Paper on Squeeze Outs in India

Professor Vikramaditya Khanna and I
have co-authored a working paper titled “Regulating
Squeeze Outs in India: A Comparative Perspective
” that is now available on
SSRN. The abstract is as follows:
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.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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