. The investors, who at the outset
had the impression that the promoters had misled them, found themselves in a
position of vulnerability as a result of ICL's consolidation of its control over RCL. As
a result of ICL's solid control over the majority of the company's shares, minority
shareholders had very little influence and few choices available to them to protect
their interests.
The improper treatment of minority shareholders was brought to light by both the
hostile bid and the subsequent acquisition, highlighting the need for stricter laws and
safeguards in this area. It also brought to light the significance of openness and moral
conduct during business takeovers, highlighting the requirement for appropriate
disclosure and equitable treatment of all shareholders concerned. This incident served
as a useful reminder of the difficulties minority shareholders experience when
attempting to safeguard their money amid hostile takeover efforts.

3. Emami, a well-known consumer goods company, made a substantial purchase in 2008

when it acquired a 24% share in Zandu, a well-known healthcare company. The
Vaidyas, co-founders of Zandu, were the sellers of the shares. The price of Rs. 6,900
per share shows how optimistic Emami is about Zandu's potential in the future.

After the first purchase, Emami made an open offer to another Zandu co-founder,
Parikh, for a 20% ownership in the business. Zandu, despite its greatest efforts, was
unable to save the company from imminent collapse. Parikh finally caved to Emami
after four months of persistent pleading and surrendered their stake of 18%.

Emami has completed its acquisition of a controlling interest in Zandu, increasing its
ownership of the company from 58% to 72%. Emami reached a major milestone with
this purchase, which helped them cement their position as a leader in the healthcare
industry and increase the variety of services they offer.
 Emami's purchase of Zandu was a calculated business move that showed the
company's dedication to growth and reflected its belief in the future of the healthcare
industry. Emami's market presence was bolstered as a result of the purchase, and the
company was able to capitalise on Zandu's well-established brand and client base.

Emami hoped to maximise synergies and accelerate expansion by incorporating

Zandu into its business operations. Emami was able to take use of Zandu's healthcare
industry knowledge and product advancements thanks to the purchase, better meeting
the needs of a diverse customer base.

Emami's 2008 purchase of a controlling interest in Zandu was a smart business move
that set the stage for continued growth in the healthcare industry. Both parties
benefited from the deal, as it increased Emami's visibility in the market and opened
the door to future opportunities for collaboration and synergistic expansion.

4. In 2000, a famous business personality named Abhishek Dalmia made a risky move to
buy 45% of the share capital in Gesco Corporation, setting off an intriguing struggle
for dominance in the corporate world. The move sent shockwaves through the
business world as Gesco's backers and the Dalmia group engaged in a high-stakes
power struggle.

But in the midst of the intense conflict, something unexpected happened. The
promoters of Gesco and the Dalmia group were able to negotiate a settlement that
satisfied both parties, demonstrating their superior negotiation and business ability. In
order to terminate the heated struggle and solidify their control over Gesco, the
promoters opted to buy out the Dalmia group's 10.5% stake as part of the settlement.

Many in the business world breathed a sigh of relief and a nod of approval at the end
of this bitter corporate feud. The parties' ability to put the long-term interests of Gesco
and its stakeholders ahead of their own short-term gains was on display in the
amicable resolution reached. The parties were able to avoid costly and time-
consuming litigation by coming to an agreement.
 The truce not only ended the fighting for Gesco, but it also taught the parties involved
about how to resolve conflicts and make strategic decisions. The importance of
compromise and compromise-seeking in resolving conflicts was emphasised.
Conflicts in the business sector can be turned into opportunities for growth and
collaboration, as was demonstrated by this episode.

5. In 2012, despite possessing only 11.2% of the shares owned by the target business's
proprietors, Essel Group launched a strategic effort to buy control of IVRCL, an
infrastructure company. As a first step towards acquiring majority control of IVRCL,
Essel Group increased its investment in the company by 10.7 percent. When Essel
Group suddenly changed course and chose to sell its stake in IVRCL, the situation
took an unexpected turn.

Essel Group's ambitious aspirations to increase its presence in the infrastructure

industry were reflected in the decision to buy a large share in IVRCL. Essel Group
wanted to develop synergies and fortify its market position by growing its
shareholding in IVRCL, a firm with a long history in the industry. This action also
reflected Essel Group's belief in IVRCL's potential for future expansion and its
intention to take a more hands-on role in the company's management and day-to-day
operations.

After much deliberation, or perhaps as a result of shifting market conditions, Essel

Group decided to sell its stake in IVRCL. Possible variables that played into this
decision include a reevaluation of the strategic fit, financial considerations, or a
change in Essel Group's overarching corporate plan. Essel Group effectively withdrew
from its bid to win control of IVRCL by selling its shares, opting instead to pursue
other chances or concentrate on other priorities that better fit its long-term objectives.

Overall, the attempt and subsequent decision by Essel Group to purchase IVRCL and
then sell the shares exemplify the fluidity of corporate strategy and the necessity of
adaptability in reaction to changing conditions.

6. The acquisition of Mindtree by Larsen & Toubro (L&T) in 2019 was the first hostile
takeover in the Indian IT sector. Through a sales purchase agreement with Mindtree
 equity shareholder Coffee Day Enterprises, L&T acquired 20.15 percent of Mindtree's
Emerging Voting Capital. In addition, under SEBI rules, an open offer was triggered
when L&T issued a buy order on a recognised stock exchange for 15% of the
Emerging Voting Capital.

L&T was able to effectively complete a takeover of Mindtree despite initial

opposition from Mindtree's promoters, who were unwilling to engage in the
transaction. L&T's current 60.55% ownership in Mindtree represents a considerable
consolidation of power and control within the corporation.

The confrontational character of L&T's acquisition of Mindtree caused a stir and

prompted questions and discussion in the IT industry. Mindtree, a pioneer in the IT
services and digital transformation industries worldwide, has developed a unique
corporate culture throughout the years. Concerns regarding the impact on Mindtree's
autonomous operations and work culture stemmed from the abrupt change of
ownership and the potential influence from a larger conglomerate like L&T.

The future of both companies is uncertain so long as L&T maintains its controlling
interest in Mindtree. The merger has changed the face of India's IT industry, and it
could lead to further mergers and acquisitions in the future.

FACTORS DETERMINING VULNERABILITY OF COMPANIES TO TAKEOVER

BIDS

It is essential to have a thorough grasp of the methods that lie behind such acquisitions in
order to conduct an adequate analysis of the aspects that determine the vulnerability of
companies to takeover bids. When viewed through the lens of a potential acquirer, a certain
set of qualities might make a business stand out as an attractive target for a takeover. It is
possible to identify these characteristics in order to evaluate a company's level of
susceptibility. The following factors all contribute to an organization's susceptibility to being
exploited:

1. Low stock price in comparison to potential earning power or the cost of replacing
assets: An organization that has a low stock price in comparison to the value of its
assets or the potential for the organization to create earnings is appealing to possible
 acquirers. They have the ability to purchase the company at a price that is
comparatively more affordable, which has the potential to result in big returns in the
future.

2. A highly liquid balance sheet with excess cash, a valued securities portfolio, and
unused debt capacity: An organization that has a significant amount of excess cash, a
valuable securities portfolio, and untapped debt capacity creates an opportunity for the
acquirer. These resources can be put to use to finance the acquisition, which will give
the acquirer the flexibility necessary to carry out the strategic goals it has developed.

3. Cash flow that is robust in comparison to the present price of the company's stock: A
business that generates strong cash flows in relation to the price of its shares is
attractive to potential acquirers. This suggests that there is a potential for consistent
profitability as well as the capacity to generate returns on investment.

4. Having subsidiaries or properties that can be sold without having a substantial impact
on cash flow makes a company a desirable acquisition target, particularly if the
company holds both of these things. The money made from these types of sales might
be put towards paying off any debts that were incurred as a result of the acquisition.

