Balancing Interests: Minority Shareholder Protection in Indian M&A Law

Abstract:

This article critically evaluates the efficacy of Indian legal frameworks in protecting  minority shareholders amid mergers and acquisitions (M&A). While statutes like the  Companies Act, 2013, and SEBI’s takeover and disclosure regulations provide formal  safeguards, minority shareholders often remain vulnerable to procedural inefficiencies,  valuation irregularities, and majority control. Through statutory analysis, case studies such  as the Zee-Sony and Cairn-Vedanta deals, and comparative perspectives from jurisdictions  like the United States and the United Kingdom, this paper assesses whether India’s  corporate law ecosystem adequately balances power dynamics. It concludes with  actionable reforms to enhance transparency, regulatory oversight, and shareholder rights.

Introduction

Mergers and acquisitions (M&A) are strategic tools for corporate restructuring and  consolidation, allowing businesses to grow, diversify, or achieve operational efficiencies.  While M&A activity often reflects market dynamism and innovation, it also raises concerns  about the equitable treatment of all shareholders—particularly the minority shareholders  who lack significant voting power and influence. Minority shareholders typically hold a  smaller portion of the company’s equity and are vulnerable to decisions made by majority  stakeholders or promoters, especially during transformative transactions like mergers and  acquisitions.

In the Indian context, the regulatory framework for M&A comprises several key legal  instruments: the Companies Act, 2013 ¹, the Securities and Exchange Board of India (SEBI) (Substantial Acquisition of Shares and Takeovers) Regulations, 2011², and the  SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.³ These laws  aim to ensure fairness, transparency, and procedural compliance in corporate deals.

This paper investigates whether Indian M&A law genuinely protects the rights and interests  of minority shareholders. It examines statutory safeguards, practical implementation, case  law, and comparative perspectives to critically assess the effectiveness of current legal  provisions.

Legal Framework Governing M&A in India

The regulatory ecosystem governing M&A in India draws upon multiple statutory  instruments designed to ensure fairness and transparency in corporate restructuring.  Understanding these laws is essential to evaluate how minority shareholder interests are  preserved.

The Companies Act, 2013, particularly Sections 230 to 240, governs compromises,  arrangements, and amalgamations. Section 230 allows companies to propose a scheme of  arrangement with creditors or shareholders, subject to approval by the National Company  Law Tribunal (NCLT). Under Section 230(6), such a scheme must be approved by a  majority representing three-fourths in value of creditors or shareholders present and  voting¹.

Takeovers) Regulations, 2011, Gazette of India, Part III, Sec. 4.

Requirements) Regulations, 2015, Gazette of India, Part III, Sec. 4.

Section 232 elaborates on mergers and amalgamations, requiring detailed disclosures,  valuation reports, and notices to stakeholders. The Act empowers the NCLT to scrutinize  and sanction schemes only if they are fair and reasonable.¹

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, ensure  continuous disclosure by listed entities, particularly concerning material events like  mergers. They mandate transparency and timely intimation to stock exchanges.³

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, governs  substantial acquisitions and mandates an open offer to public shareholders when control  changes hands.²It serves to protect minority shareholders by allowing them an exit  opportunity at a fair price.

The NCLT plays a pivotal role in safeguarding minority interests by vetting the procedural  and substantive fairness of merger schemes. Minority shareholders can object if they  constitute at least 10% of the shareholding or 5% of the total debt.¹

Statutory Protection of Minority Shareholders in M&A

The Indian legal framework offers a multi-pronged statutory protection mechanism to  safeguard minority shareholders in M&A transactions. The Companies Act, 2013 remains  the cornerstone of corporate restructuring in India. Specifically, Section 230(4) permits  shareholders holding at least 10% of the share capital to object to a proposed scheme of  arrangement. Although this threshold exists to prevent frivolous objections, it  paradoxically excludes a vast majority of minority shareholders who individually may not  meet this minimum¹.

Moreover, Section 232 mandates disclosures related to mergers and amalgamations,  including valuation reports and notices to stakeholders. The role of the National Company  Law Tribunal (NCLT) is central to this process. Under Section 230(6), schemes must  receive approval from creditors or members representing three-fourths in value of those  present and voting¹. The Tribunal is tasked with evaluating whether such schemes are fair  and reasonable.

