Regulating Squeeze Outs in India: A Comparative Perspective
Vikramaditya S. Khanna
University of Michigan Law School
National University of Singapore (NUS) - Faculty of Law
July 30, 2014
American Journal of Comparative Law, Forthcoming
NUS - Centre for Law & Business Working Paper No. 14/06
NUS Law Working Paper No. 2014/009
NUS - Centre for Asian Legal Studies Working Paper No. 14/11
Squeeze outs are both visible and palpable manifestations of a controlling shareholder’s raw power within the corporate machinery – the ability to openly force minority shareholders to exit the company by accepting a certain price for their shares. Yet, squeeze outs can be value enhancing at times due to the benefits of enabling the controller to acquire the entire company. Perhaps due to this rather conflicted and dramatic background, squeeze out regulation takes on varying hues across multiple jurisdictions. In this article, we analyze the regulation of squeeze outs from a comparative perspective, with India as the primary frame of reference.
In India, the controllers can choose among several available transaction structures to implement a squeeze out. These include the compulsory acquisition mechanism, scheme of arrangement and reduction of capital. Unsurprisingly, the structure most commonly used by controllers is the reduction of capital, which provides the least protection to minority shareholders.
After analyzing the level of minority protection in a squeeze out in India, we explore potential reforms by examining how other jurisdictions such as the United States, European Union, the United Kingdom and Singapore regulate these transactions. The goal is to examine which approach (or combination of approaches) may present attractive options for India.
Drawing from these other jurisdictions, we suggest reforms for regulation of squeeze outs in India. Given the institutional landscape and ground realities in India, we conclude that it is perhaps more effective to reduce reliance on court decisions to protect minorities and rely on regulatory enforcement around greater decision‐making powers to independent boards and to the minorities themselves.
Number of Pages in PDF File: 48
Keywords: Squeeze-out, freeze-out, minority shareholders, comparative corporate law, India
Date posted: August 13, 2014 ; Last revised: July 16, 2016