Whalesbook
SEBI's Definition of 'Relative' Hampers Family Business Succession
The Securities and Exchange Board of India (SEBI) is facing scrutiny over its narrow definition of ‘relative’ within its takeover regulations. This strict interpretation is creating significant roadblocks for promoters of listed companies trying to execute succession plans through private family trusts.
Regulatory Conflict Creates Succession Hurdles
Under SEBI's takeover code, an ‘immediate relative’ is limited to spouses, parents, siblings, and children. Crucially, this definition excludes daughters-in-law and sons-in-law, who often play integral roles in governance and are key beneficiaries or potential trustees within family structures. This stands in contrast to Indian income tax laws and company law, which adopt a broader perspective and include these familial relationships.
The discrepancy poses a challenge for promoters seeking to transfer ownership and ensure continuity across generations. Private family trusts have become a common tool for managing promoter shareholdings, but SEBI's requirement that trustees must be ‘immediate relatives’ can be difficult to meet, leading to potential deadlocks in succession planning.
Call for Regulatory Reform
Experts argue that SEBI’s definition is out of step with contemporary family structures and existing Indian legal frameworks. While SEBI does review trusts to prevent circumvention of open-offer obligations, a more harmonized and inclusive definition of ‘relative’ is needed. Alternatively, allowing regulated professional or institutional trustees to manage family trusts, provided ultimate control remains within the promoter group, could provide much-needed flexibility.
Such reforms are essential to support the longevity and stability of family-run enterprises, which are a cornerstone of India’s corporate sector. A balanced regulatory approach will foster greater investor confidence while enabling legitimate business succession.