The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011,  commonly referred to as the Takeover Code, add another layer of protection. Whenever an  acquirer crosses the 25% threshold in shareholding or control, they are required to make  an open offer to public shareholders². This provides an exit opportunity at a “fair” price.  Yet, the determination of this price often raises eyebrows. The Takeover Code’s reliance  on market-driven valuation leaves scope for manipulation, especially in low-liquidity  environments or volatile stocks.

The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ensure  continuous public disclosure of all material information, including M&A activity, by listed  entities³. This promotes transparency and protects retail investors, though challenges such  as delayed disclosures and inadequate information persist.

A unique safeguard lies in class-based voting, which ensures that each affected class of  shareholders—such as preference or equity shareholders—vote separately on the scheme.  Still, enforcement challenges remain. Cases have surfaced where scheme circulars are voluminous, jargon-heavy, or released with little time for minority shareholders to respond  meaningfully⁴.

Valuation also remains one of the most contentious aspects of M&A deals. While the Act  mandates the appointment of registered valuers, the independence and credibility of these  valuers have been questioned¹. Often, companies engage friendly valuers who endorse  predetermined valuations, thereby compromising fairness. The establishment of an  independent valuation board under SEBI has been proposed as a potential reform.

Case Studies

Several high-profile mergers in recent years have tested the efficacy of statutory  protections and regulatory responses. These case studies offer practical insights into how  corporate conduct, judicial oversight, and regulatory engagement shape minority  shareholder outcomes.

• Zee-Sony Merger: The Zee-Sony merger faced resistance from institutional investor Invesco, which raised concerns about corporate governance and board composition⁵. Although the merger promised operational synergies, Invesco’s opposition highlighted  minority shareholder apprehensions about promoter influence. SEBI and NCLT scrutinized  the deal, leading to improved transparency in disclosures.
• HDFC-HDFC Bank Merger: This merger was touted as one of India’s largest financial consolidations. Despite its scale, the process was marked by meticulous adherence to disclosure norms, multiple fairness opinions, and transparent regulatory filings⁶. Minority shareholders were given clear information and adequate exit opportunities.
• Cairn-Vedanta Delisting: Vedanta’s attempt to delist Cairn India stirred controversy. Many minority shareholders opposed the offer price, calling it undervalued⁷.The delisting was criticized for lack of genuine consent. SEBI intervened, and legal challenges ensued.

These examples illustrate that while legal protections exist, they are only effective when  regulatory engagement is proactive and corporate governance is principled.

Comparative Legal Approaches

India’s statutory safeguards can be significantly enriched by borrowing from jurisdictions  with robust minority protections such as the United Kingdom and the United States.

United Kingdom

Under the Companies Act 2006, minority shareholders can file derivative claims against  directors for breach of fiduciary duty⁸. Additionally, Part 26 of the UK Companies Act  allows for schemes of arrangement but mandates a supermajority vote from each class of  shareholders and court sanction to ensure fairness⁹. The Insolvency Act 1986 further allows  courts to bind dissenting shareholders if the scheme is fair.

United States

In the US, Delaware law provides appraisal rights, enabling dissenting shareholders to seek  judicial determination of the fair value of their shares in a merger¹⁰. In Weinberger v UOP,  Inc., the Delaware Supreme Court emphasized the principles of fair price and fair dealing,  which together define the contours of judicial review in M&A transactions¹¹. Further, the  doctrine of fiduciary duty—both duty of loyalty and duty of care—is rigorously enforced  in Delaware corporate law¹².

Lessons for India

India can adopt the following:

• Statutory appraisal rights for dissenting shareholders.
• Easier access to derivative actions to hold directors accountable.
• Stricter fiduciary obligations in corporate governance statutes.
• A more substantive fairness review at the NCLT stage.

These comparative mechanisms, if adapted to Indian realities, could bridge the  enforcement gap and enhance investor confidence in M&A transactions.

Discussion

The foregoing analysis highlights a persistent dichotomy between the formal availability of minority shareholder protections in Indian M&A law and the practical difficulties associated with their enforcement. While statutes such as the Companies Act, 2013 and  regulations framed by SEBI lay down protective mechanisms, these safeguards often  operate more as procedural formalities than as substantive guarantees.

One key challenge is the threshold barrier imposed by Section 230(4) of the Companies  Act, which limits objection rights to shareholders holding at least 10% of the share capital¹.  While intended to deter frivolous litigation, this threshold effectively disempowers a large  segment of minority shareholders who may hold dispersed but cumulatively significant  interests. The result is a chilling effect on dissent, which in turn weakens democratic  shareholder participation in major corporate decisions.

