Regulating Squeeze Outs in India: A Comparative Perspective

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

48 Pages Posted: 13 Aug 2014 Last revised: 16 Jul 2016

Vikramaditya S. Khanna

University of Michigan Law School

Umakanth Varottil

National University of Singapore (NUS) - Faculty of Law

Date Written: July 30, 2014

Abstract

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.

Keywords: Squeeze-out, freeze-out, minority shareholders, comparative corporate law, India

Suggested Citation

Khanna, Vikramaditya S. and Varottil, Umakanth, Regulating Squeeze Outs in India: A Comparative Perspective (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. Available at SSRN: https://ssrn.com/abstract=2479678 or http://dx.doi.org/10.2139/ssrn.2479678

Vikramaditya S. Khanna

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-615-6959 (Phone)

Umakanth Varottil (Contact Author)

National University of Singapore (NUS) - Faculty of Law ( email )

469G Bukit Timah Road
Eu Tong Sen Building
Singapore, 259776
Singapore

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