5. The incumbent management of a business's stockholdings can have a significant

impact on the firm's susceptibility. If the incumbent management of a company
controls relatively little stockholdings, then the vulnerability of the company is
increased. Potential purchasers could see this as an opportunity to seize control of the
company with relatively little pushback from the leadership that is already in place.

When combined, these characteristics can elevate a business to the status of a desirable
investment prospect and simplify the process of financing the acquisition of that company.
The acquirer's ability to use the assets of the target company as collateral for the borrowings
they make helps to provide lenders with a sense of security. In addition, the cash flows that
are produced by the activities of the target firm as well as the divestitures can be used to
repay the loans, thereby minimizing the financial burden that is placed on the acquirer.

Acquirers can find companies that provide favourable conditions for takeover offers by
carefully examining these vulnerability indicators and then looking for companies to acquire.
However, in order to maintain the long-term viability and profitability of a firm that has been
acquired by new ownership, it is vital to take into mind the broader implications and ethical
issues that are associated with such acquisitions.

LEGAL AND REGULATORY CHALLENGES

In India, hostile takeovers are met with a myriad of legal and regulatory hurdles. The
Securities and Exchange Board of India (SEBI) and the Competition Commission of India
(CCI) both play critical roles in the process of regulating hostile takeovers and other types of
business mergers and acquisitions. Once an acquiring business has obtained a large
ownership in the target company, they are required by the SEBI Takeover Regulations to
make a public offer of their services to the shareholders of the target company. The CCI
monitors the market to guarantee that corporate mergers and acquisitions, as well as hostile
takeovers, do not have a negative effect on the level of competition there. This article will
investigate the legal and regulatory obstacles that are presented by hostile takeovers in India,
as well as the role that SEBI and CCI play in preventing hostile takeovers under certain
conditions.

Obtaining the necessary regulatory clearances is a crucial obstacle that must be overcome in
hostile takeovers. Companies that are acquiring other businesses are required to comply with
a variety of regulatory obligations, one of which is to gain approval from the CCI. The
process of taking over can experience severe delays as a result of this process. The CCI will
conduct an analysis of the possible effects that the purchase will have on the level of
competition in the market. If any potential anticompetitive effects are found, the CCI will
require the acquiring company to make specific changes or divest certain assets.

Disclosure that is correct and made in a timely manner is another essential component of
hostile takeovers. Companies that are acquiring other businesses are obligated to make
certain that all disclosures are made in a manner that is compliant with all laws and
regulations. If correct and timely disclosures are not provided, a company may face increased
regulatory scrutiny as well as the possibility of legal challenges. Maintaining openness and
providing all of the necessary information to shareholders and regulatory agencies is an
absolute necessity for companies that are acquiring other businesses.

Activism on the part of shareholders is still another key legal and regulatory obstacle in
hostile takeovers. There is a possibility that minority shareholders would oppose the takeover,
which might result in protracted litigation and regulatory action. Companies that are
acquiring other businesses are obligated to uphold all shareholder rights, including the right
to information and the ability to vote. In the event that these rights are not respected, legal
action and/or regulatory intervention may be taken.

When specific conditions are met, SEBI and CCI have the authority to step in and prevent
hostile takeovers from occurring. In order to acquire a controlling position in a listed
company, it is necessary for the Securities and Exchange Board of India (SEBI) to review and
accept the open offer that was made by the purchasing company. In the case that SEBI
discovers any abnormalities in the open offer or violations of its rules and regulations, it has
the authority to reject the offer and thwart the hostile takeover. During the process of a
takeover, SEBI is also authorised to conduct investigations into allegations of insider trading
or price manipulation.

On the other hand, if the CCI believes that the acquisition will violate competition laws, it has
the authority to prevent a hostile takeover from occurring. The CCI will analyse the purchase
and determine whether or not it will result in a monopoly in the market or significantly lessen
the amount of competition there is in the industry. If the CCI determines that the acquisition
would have a negative impact on competition, it has the authority to either terminate the
acquisition or require the acquiring business to sell off some of its assets. In addition, the CCI
holds the authority to levy fines on businesses that are found to be in violation of laws
governing competition.

The regulatory hurdles that must be overcome in order for hostile takeovers to be successful
in India are enormous and can have a significant bearing on the outcome of the deal.
Companies who are participating in hostile takeovers have a responsibility to be aware of
these obstacles and ensure that they comply with all legal and regulatory obligations. To
ensure that the acquisition process goes off without a hitch, it is essential to maintain
communication with regulatory authorities such as SEBI and CCI.

In short, hostile takeovers in India encounter a wide variety of obstacles related to the law
and the regulatory environment. Both the SEBI and the CCI are key components of the
regulatory and supervisory apparatus for these dealings. The Securities and Exchange Board
of India (SEBI) reviews the open offer that is made by acquiring businesses, investigates
allegations of irregularities, and guarantees that its requirements are followed. The CCI
conducts an analysis of the impact on competition and has the authority to stop a hostile
takeover if it breaches the laws that govern competition. To successfully execute a hostile
acquisition in India, acquiring corporations need to manage these challenges, secure
regulatory approvals, make correct disclosures, respect shareholder interests, and comply
with all legal and regulatory requirements.

CASE STUDIES:

 Fortis Healthcare–

In 2018, a large healthcare company in India known as Fortis Healthcare became the focus of
a vigorous battle for control during a hotly contested hostile takeover attempt. IHH
Healthcare, TPG Capital, and Manipal-TPG were among the numerous parties who submitted
bids for the acquisition. These parties were all interested in acquiring a controlling position in
Fortis Healthcare. IHH Healthcare came victorious in the end, accomplishing its goal of
effectively acquiring the highly desired majority ownership in the company. Nevertheless,
during the entirety of the takeover process, the companies involved were confronted with
substantial difficulties in complying with various regulatory requirements, most notably those
imposed by the Securities and Exchange Board of India (SEBI).

The adherence to SEBI's standards regarding the open offer procedure was one of the key
regulatory obstacles that the bidding businesses needed to overcome in order to clear the
competition. In the case of an open offer, the acquiring business is required to make a public
offer to the existing shareholders of the target company in order to acquire a predetermined
minimum percentage of those shares. To guarantee that the takeover process is conducted in a
manner that is both fair and transparent, the regulations imposed by SEBI specify the pricing
of the open offer as well as the disclosure requirements and rigorous timetables that must be
adhered to.

As the winning bidder, IHH Healthcare was under a lot of pressure to behave in a manner that
was compliant with SEBI's standards. The company was required to traverse the complexities
of the open offer procedure with great care, making certain that the pricing of the offer was in
accordance with the criteria established by SEBI. The Securities and Exchange Board of
India (SEBI) has made it a requirement that the open offer price must be computed using
certain formulae and that it must not be lower than the maximum price that the acquirer has
paid in the preceding twelve months. This criterion contributes to the protection of the
interests of minority shareholders and guarantees that a reasonable price is paid for their
shares.
In addition to this, the disclosure rules provided a considerable additional obstacle. As a
matter of law, SEBI requires acquirers to make the target company and the general public
aware of their objectives, strategies, and specific financial information. It is essential to
disclose this information in order to facilitate shareholders' and other stakeholders' ability to
make informed decisions. IHH Healthcare had to rigorously develop and reveal its strategic
plans for Fortis Healthcare, which included its vision for the company's future, operational
strategies, and potential synergies. This was a requirement in order to complete the
acquisition.

In addition, the requirements imposed by SEBI stipulate stringent time limits for the
completion of the various stages of the open offer procedure. In order to avoid being
penalised and to ensure that the acquisition process remained honest, the corporations who
submitted bids were required to ensure that they complied with these timelines. In order for
the companies engaged to be successful in completing their obligations in a timely manner,
such as filing the relevant documents, gaining regulatory approvals, and sending offer letters
to shareholders, the companies needed to engage in meticulous preparation and execution.