The role of valuation has emerged as another Achilles’ heel in minority protection.  Although Section 247 mandates the use of registered valuers¹, there remains limited  institutional oversight on the independence and methodology employed. Without an  independent valuation board or regulatory audit of valuer reports, companies can easily  orchestrate deals with biased or underestimated valuations, depriving dissenting shareholders of fair exit options. This has been evident in cases like the Cairn-Vedanta  delisting, where minority objections were centered on undervaluation and lack of genuine  consent¹³.

The information asymmetry between promoters and minority shareholders also  exacerbates this problem. Despite disclosure obligations under the SEBI (LODR)  Regulations, timely and accessible information remains elusive for many retail investors³.  Circulars are often technical and released late in the process, undermining the spirit of  participative governance. This is a stark contrast to jurisdictions like the US and UK, where  fiduciary duties, appraisal rights, and judicial review mechanisms offer more robust  protection and meaningful participation¹⁰.

The issue is compounded by structural constraints in regulatory and judicial systems. The  NCLT, while vested with powers to evaluate merger schemes, often focuses on procedural  compliance rather than probing the substantive fairness of a transaction¹⁴. Regulatory  bodies like SEBI, although proactive in high-profile deals, lack a consistent monitoring  mechanism for smaller or mid-cap transactions. This results in selective enforcement,  leaving many minority shareholders at the mercy of dominant promoters.

Nevertheless, there are encouraging signs. The Zee-Sony and HDFC-HDFC Bank mergers  demonstrated that regulatory insistence on transparency, fairness opinions, and  independent oversight can produce equitable outcomes¹⁵. Such precedents could serve as  templates for future reforms, particularly in fostering a culture of corporate accountability.

In the broader legal context, strengthening minority protections in M&A transactions is  essential to uphold the principles of shareholder democracy, good governance, and market  integrity. It is also critical for attracting foreign investment, as global investors often evaluate the legal safeguards available to minority stakeholders before participating in  emerging markets¹⁶.

Thus, India stands at a pivotal juncture: it must move beyond minimal procedural  compliance and evolve toward a more substantive, inclusive, and enforceable minority  rights regime.

Conclusion

India’s legal framework for mergers and acquisitions provides a structured yet often  inadequate foundation for the protection of minority shareholders. While legislative  instruments like the Companies Act, 2013, the SEBI (Substantial Acquisition of Shares  and Takeovers) Regulations, 2011, and the SEBI (Listing Obligations and Disclosure  Requirements) Regulations, 2015 prescribe numerous safeguards, the actual  implementation of these measures has been inconsistent and, at times, superficial¹.

This article has demonstrated that statutory rights—such as the ability to object to a scheme  of arrangement under Section 230(4), and the entitlement to exit via open offers—exist  primarily as procedural mechanisms that may fall short of delivering substantive justice to  minority shareholders¹. The problem is magnified by the lack of independent valuation  oversight, limited judicial scrutiny, and the information asymmetry that persists between  promoters and small shareholders⁴.

Case studies such as the HDFC-HDFC Bank merger exhibit how a transparent, disclosure oriented approach can build investor confidence and protect shareholder value ¹⁷.  Conversely, the Cairn-Vedanta delisting highlights the consequences of regulatory  passivity and flawed valuation practices, where minority voices were sidelined despite the  availability of statutory protections⁷. These contrasting outcomes reveal that the spirit of  minority protection is only realised when legal obligations are accompanied by meaningful  enforcement and ethical corporate conduct.

Comparative insights from the United Kingdom and United States further underscore  India’s need to adopt a more substantive fairness standard. In the UK, derivative claims  and class voting ensure that shareholder rights are more than symbolic ¹⁸ . In the US,  appraisal rights and fiduciary duty enforcement provide concrete remedies against coercive  or undervalued M&A transactions¹⁰.

For Indian corporate law to evolve into a genuinely inclusive and accountable system,  several reforms are essential:

• Establishing independent valuation boards under SEBI;
• Introducing statutory appraisal rights;
• Enhancing judicial scrutiny at the NCLT level for fairness, not just procedure; • Enabling derivative action mechanisms;
• Reducing the ownership threshold for objecting shareholders.

These reforms would not only improve the transparency and fairness of Indian M&A  activity but also foster investor trust, which is critical for market stability and long-term  economic growth. Minority shareholder protection is not a peripheral concern—it is a core  attribute of equitable corporate governance in a modern economy.

