The Emerging Market for Corporate Control in India: Assessing (and Devising) Shark Repellents for India's Regulatory Environment

Inbound and domestic hostile takeover activity in India has failed to make a dent in the corporate vocabulary for historical, cultural, and regulatory reasons. Instead, the scale of negotiated “friendly” deals in India has been on the rise. Under current regulations, Indian promoters are permitted to hold large stakes in their corporations and are warned in advance when potentially hostile acquirers gain toeholds in their corporations, enabling them to consequently consolidate their holdings. Severe restrictions imposed by India’s central bank on financing acquisitions add to the difficulties for potential buyers. Historically, the loyalty of domestic institutional investors to established promoter houses  J.S.M. Candidate 2012, SPILS Research Fellow, Stanford Law School. Associate Attorney, Gibson, Dunn & Crutcher, LLP (2009–2011). LL.M., Harvard Law School, 2009. B.L.S., LL.B., Government Law College, Mumbai, 2008. The views expressed herein are my own and may not be attributed either to my employers or their clients. I am deeply indebted to Professor Guhan Subramanian at Harvard Law School for taking the time out to comment on this paper. I thank Essaji Vahanvati, Aditya Mehta, Soumya Mehta, and Ravichandra Hegde for their invaluable comments and suggestions on drafts of the article. This paper has benefited greatly from the discussions I have had with Ramesh Vangal and Utsav Kapadia. I am grateful to Mandar Kagade and Nick Robinson for their comments and suggestions. Thanks are also owed to Professors Robert Clark and Mark Ramseyer at Harvard Law School for their comments and encouragement. Last, but certainly not the least, I thank Steve Chiang, Rebecca Thibault, and James Stanley at the law review for their extensive, dedicated, and thorough work on this Article. Any faults with this article, however, may be attributed to me alone. This paper reflects the position of securities law as on February 16, 2010. This Article is meant for informational purposes only and should not be construed as investment or other advice. Washington University Open Scholarship 188 WASHINGTON UNIVERSITY GLOBAL STUDIES LAW REVIEW [VOL. 10:187 made it difficult to unseat the interests of entrenched Indian promoters. Culturally, nationalist sentiment has formed an invisible barrier to hostile takeover activity in India, as regulators continue to side with India’s “national champions.” Restrictive foreign investment regulations have long precluded the agility of the inbound raider. However, in recent times the regulatory and historical landscape in India has metamorphosed dramatically. Shareholding patterns in Indian corporations have undergone significant change with the inflow of foreign strategic and institutional investors as foreign investment restrictions have also been relaxed. Further, the market for corporate control in India has seen interesting movement in the past few years. This Article addresses two questions. First and foremost, it analyzes whether there is a legitimate possibility that the market for corporate control will gain a greater foothold in India and whether invisible barriers still preclude hostile acquisitions in India. Second, assuming that the answer to the first question is in the affirmative, this Article seeks to address the question of whether the most widely known conventional shark repellent deal defense mechanism, viz. the poison pill, is possible under the Indian regulatory regime, although it has been ruled out in previous academic writings.