The hostile takeover case involving Fortis Healthcare is illustrative of the legal and
regulatory complexity connected with hostile takeovers in India, especially in terms of
compliance with restrictions imposed by SEBI. It is essential for the Securities and Exchange
Board of India (SEBI) to have a role in supervising and regulating these types of transactions
in order to protect the interests of shareholders and preserve the integrity of the market. The
goal of the Securities and Exchange Board of India (SEBI) is to guarantee that the takeover
process is carried out in a fair and equitable manner by enforcing openness, disclosure, and
fair pricing. This will protect the rights of minority shareholders and maintain the general
stability of the Indian financial markets.

The fight over the takeover of Fortis Healthcare should serve as a lesson to businesses that
engage in similar deals, serving as a reminder of the significance of having a comprehensive
understanding of, and compliance with, the regulatory framework established by SEBI. To
successfully navigate these restrictions, one must pay minute attention to every detail, plan
thoroughly, and maintain open and productive lines of communication with all relevant
parties. In the end, compliance with the regulations set forth by SEBI not only helps to bolster
credibility and trust in the takeover process but also makes a contribution to the general
development and progress of India's corporate environment.
  Adani Ports and Special Economic Zone (APSEZ) acquisition of Krishnapatnam
Port Company–

The acquisition of Krishnapatnam Port Company in 2020 by APSEZ (Adani Ports and
Special Economic Zone), which is considered to be the most successful port operator in India,
generated news around the world. With a total value of INR 13,500 crore, this strategic move
marked the single largest acquisition in the history of the Indian port sector. However, the
acquisition was not without its fair share of legal and regulatory issues, the majority of which
were around complying with the regulations set down by the Competition Commission of
India (CCI). These challenges were not without their fair share of legal and regulatory
challenges.

The Competition Commission of India (CCI) plays an essential part in maintaining fair
competition in the Indian market. The CCI monitors mergers and acquisitions in an effort to
avoid the development of monopolies and any significant drop in levels of competition. In the
context of APSEZ's acquisition of Krishnapatnam Port Company, the CCI was tasked with
evaluating the potential impact that the transaction could have on the existing competitive
landscape within the port industry.

The primary worry was whether or not this acquisition would bestow an excessive amount of
market power upon APSEZ or erect hurdles to entrance for other companies, so stifling
competition. The CCI conducted an exhaustive analysis of the transaction in order to evaluate
its possible repercussions. They assessed a variety of criteria, such as the combined entity's
market share, the risk of competitors going out of business, and the influence on pricing and
services in the port industry.

The CCI gave its approval to the transaction after conducting a thorough investigation,
indicating a favourable outcome for APSEZ. The CCI did not identify any serious antitrust
concerns that would have a negative impact on competition in the port industry, as evidenced
by the authorisation. The takeover landscape in India will be significantly altered as a result
of this ruling, particularly with relation to the concentration of the port business.

Through the acquisition of Krishnapatnam Port Company, APSEZ was able to broaden its
scope of operations and further solidify its position as the preeminent leader in the port
industry in India. APSEZ was able to increase its overall capacity and infrastructure as a
result of the acquisition, which in turn enabled it to meet a greater proportion of India's
expanding trade requirements. The consolidation might potentially bring about benefits in the
form of economies of scale, enhanced efficiency, and increased levels of competitiveness.

Nevertheless, the fact that this acquisition was given the go light does not imply that
oversight was waived. The Competition and Consumer Commission (CCI) will keep
watching the market and will respond appropriately if any anti-competitive business practises
appear in the future. It is vital to strike a balance between promoting industry consolidation
for the purpose of increasing overall efficiency and guaranteeing a competitive market that is
to the advantage of customers and encourages fair competition.

The acquisition of APSEZ-Krishnapatnam marks a key milestone in the Indian port sector
and brings attention to the growing trend of consolidation in the industry. Furthermore, it
highlights the significance of regulating entities such as the CCI in ensuring that there is fair
competition and preventing monopolistic business practises. Such purchases will play a
significant part in influencing the country's trade dynamics and facilitating effective logistics
and supply chain operations as India continues to observe rapid economic growth and the
construction of new infrastructure. This is because India is continuing to experience rapid
economic growth and the creation of new infrastructure.

In result, the fact that the CCI gave its blessing to APSEZ's acquisition of Krishnapatnam
Port Company is indicative of a favourable outcome for all of the parties who were involved.
The acquisition not only bolsters APSEZ's position as a prominent port operator in India but
also demonstrates how effective the regulatory framework is in evaluating and allowing
mergers and acquisitions that do not raise significant antitrust issues. In other words, the
transaction is a win-win situation. It is essential, as the process of industry consolidation in
the port sector continues, to strike a balance between the pursuit of efficiency benefits
through industry consolidation and the maintenance of fair competition in the market.

 Tata Steel’s acquisition of Bhushan Steel–

In 2018, Tata Steel, one of the most successful steel manufacturers in India, made a
substantial acquisition when it purchased Bhushan Steel through the bankruptcy process. This
was a significant move for the company. This acquisition, which had a total value of INR
35,200 crore, represented a watershed point in the history of corporate takeovers in India and
had significant repercussions for the consolidation of the steel industry.
However, there were some legal and regulatory hurdles to overcome in order to complete the
acquisition. The Insolvency and Bankruptcy Code, which regulates the procedures for filing
for bankruptcy in India, has to be followed in order for the process to be legal. This
regulation assures that the process of acquiring a firm that has declared bankruptcy is carried
out in an open and fair manner, giving prospective bidders with equal possibilities.

In order to be in full conformity with the Insolvency and Bankruptcy Code, Tata Steel ran
into certain difficulties. They had to navigate through the legal procedures and rules that were
established by the law because they had the highest bid. In order to guarantee that all of the
requirements of the code were met, the acquisition needed to be sanctioned by the National
Company Law Tribunal (NCLT), which is the judicial body in charge of supervising the
bankruptcy process.

In addition, the acquisition needed to be approved by the Competition Commission of India

(CCI), which is the regulatory entity responsible for ensuring that there is fair competition
and avoiding practises that are anti-competitive. This measure was absolutely necessary in
order to resolve any concerns that may have been raised over the concentration of the steel
industry and the possibility of market dominance by Tata Steel.

The approval of the acquisition by both the NCLT and the CCI was a good result of the
transaction. This demonstrated that Tata Steel had complied with all of the legal and
regulatory criteria that were imposed on them. The successful completion of this transaction
had important repercussions for the takeover landscape in India as well as for the
consolidation of the steel industry.

These case studies shed light on the legal and regulatory problems faced by corporations
participating in hostile takeovers in India and provide some possible solutions to such
challenges. It is of the utmost necessity to be in full compliance with the restrictions that are
imposed by regulatory agencies such as the Securities and Exchange Board of India (SEBI)
and the CCI. In order for businesses to be granted approval for acquisitions, they need to
ensure that they comply with all of the essential standards, including disclosure rules and
practises that inhibit competition.

The outcomes of such transactions will have significant repercussions for the competitive
environment of takeovers in India. The successful acquisition of a company by another, like
as Tata Steel's purchase of Bhushan Steel, can lead to the consolidation of an industry, which
in turn improves both efficiency and competitiveness. However, they must be carried out in
accordance with the law and in a manner that adheres to the principles of fair competition in
order to avoid engaging in monopolistic practises and to protect the interests of all parties
involved.

In general, the legal and regulatory hurdles that are encountered during acquisitions in India
highlight how important it is to comply with all applicable rules and regulations, as well as to
be transparent and fair in the process. When adequately solved, these problems have the
potential to pave the path for successful acquisitions, which would be of benefit to the Indian
economy and numerous sectors through consolidation and enhanced competitiveness.