To truly balance the interests of all stakeholders, Indian corporate law must shift its  emphasis from formal compliance to functional justice. Only through such a transformation  can the rights of minority shareholders be protected, respected, and meaningfully enforced.

References

1. Companies Act 2013, No 18, ss 230–240, 247 (India).
2. Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations 2011, Gazette of India, Part III, Section 4.
3. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, Gazette of India, Part III, Section 4.
4. Umakanth Varottil, ‘The Evolution of Shareholder Rights in India: An Analytical Overview’ (2018) 3(2) NUJS L Rev 165.
5. Invesco v Zee Entertainment Enterprises Ltd CP (C) No 370/KB/2021 (NCLT Kolkata).
6. HDFC Ltd and HDFC Bank Ltd Scheme of Amalgamation (NCLT Mumbai Bench, 2022).
7. Securities and Exchange Board of India, Order in the Matter of Vedanta Ltd and Cairn India Ltd WTM/GM/EFD/38/2016 (December 2016).
8. Companies Act 2006, ss 260–263 (UK).
9. Companies Act 2006, pt 26; Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL).
10. Delaware General Corporation Law, § 262 (United States).
11. Weinberger v UOP Inc 457 A.2d 701 (Del 1983).
12. Aronson v Lewis 473 A.2d 805 (Del 1984).
13. Securities and Exchange Board of India, Order in Vedanta Ltd–Cairn India Delisting Matter (2020).
14. Umakanth Varottil, ‘Corporate Law in India: A Case for Judicial Governance’ (2017) 50(3) Vanderbilt Journal of Transnational Law 649.
15. In re Zee Entertainment and Sony Pictures Networks India, NCLT Mumbai Bench, 2022; In re HDFC Ltd and HDFC Bank Ltd Scheme of Amalgamation, NCLT Mumbai Bench, 2023.
16. Organisation for Economic Co-operation and Development (OECD), Guidelines on Corporate Governance of State-Owned Enterprises (2015) ch 6.
17. In re HDFC Ltd and HDFC Bank Ltd Scheme of Amalgamation, NCLT Mumbai Bench, 2023.
18. Insolvency Act 1986, pt 26A (UK).

¹ Companies Act, No. 18 of 2013, INDIA CODE (2013), §§ 230–240, 247.

² Securities and Exchange Board of India (Substantial Acquisition of Shares and 

³ Securities and Exchange Board of India (Listing Obligations and Disclosure 

⁴ Umakanth Varottil, ‘The Evolution of Shareholder Rights in India: An Analytical Overview’ (2018) 3(2)  NUJS L Rev 165.

⁵Invesco v. Zee Ent. Enters. Ltd., Case No. C.P. (C) No. 370/KB/2021 (NCLT Kolkata).

⁶ HDFC Ltd. & HDFC Bank, Scheme of Amalgamation (2022) (approved by NCLT).

⁷ SEBI, Order in the Matter of Vedanta Ltd. & Cairn India Ltd., WTM/GM/EFD/38/2016  (Dec. 2016).

⁸ Companies Act 2006 (UK), ss 260–263.

⁹ Companies Act 2006 (UK), pt 26; see also Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 (HL). ¹⁰ Delaware General Corporation Law, § 262

¹¹ Weinberger v UOP, Inc., 457 A.2d 701 (Del. 1983).

¹² Aronson v Lewis, 473 A.2d 805 (Del. 1984).

¹³ SEBI Order in Vedanta Ltd–Cairn India Delisting Matter, 2020.

¹⁴ Umakanth Varottil, ‘Corporate Law in India: A Case for Judicial Governance’ (2017) 50(3) Vanderbilt  Journal of Transnational Law 649.

¹⁵ In re Zee Entertainment and Sony Pictures Networks India, NCLT Mumbai Bench, 2022; In re HDFC  Ltd and HDFC Bank Ltd Scheme of Amalgamation, NCLT Mumbai Bench, 2023.

¹⁶ OECD, Guidelines on Corporate Governance of State-Owned Enterprises (2015), ch 6.

¹⁷ In re HDFC Ltd and HDFC Bank Ltd Scheme of Amalgamation, NCLT Mumbai Bench, 2023.

¹⁸ Companies Act 2006 (UK), ss 260–263; Insolvency Act 1986 (UK), pt 26A.