CHAPTER 4

ANALYSIS OF DIFFERENT DEFENSES AND THEIR EVALUATION IN INDIA

1. Adjustments in Asset and Ownership Structure

Defensive restructuring techniques are essential for blocking possible bidders in the world of
business takeovers. These preventative actions are meant to safeguard the target business
while making the takeover effort more difficult or unappealing for the bidder. Several actions
can be taken in this situation to prevent a hostile takeover from succeeding.

One defense is purchasing a property that could result in legal issues. Before focusing on the
preferred company, this means buying stakes in businesses with extra capital. The bidder
wants to impair the future success of the target company by investing in businesses that are
involved in significant legal disputes. Legal issues that these purchased properties are
currently facing can lead to uncertainty and discourage possible bidders from moving forward
with the takeover effort.

Purchasing the majority of the shares of the bidder is another defensive tactic. Management
can strengthen their influence and make it more difficult for outside bidders to win full
control by acquiring a large interest in their own business. By using this strategy, the
management is able to defend their position and thwart the takeover attempt.

In addition, the target company has the option of selling to a third party the assets that
attracted the bidder. By taking away these crucial assets, the bidder will find the target
company less desirable and be less motivated to pursue the acquisition. This defensive move
tries to reduce the target company's strategic worth and erode the bidder's advantage.
Another defensive strategy is to issue fresh securities with unique clauses that disagree with
the specifics of the takeover effort. A business could, for instance, issue new securities with
clauses that restrict or hinder the bidder. Lenox's defense against the 1983 takeover attempt
by Brown-Forman Distillers Corporation served as an example of this strategy. Such
provisions make the bidder's task more difficult and can deter them from moving forward
with the acquisition.

The creation of a concentrated vote block paired with target management is a recurring topic
in defensive restructuring. The support for current management is strengthened by the issuing
of securities through private placements to parties that are allied with, in commercial
partnerships with, or even directly to management. The target business may also repurchase
publicly traded shares to further raise the percentage of shares that are aligned with
management. These efforts strengthen management's position and make it difficult for a
hostile bidder to win over enough shareholders to complete the takeover.

But it's vital to be aware that certain countries, like India, severely enforce Section 81A and
Regulation 23 of the Takeover Code, 1997, which prohibit certain defensive strategies, like
reducing the bidder's vote share through the issue of fresh equity claims. In takeover
situations, these policies are meant to promote fairness and safeguard the interests of
shareholders. Such circumstances may make it difficult for hostile bidders to raise their
interest proportionately, which would reduce their prospects of making a successful takeover
offer.

In my conclusion, defensive restructuring techniques cover a range of preventative actions for

hostile takeovers. These include buying assets that could face legal problems, buying the
majority of the bidder's shares, selling important assets to outside buyers, issuing securities
with contradictory terms, forming consolidated vote blocks with the target management, and
reducing the bidder's voting power. These strategies are used to protect the target company's
interests and raise the barriers that hostile bidders must overcome. However, the effectiveness
and viability of these defensive measures may be influenced by the particular laws and
regulations in each country.

2. The “Crown Jewel” Strategy

The sale of a highly valued operating unit is a common tactic utilised in the field of hostile
takeovers. This tactic is also known as the "crown jewel strategy." The goal of this strategy is
to prevent the hostile bidder from achieving the principal goal they set for themselves in the
takeover bid. This tactic also has a more extreme variant known as the "scorched earth
approach." The goal of this strategy is to reduce the overall worth of the target company by
convincing it to sell off not only its crown jewel but also some of its other assets.

However, a widespread consensus among industry professionals holds that such a drastic
action is fundamentally self-destructive and ill-advised from the standpoint of the company.
There are a number of important arguments in support of this approach. When a target
company sells up its assets in response to an unsolicited offer for a takeover, it gives the
market several reasons to be pessimistic about its future. The market realises that the
divestiture is essentially a defensive action on the part of the corporation to protect its own
interests, and this information is made public. Because of this information, prospective
purchasers of these assets are able to bide their time and manipulate the selling prices to the
detriment of the company, which could result in the prices falling below their current market
worth. As a consequence of this, the gains that are often generated from defensive
restructuring initiatives like these are typically quite limited.

Additionally, the proceeds received from the sale are frequently used in repurchasing equities
at inflated prices in the market. This is done with the proceeds obtained from the divestment.
These inflated prices are the result of rumours that have been circulating about a possible
takeover attempt, which has caused the stock prices to jump. Nevertheless, a more in-depth
investigation indicates that purchasing shares in the market at these inflated prices is, in
essence, purchasing assets that are not worth anything at all. The corporation would have
been left without any significant assets if the scorched earth policy had been followed to its
logical conclusion. As a consequence of this, the large stockholders of the company would
find that they controlled an abnormally high proportion of the company's stock, which was
devoid of any value that could be considered significant.

As a basic matter of fact, putting into action the scorched earth strategy or engaging in
disproportionate divestiture of assets as a defensive tactic against a hostile takeover attempt is
generally seen as being counterproductive by the majority of people. Not only does this
convey bad signals to the market, but it also has the potential to lead to a situation in which
major stockholders hold shares that are worth very little or nothing at all. Alternate defensive
methods are often considered to be more cautious and profitable in the long run. These
strategies concentrate on protecting the core strengths and competitive advantages of the
target organization.
Legal Position in India

Due to the limitations established in the Companies Act of 1956, there is a restriction on the
degree of flexibility that may be exercised while putting defensive plans into action in India
to protect against hostile takeovers. The Act places limitations on the powers that can be
exercised by the Board of Directors. For example, Section 293(1) of the Act states that the
board cannot sell the entirety of the company's undertakings or a considerable portion of
them without first getting authorization from the company at a public meeting. However, the
Act does not impose any limits on the sale of individual immovable assets that do not
represent a complete company. Therefore, in most cases, the Board has the ability to transact
business with the company's properties, unless such acts are regarded as being
counterproductive to the company's interests.

In addition, the SEBI (Substantial Acquisitions and Takeover) Regulations of 1997, notably
Regulation 23, places certain requirements on the Board of Directors of the company that is
the subject of the takeover attempt. Once the predator has made a public declaration of its
intention to take over the target firm, the regulation states that it becomes more difficult for
the target company to sell, transfer, or otherwise dispose of its assets. The capacity of the
target firm to engage in asset transactions following the public statement made by the
predator is hindered as a result of this limitation. Because of this, protective actions such as
the sale, transfer, or encumbrance of assets can only be put into place prior to the predator
making their public declaration.

In addition, the Listing Agreement in India's Clause 40B(12) makes it illegal for a business to
sell any significant portion of its assets without first receiving authorization from the
company in the form of a vote at a general meeting. Because of this clause, it is even more
imperative that the corporation get the go-ahead from its shareholders before engaging in any
large asset transactions.

In general, the legal framework in India, specifically the Companies Act, the SEBI
Regulations, and the Listing Agreement, imposes constraints on the power of the Board of
Directors with regard to the sale and disposal of assets in the context of hostile takeovers.
These regulations and the Listing Agreement are all examples of this. By requiring
substantial asset transactions to be reviewed and approved by the business's stakeholders in a
general meeting, the purpose of these limits is to ensure that the interests of the firm as well
as those of its shareholders are safeguarded.
 3. The “Packman” Defense.

In the world of corporate takeovers, one unconventional approach known as the "Pac-Man
strategy" involves the target firm wanting to purchase the shares of the raider company rather
than the raider company attempting to acquire the target company. This strategy is generally
used in situations in which the raider company is significantly smaller in size compared to the
company that is the target of the raid, and the target company holds a significant amount of
cash flow or valuable liquid assets.

The term "Pac-Man strategy" originates from the well-known arcade game of the same name,
in which the main character, Pac-Man, must eat his foes in order to stay alive and go forward.
In a similar vein, the target company, playing the role of an unforeseen attacker, has the
intention of gobbling up the raider company by means of a strategic acquisition.

In this one-of-a-kind takeover scenario, the target firm uses its considerable financial
resources to purchase the shares of the raider company, therefore inverting the typical order
of events that occurs during a hostile acquisition. The target firm seeks to gain control over
the raider company, which would have otherwise made the takeover offer, by leveraging its
considerable cash flow or liquid assets in an effort to accomplish this goal.

The Pac-Man approach throws a wrench into the traditional storyline of corporate takeovers
and highlights the ingenuity and flexibility of businesses in negotiating difficult business
environments. It illustrates the target firm's desire to investigate alternative ways to safeguard
its interests and potentially increase its market position through unanticipated means. This
willingness is exemplified by the fact that the target company has explored alternative routes.

4. Targeted Share Repurchase or “Buyback”

This strategy demands on the management of a firm to make astute use of the company's
resources in order to not only strengthen their grip over the company but also to deter
possible raiders. One component of this strategy is selling off undesired assets while
simultaneously increasing the management team's share in the company by using some of the
company's assets to grow their ownership in the business. This strategy is intended to make
the business less desirable to outside raiders. The innovative use of share buybacks is a
crucial component of this strategy. These buybacks serve the dual purpose of reinforcing
management's control over the company and discouraging potential raiders.
The term "buyback" is used all over the world whenever a business has excess funds that are
not producing adequate returns on investing in production or capital, and which also cannot
be redistributed to shareholders without causing unfavorable effects. In these situations, the
corporation may choose to buy back its own shares. When this occurs, management
frequently turns to the practice of repurchasing shares as a method for efficiently allocating
extra cash. Through the process of buying back its own stock, a firm can lower the number of
shares that are currently available on the market, which helps to concentrate ownership and
improve management's control over the business.

The buyback plan, on the other hand, takes on a distinct dimension when considered in the
context of thwarting raiders. Its primary function shifts from that of a tool for the deployment
of capital to that of a defensive move with the goals of preserving control and discouraging
the possibility of hostile takeovers. Management has the ability to secure a rise in their shares
through the use of strategic buybacks. This strengthens their position within the company,
making it more difficult for raiders to acquire a controlling interest.

In addition, the management of the firm, in addition to engaging in buybacks, also engages in
the practice of strategically disposing of assets in an effort to make the company less
appealing to potential raiders. The company will be able to streamline its operations and
concentrate on the components of its business that are the most valuable and competitive if it
gets rid of these unattractive assets, which may include non-core businesses or divisions that
are not performing well. The reorganization not only makes the company more appealing to
potential investors but also makes it more resistant to hostile takeover attempts.

Legal Position in India

The notion of share buybacks was first introduced by the Companies Act of 1956, which
gives businesses the legal authority to acquire their own shares. standards have been created
by the Securities and Exchange Board of India (SEBI) to oversee the repurchase process.
These standards ensure openness, accountability, and investor safety. Buybacks serve
numerous goals for firms, including the protection of the company from possible raiders, the
increase of earnings per share (EPS), and the improvement of net asset value (NAV).
Companies are able to more effectively use their assets and improve their overall productivity
when they make use of buybacks.

In spite of the obvious benefits, the actual procedure of carrying out a buyback is quite
rigorously restricted by restrictions set forth by SEBI. After receiving authorization from
shareholders in the form of a special resolution, businesses are the only ones authorized to
repurchase shares from their free reserves. It is required that the rationale behind carrying out
the repurchase as well as an accurate portrayal of the company's current financial status be
stated. These regulations ensure that the repurchase process is transparent and provide
shareholders with crucial information so that they can make decisions based on accurate
information.

In addition, if a company has successfully completed a repurchase, they are prohibited from
issuing additional shares for a period of one year. In addition, it is expressly forbidden to
issue shares for the purpose of funding the buyback. Because of these rules, businesses are
prohibited from utilizing share buybacks as a tool for artificially manipulating their share
capital or diluting their ownership. The goal is to keep things fair while also protecting the
interests of the shareholders who are already in place.

When a public offer period and a buyback offer occur at the same time, the corporation is
required to fulfil all of the conditions that are associated with a "competitive offer." This
provision guarantees that the repurchase offer is fair and does not unfairly penalise potential
acquirers during a takeover attempt. It also prevents the buyback offer from creating a
conflict of interest. In contrast to a public offer made in accordance with the Takeover
Regulations, a repurchase offer that has already been made cannot be cancelled once it has
been submitted. As a result, even in the event that a raider withdraws its public offer, the
target firm is required to continue with the buyback of its shares. This scenario can be
financially difficult for the company if the primary goal of the buyback was to dissuade the
raider, as the company will still need to proceed with the expensive repurchase even if there
is no longer a threat of a takeover.

5. “Golden Parachutes”

Golden parachutes are clauses in employment contracts that guarantee certain levels of
remuneration to managers in the event that they are terminated from their positions as a result
of a change in the management team. These clauses often entail the payment of a one-time
sum or a series of payments spread out over a predetermined amount of time. These payments
are intended to be comparable to the manager's typical pay rates.

The practice of providing executives with lucrative severance packages is becoming

increasingly widespread among large enterprises, including a significant number of Fortune
500 companies. Around one quarter of these businesses had already included golden
parachute provisions in the employment contracts of its senior executives by the middle of
the 1980s. These rules have been put in place with the intention of resolving the innate
conflict of interest that develops between shareholders and managers whenever there is a
significant shift in the ownership of the organization.

Golden parachutes are control-related contracts that, by their very definition, aim to reduce
the likelihood of conflicts of interest occurring. It is common for there to be uncertainty as
well as the possibility of instability within an organization when a change of control has
taken place, such as through a merger or an acquisition. It is possible that managers will be
tempted to priorities their own self-interests over the interests of shareholders when they are
in a position to have a major impact over the outcome of such occurrences.

Golden parachutes are a means of resolving this tension by ensuring the financial stability of
managers in the event that their jobs are eliminated. Because of these measures, the company
may rest assured that its leaders will not be only motivated by short-term advantages, which
could be harmful to the long-term interests of the company and its shareholders. By
delivering pay that is contingent upon the successful execution of the transition of ownership,
golden parachutes can instead match the incentives of managers with those of shareholders.

Those who are opposed to golden parachutes contend that these clauses can result in
excessive rewards, which can lead to a mismatch of incentives as well as the potential misuse
of corporate finances. They feel that managers might be incentivized to seek out change-of-
control events for personal gain rather than acting in the best interest of the company, and
that this could be a problem for the organization. In addition, golden parachutes can be
viewed as a type of insurance against poor performance because managers are shielded from
liability even if they are unable to provide the results that were expected of them.

However, advocates of golden parachutes contend that such clauses give executives a sense
of security and stability, which enables them to make difficult decisions during times of
uncertainty without the worry of losing their jobs right away. In addition, they argue that
golden parachutes are able to attract and keep top managerial talent because these clauses are
frequently seen as an essential component of executive compensation packages.

Legal Position in India

The appointment and compensation of directors, including managing and whole-time

directors, are governed by the requirements of the Companies Act of 1956, specifically
Section 269 and Schedule XIII. However, a look at Schedule XIII reveals that the authorized
term of remuneration, without the agreement of the Central Government, is not large enough
to discourage potential raiders, even if it is offered at the greatest level permitted. This is the
case even if it is provided at the maximum level permitted.

The overall restriction on director remuneration is capped at 11% of the company's net
earnings according to Section 198 of the Companies Act, which further sets this ceiling.
However, in terms of "golden parachute" employment contracts in India, the pertinent rules
are Sections 318-320, which include compensation for loss of office. These sections can be
found in the Indian Penal Code. These requirements only allow for financial remuneration to
be given in the event of the managing director, a director who holds a managerial post, or a
director who serves in this capacity full-time. As a consequence of this, a "golden parachute"
contract that covers the entirety of senior management and is normal practice in the United
States is meaningless in India.

In addition, the payment of remuneration is expressly prohibited in situations in which a

director steps down from their position as a result of the company undergoing reconstruction
or merging with other corporate entities. It is common practice for directors to stand down
after losing the confidence of shareholders, particularly in a circumstance that occurs
following a takeover of the company. Although it is arguable that this rule only applies to
directors who willingly resign from their positions, this is not the case.

Furthermore, there is a maximum limit on the quantum of compensation, subject to

exclusions, which confines it to the entire salary the director would have earned for the
remaining period of office or three years, whichever is shorter. This maximum limit is subject
to the same exclusions as the maximum limit on the quantity of compensation.

In addition, the Company Law Board has stated through its notification that it is of the
opinion that the provisions of Section 310 are applicable to the payment of any cash to a
managing director or whole-time director who is retiring or who has resigned from their
position. In the event that this payment is higher than the thresholds specified in Schedule
XIII, it will be necessary to obtain authorization from the State Government. Therefore, the
constraints that were placed by the Companies Act of 1956 are restrictive in nature, and they
do not make it possible for the target firm to put up a meaningful defence against takeovers in
the form of "golden parachutes."
In conclusion, the Companies Act of 1956 largely oversees the selection of directors as well
as their remuneration; however, the regulations connected to "golden parachutes" and
compensation for loss of office have a restricted reach. Raiders cannot be deterred
sufficiently by the period of remuneration without government sanction, and compensation
for the loss of office is only available to certain directors. The Act places limitations on the
amount of remuneration that can be received, prohibits compensation in certain situations,
and mandates that the government give its consent before excessive payments can be made to
outgoing or retiring directors. As a consequence of this, the provisions of the Act do not
provide an efficient defence mechanism against "golden parachutes" takeovers in India.

6. Anti-takeover Amendments or “Shark Repellants”

Companies are increasingly turning to the implementation of anti-takeover modifications in

their constitutions or articles of association as a response to the growing trend of hostile
takeovers. The purpose of these defensive strategies, which are sometimes known as "shark
repellants," is to reduce the attractiveness of the business to possible corporate buyers. A vote
and consent from the shareholders are needed in order to move forward with the process of
making these revisions, just as is the case with any other changes that are made to the
company's charter or articles of organization.

Anti-takeover modifications are enacted into a company's bylaws with the intention of
preventing hostile takeover efforts, as well as maintaining the company's independence and
control. Companies can make it more difficult for potential acquirers to gain control of the
company by introducing provisions into their governing documents, such as articles, rules, or
bylaws, and therefore altering the documents themselves.

These modifications may contain a variety of different protective measures, such as requiring
a vote with a supermajority in order to make particular decisions, placing limitations on the
transfer of shares, adopting staggered boards, or implementing poison pill provisions. A
supermajority vote, for example, would require the consent of a higher percentage of
shareholders than a mere majority vote would, which would make it more difficult for an
acquiring firm to obtain the requisite support.

It is also possible to deter undesirable takeover attempts by implementing restrictions on the

transfer of shares. The corporation is able to preserve control and prevent a sudden change in
ownership if it implements restrictions that restrict the transferability of shares and require
board permission for large ownership changes.
An additional popular anti-takeover measure is the use of staggered boards. Companies that
use staggered boards elect directors in various classes with overlapping terms rather than
holding a single election for the whole board of directors all at once. Because of the way in
which this structure is set up, the amount of time and effort required for an acquiring business
to win control of the board is increased. As a result, the target company has more
opportunities to fight itself against the takeover.

In addition, the use of poison pill provisions is frequently reserved for until all other options
have been exhausted. In the event that an unsolicited takeover attempt is undertaken, these
clauses cause certain unfavorable outcomes to occur, such as the dilution of the acquirer's
shares or the granting of the opportunity for shareholders to purchase more shares at a
discounted price.

enterprises that pass anti-takeover modifications may be subject to increased scrutiny from
shareholders and regulatory organizations, despite the fact that these amendments may assist
shield enterprises from hostile takeovers. These policies, it is argued by those opposed to
them, could entrench management and impede shareholder rights. As a result, businesses
need to give serious consideration to the ramifications of putting such revisions into effect
and find a way to strike a balance between protecting their own interests and maintaining
sound corporate governance practices.

In result, a proactive strategy to protect against hostile takeovers is shown in the growing
usage of anti-takeover modifications, sometimes known as "shark repellants," in the
constitution or articles of association of a company. Companies have the ability to construct
hurdles and make themselves less appealing to potential corporate bidders by modifying the
governing documents of their organizations. To achieve a healthy equilibrium between
protection and good corporate governance, however, it is imperative that these defensive
measures be put into place with extreme prudence and a focus on the interests of
shareholders.

Legal Position in India

According to Section 31 of the Companies Act, a special resolution is the method that must
be utilized in order for a company to be able to exercise its legal right to alter its articles of
association. The original articles continue to have the same binding power over the members,
even after they have been altered. However, it is essential to keep in mind that such
amendments do not have a retrospective impact. This means that they are unable to affect any
choices or acts that were previously taken in accordance with the original articles.

The ability to make changes to the articles, which is granted under Section 31, is practically
unrestricted, with just two significant caveats. To begin, any modification that is made must
be in violation of the actual terms of the Act itself. In other words, the corporation is not
permitted to make any alterations that are in violation of the laws and guidelines that are
outlined in the Companies Act. Because of this restriction, it is certain that businesses will
not attempt to participate in actions that are against the law.

Second, the company's memorandum of association lays forth the requirements that must be
met before the company's power of amendment can be exercised. Companies are able to
change articles of their constitution that are directly relevant to the management of the firm,
but they are unable to change the fundamental essence of the organization or its constitution.
This guarantees that the fundamental concepts and goals outlined in the memorandum of
association are preserved and are not changed in a way that is not in accordance with the
procedures that should be followed.

In addition, it is essential to emphasize that any modification to the articles in question must
not be construed as "fraud on the minority." This indicates that any alterations to the articles
of the company should not unfairly disadvantage or hurt the interests of the firm's minority
owners or members in any way. The authority to change the articles ought to be exercised in
a just and open manner, taking into account the legal standing and financial interests of
everyone who has a stake in the matter.

Companies are given extensive authority under Section 31 of the Companies Act, which
allows them to make changes to their articles of association. This is an important authority. It
gives businesses the ability to modify and update their internal regulations to better suit the
changing requirements and conditions of their operations. Having said that, this ability does
not come without restrictions. Any fraudulent activities taken against minority stakeholders
must be avoided, as must compliance with the provisions of the Act, adherence to the
conditions outlined in the memorandum of association, and the aforementioned conditions.
The ability to make changes helps support efficient corporate governance and management
by striking a balance between the need for flexibility and the requirement to safeguard the
interests of various stakeholders.

Types of Anti-Takeover Amendments

There are four major types of anti-takeover amendments.

 Supermajority Amendments-

For any transaction involving a change of control, the proposed modifications require
shareholder approval by a two-thirds majority vote, or in some situations, up to 90% of the
voting power of the outstanding capital stock. However, the supermajority agreements
typically have a board-out clause that gives the board the authority to determine whether and
when the supermajority requirements will apply. The variety of options and flexibility
available to management during takeover negotiations would be considerably constrained by
the imposition of tight or inflexible supermajority conditions.

 Fair-Price Amendments-

These clauses, along with an "out" provision for the board and a "supermajority waiver"
provision in the event of a fair-price purchase of all shares, are collectively referred to as
"supermajority provisions." The largest amount paid by the acquiring party during a given
time frame is often taken as the benchmark for what constitutes a fair price. These fair-price
modifications protect the target company from two-tier tender offers that do not have board
approval. These measures include a supermajority requirement to guarantee that substantial
shareholder approval is needed for transactions involving a change of control. However, the
Board may exercise its discretion to waive the requirement for a supermajority vote under the
Board out clause.

The inclusion of the fair-price provision provides additional protection for the target company
in the event of an unfavorable two-tier tender offer. This provision ensures that the
supermajority requirement can be waived if the purchasing party offers a price deemed fair
and consistent with the highest price paid during a designated period. The shareholders of the
target firm are safeguarded from hostile takeovers that are not supported by the board through
this process. In essence, these rules protect the company and its shareholders from
unfavourable takeover scenarios by striking a compromise between maintaining shareholder
interests through supermajority approval and affording the board flexibility to analyse the
fairness of an acquisition offer.

 Classified Boards

Staggered or categorized boards of directors are another important anti-takeover technique, as

they can effectively stall the transfer of control during a takeover. The proposed classification
board was proposed by management for the primary purpose of maintaining policy and
experience consistency. The legal status of staggered or categorized boards is malleable in the
United States. Following the retirement by-rotation approach, a nine-person board can be
split into three classes, with only three members up for election at any given time. If a new
majority shareholder wanted to take over the board of directors, they would have to wait until
the next two annual general meetings.

There are, however, significant limitations on the scope of such changes within the Indian
company law environment. Issues arising from perpetual management are the focus of
Section 255 of the Companies Act, of 1956. This clause states that during the Annual General
Meeting (AGM), only one-third of the directors whose terms end in retirement will leave
office. To ensure that one-third of a board of nine directors have permanent appointments
under Section 255, the articles of incorporation in an Indian setting would need to be
amended to make room for these three permanent directors. That means a buyer needs to sit
tight for at least three AGMs before they may take over the board.

However, Section 284 allows the company to dismiss a director before the end of their term
of office through an ordinary resolution, thus this is not certain. Accordingly, the Act
prohibits any provision in the company's articles or in an agreement between a director and
the company that would make the director immune to removal by a simple majority vote.
Therefore, the target management must have enough votes on the board to prevent a simple
resolution from being approved.

Therefore, the United States has greater leeway than India does when it comes to using
staggered boards as an anti-takeover mechanism. An acquirer would still have to wait for
many annual general meetings, even if one-third of the board members are made permanent.
The capacity of the target management to block a simple resolution is, nevertheless, essential
to maintaining their control over the board.

 Authorization of Preferred Stock

The board of directors is given extensive powers, including the one to create a new class of
securities with special voting rights. This sort of instrument can be given to a friendly
corporation in the form of preferred shares during an acquisition of control situation.
Although its original intent was to give the board of directors’ leeway in adapting to changing
economic conditions, the mechanism now functions as a protection against hostile takeover
efforts.
By including such a clause, a corporation gives its board of directors the authority to take any
measures it deems necessary to safeguard the company's interests in the event of a challenge
to the board's authority. The board can take strategic action against hostile takeover offers by
offering a preferred stock or other specialized class of securities to an ally. These securities
typically come with increased voting rights, giving the holder more say in major company
decisions.

The principal function of this rule is as a safeguard against hostile takeovers, but its historical
background shows an additional function. This clause gives the board leeway to adjust to
ever-changing market conditions. The board can efficiently raise capital or adjust the capital
structure in response to shifting financial environments by issuing a new class of securities
with distinctive voting rights. Because of its flexibility, the company can weather economic
storms and embrace opportunities as they emerge, ensuring its survival and future success.

The ability of the board of directors to create a new class of securities with enhanced voting
rights is a powerful deterrent against hostile takeovers. Furthermore, it provides historical
precedent for board flexibility in financing and capital structure to deal with volatile
economic conditions. By taking use of this option, businesses can fortify their defenses
against external threats and strengthen their ability to weather economic upheavals.

7. Refusal to Register Transfer of Shares

An important measure that can be utilized to thwart an attempt at a takeover is for the board
of directors to refuse to register the sale or transfer of any of the company's shares. The
ability to refuse registration is often conferred by clauses that are stated in the articles of
association for the firm. By doing so, the company as well as its members are obliged to the
terms that are outlined in the memorandum and articles of association, which together
establish the contractual relationship that exists between the company and its members. As a
consequence of this, it is essential to keep in mind that one does not have the automatic right
to demand the registration of a share transfer or transmission when such an event occurs.

Articles of association can include provisions that give the board of directors absolute power
to refuse the registration of share transfers in the event of a public business. This discretion
can be granted in the case of a public corporation. The goal of such clauses is to provide the
board of directors with the authority to exercise certain powers in unusual and extraordinary
situations, such as when it is possible that the transfer of ownership would not be in the
company's best interests to proceed. It is essential that you fully comprehend the fact that the
regulations in question do not constitute a restriction on the unrestricted transfer of shares, as
is the situation with private businesses. Instead, the power that is delegated to the directors is
of a fiduciary nature, and it is required that they execute it in good faith and solely with the
company's best interests in mind.

If the directors of a company refuse to record a share transfer, however, there are specific
situations in which the courts have the authority to step in and help. These conditions include
situations in which it is believed that the rejection was made with bad intentions (malafide),
in which it is believed that the reasons given by the directors for the denial are inadequate, or
in which it is believed that extraneous concerns have influenced their decision. In
circumstances like these, the courts have the authority to review the acts of the board and
have the ability to overturn their refusal to register the transfer.

In brief, the authority of the board of directors to refuse the registration of a share transfer is a
significant weapon that can be used to safeguard a corporation from attempts to acquire
control of the business. This power, which was granted by the articles of association, is of a
fiduciary nature, and it should be exercised in a manner that is beneficial to the company as a
whole. However, the courts have the ability to step in and intervene if it is discovered that the
refusal was motivated by malice, was founded on insufficient reasons, or was influenced by
extraneous considerations.

In the case of Bajaj Auto v. N.K. Firodia, the Supreme Court established the principle that if
the reasons given by the directors for refusing to register a share transfer are legal, the court
will not reject their judgement only on the basis that it may have arrived at a different
conclusion. This principle was developed as a result of the fact that the court may have
reached a different conclusion. This verdict indicates that the court will not interfere with the
decision made by the directors of the company as long as the reasons offered by the directors
are valid and in compliance with the director’s fiduciary duty to act in the best interests of the
firm.

On the other hand, it is essential to keep in mind that after the year 1988, the Company Law
Board (CLB) was given significant authority to interfere in situations in which there is an
abuse of power by the board of directors. This is an essential fact to keep in mind. This means
that the CLB has the jurisdiction to review the board's decision and potentially overturn it if it
is determined that the board's failure to register a share transfer constitutes an abuse of the
power that they have been given.

After 1988, the CLB was granted additional authority, which denotes a change towards more
stringent scrutiny of the board's operations and a method to prevent the board from abusing
its power in any way. Therefore, even though the reasons offered by the directors could be
judged to be valid, the CLB has the authority to step in and intervene if it considers that their
decision constitutes an abuse of power.

The Supreme Court rendered a key decision in the V.B. Rangarajan v. V.B.
Gopalakrishnan case that had an impact on how shares acquired by a vendee should be
registered. The court ruled that the company's articles of incorporation may be used as
justification for refusing to register the shares with the vendee. This indicates that the vendee
may not be registered on those grounds if the articles contain those reasons for refusal to
register. The court went on to say that such a refusal to register for the reasons stated in the
articles fits under the definition of "sufficient cause" as stated in the proviso of Section
111(2) of the Companies Act.

It is important to note that the list of reasons for rejecting registration has grown since Section
22A was removed from the Securities Contract Regulation Act of 1956. The reasons for
refusal were formerly limited to those listed in the section. However, firms now have more
leeway in deciding the reasons for denial because to the deletion of Section 22A.

As a result, there is now more judicial scrutiny as a result of the widening of reasons for
denial. The company's justifications for rejecting registration are being scrutinised by courts
more carefully in order to assess if they meet the criteria for "sufficient cause." The increased
inspection makes sure that businesses don't arbitrarily refuse registration based on irrational
or illogical justifications.

8. Poison Pill Defenses

Shareholders' rights plans, or "poison pills," have been a contentious but effective defense
mechanism against hostile takeover attempts for a long time. After a certain period of time
has passed following a trigger event, such as a tender offer for control or the accumulation of
a certain proportion of target shares, the holders of these securities are granted unique rights.
Poison pills can take many shapes, but they all share the goal of making it more challenging
and expensive for potential acquirers to obtain control of the target organization.
The majority of poison pills are passed by boards of directors without consulting
shareholders. After the triggering event, the board has the ability to immediately modify or
redeem the powers granted by the pill. The board can increase the likelihood of a "fair price"
for the company being offered by forcing the acquirer into direct negotiations. Supporters of
poison pills say they do not outright ban takeovers and instead strengthen the board of
directors' capacity to bargain and protect shareholders' interests.

A poison pill is a mechanism wherein a new type of stock is issued with the express purpose
of discouraging or deterring hostile takeovers by considerably increasing the final price tag.
To discourage hostile takeovers, poison pills often offer existing shareholders the chance to
buy more stock at a steep discount, often 50% or more below the current market price. The
acquirer's ownership interest is diluted by the new shares, making a change of control more
difficult.

When an unwelcome investor buys a certain percentage of a company's equity, the poison pill
kicks in. Existing shareholders, excluding the suitor, are then offered the chance to purchase
additional shares of stock at a reduced price. By raising the number of shares in circulation
and decreasing the suitor's relative ownership, this dilution approach is intended to obstruct
the acquirer's attempt to win control.

Lawyer Martin Lipton, who is widely recognized as the inventor of the poison pill defense,
stresses the need of firms to keep poison tablets on hand. Since most businesses renew their
poison pills after they expire, his advice to them is to keep using them. Lipton, a lawyer at the
New York law firm Wachtell, Lipton, Rosen & Katz, is a strong proponent of the use of
poison pills to safeguard shareholders' rights and maintain boards' leverage in negotiating fair
takeover prices.

In the final analysis, poison pills are a divisive but frequently employed defensive strategy.
These securities give shareholders additional protections following a certain event, making it
more challenging and expensive for a potential acquirer to acquire control of a target
organization. The board of directors hopes that by creating a new class of shares and diluting
the acquirer's ownership position, they may both prevent hostile takeovers and secure a more
favourable purchase price. Despite the fact that their efficacy has been called into question,
firms keep renewing poison pills because of the perceived benefit they provide in protecting
against hostile takeovers.

Poison Pill trends in USA

Takeover defense experts like Martin Lipton have advocated for the use of a poison pill in
conjunction with staggered board membership as one of the most effective strategies. The
goal of this plan is to discourage potential hostile acquirers and protect the target company's
leadership and stockholders.

The board of directors of a corporation may employ a defensive strategy known as a poison
pill, often called a shareholder rights plan, to stave against hostile takeovers. Existing
shareholders are given the option to buy more shares at a reduced price in the event of a
hostile takeover attempt. This makes the acquisition more expensive and dilutes the
ownership of the purchasing company. The defenses of the target corporation can be
strengthened by combining a poison pill with a staggered board of directors.

In a staggered board of directors, sometimes called a categorized board, only some of the
board members are up for election every year. The board members are elected in staggered
waves, each class serving a portion of the board's total term. As an illustration, perhaps a
third of the board of directors is elected every year for a three-year term. By taking this
measure, potential acquirers will be thwarted in their efforts to quickly seize control of the
board through a proxy contest or shareholder vote.

A poison pill and a staggered board work well together because their features complement
one another. With a staggered board, only a subset of directors is up for election every year.
As a result, even if a hostile acquirer were to win over certain board members, it would take
years before they could control a majority of the voting power. The acquirer's ability to
implement its agenda and exert complete control over the target company's strategic decisions
is hampered by the lengthened timeline.

When Oracle attempted to acquire PeopleSoft, they were met with a poison pill defence.
PeopleSoft's board of directors countered Oracle's hostile bid by issuing a large number of
new shares into the market, increasing the price of the acquisition. PeopleSoft's massive
issuance of new shares rendered the acquisition too expensive for Oracle to pursue, thereby
killing the deal.

Oracle countersued in Delaware Chancery Court to have the poison pill defence struck out.
The court gave careful consideration to the legitimacy of the defence as well as the interests
of the target company's owners. If the court found that the poison pill did not excessively
restrict the rights of the acquirer, then the action to safeguard the shareholders' long-term
interests was legal.

Takeover defense strategies that use a poison pill in conjunction with a staggered board have
seen widespread use. It buys the target firm additional time to consider other offers, improve
its terms with the buyer, or look for "white knight" acquirers who may be able to give a better
deal for the target's shareholders. The effectiveness of these defences, however, can vary
depending on the particulars of the takeover and the applicable law in the area in which it
happens.

Legal Issues Concerning Poison Pill Devices

Due to their potential impact on shareholder relationships without the consent of a vote, the
legitimacy of poison pills has been debated in the courts. Poison pills are defence measures
put in place by a company's board of directors to prevent or slow down an impending hostile
takeover. Rights plans are a common tool for achieving these ends, as they provide for
differential treatment of shareholders in the event of a change in company control. Because of
this, poison tablets have been subject to legal issues, especially in the United States.

When a hostile takeover attempt is made, existing shareholders can benefit from poison pills
that grant them special rights. In addition to diminishing the ownership of the acquiring
company and increasing the cost of the takeover, these rights may include the opportunity to
purchase additional shares at a discounted price or the issue of new shares. While poison pills
are intended to safeguard investors and preserve a company's autonomy, they have been
criticised for the potential to change shareholder relationships without the approval of the
affected parties.

Since poison pills provide the board of directors the power to make major decisions that
affect shareholder rights without consulting them, critics contend that they undermine the
notion of shareholder democracy. Generally speaking, shareholders should be able to cast
votes on issues that materially impact their ownership interests, as they are the company's
ultimate owners. There is a perception that poison pills undermine shareholder fairness and
equity because they encourage the adoption of rights plans that treat shareholders of the same
class differently.

This has led to a judicial examination of the legitimacy of lethal tablets. Lawsuits have been
launched by shareholders or activist investors who claim the board of directors breached its
fiduciary obligations by taking these preventative steps. Courts have looked at the specifics of
poison pill adoption and execution, including the pill's length, its effect on shareholder rights,
and the arrangement's overall fairness.

Legal battles involving poison tablets have been fought, with varying degrees of success. Due
to their potential to overly empower the board of directors or water down shareholder rights,
poison pills have been struck down in some legal cases. The need for corporations to protect
themselves from hostile takeovers and shareholder interests has been recognised by other
courts, which have affirmed the legality of poison pills.

The question of whether or not poison tablets are actually legal remains open for discussion
and interpretation in the courts. The goal of the judicial system is to find a middle ground
between the competing interests of protecting shareholder rights and allowing corporations to
maintain their autonomy. The question of whether or not poison pills are permissible will
certainly be under judicial and legislative discussion for as long as corporate governance
continues to develop and face new issues.