In recent years, cross-border mergers and acquisitions in India have picked up momentum. Deals are getting larger, faster, and more complex than ever. But behind all those flashy announcements and big investor moves lies something far more subtle but powerful, i.e., the rights of shareholders, and that’s where things can often get a little messy.
Whether you’re a foreign private equity (PE) firm entering India or an Indian company expanding into Southeast Asia, shareholder rights in cross-border M&A must be at the center of your deal planning. These rights aren’t just formalities; they aim to shape control, profits, exits, and long-term peace between promoters and investors. Yet many stakeholders, including experienced advisors, sometimes overlook the depth of this issue.
In India, minority shareholder protection in India isn’t just a contractual issue; it’s tied deeply into statutory safeguards like Sections 241–242 of the Companies Act, 2013. It is essential to understand that things get tricky when the deal crosses borders and one side may rely on a shareholders’ agreement in M&A deals, while the other side counts on Articles of Association, and what if both conflict? And what happens when Indian regulators require disclosure, but foreign jurisdictions allow confidentiality?
Here are just a few of the core rights that need safeguarding in such deals:
- Voting rights, especially during major restructuring.
- Exit protections like tag-along or put options.
- Right to access company information and financials.
- Clear deadlock resolution clauses in joint control deals.
- Foreign investor rights in Indian companies as per the FDI policy.
Some founders or even CFOs assume that these things get sorted during closing, which is risky. The problem is, by the time a dispute arises, it’s too late to correct a poorly drafted clause or ambiguous control terms.
What is important to understand here is that Cross-border deals are always layered with complexity, but nothing invites conflict faster than unclear rights and uneven enforcement terms. So, defining shareholder rights in cross-border M&A, early on, is not just good legal practice, it’s smart business too.
Key Types of Shareholders in M&A Deals
Now, when you’re working on a cross-border mergers and acquisitions deal in India, it’s not just the size of the investment or jurisdiction that matters; it’s also who your shareholders are, because each type comes with its rights, risks, and say in how the deal plays out.
Not all shareholders are created equal, and lumping everyone under the same policy or agreement is often where most complications begin.
Here’s a breakdown of the primary types of shareholders in cross-border M&A transactions:
Majority Shareholders
These are typically strategic investors, founders, or foreign acquirers who end up with a controlling stake. They often have the right to make significant decisions, like restructuring, raising capital, or amending articles, but that doesn’t mean they can ignore others. Indian law still binds them to respect minority shareholder protection in India, especially during squeeze-outs or mergers that affect smaller holders.
Minority Shareholders
This group may hold smaller stakes, retail investors, family offices, or even early backers. Their power is limited, but not invisible. Under the Companies Act and judicial precedents, their rights are safeguarded. And when backed by a good shareholders’ agreement in M&A deals, they can negotiate exit protections, valuation floors, and even vetoes on key decisions. Most companies mess up here by underestimating their legal leverage.
Foreign Shareholders
Now here’s where it gets layered. Foreign investors, whether via FPI, FDI, or joint venture structures, bring in capital and a second jurisdiction. That means rights aren’t only shaped by contracts but also dictated by FEMA, RBI guidelines, and sectoral restrictions. The foreign investor rights in Indian companies vary based on which route they came in through, and that’s something legal teams often overlook until it’s too late.
Institutional & Private Equity Shareholders
These stakeholders rarely come in without conditions. You’ll see these stakeholders demanding board seats, consent rights, liquidation preferences, and exit-linked rights. More importantly, they care a lot about enforceability. If the shareholders’ agreement in M&A deals isn’t solid, or if it clashes with the articles, they’ll flag it during diligence.
Employee Shareholders (ESOP Holders)
They’re often left out of the legal conversation, which they shouldn’t be, especially in funded startups or acquisitions, and employees holding equity (or promised equity) need their interests protected. In cross-border M&A, they can lose out on value if share structures are altered or rolled over without clarity, and most time, nobody bothers to tell them until and unless it’s done.
Two shareholders are never the same, and assuming that the majority rules everything is legally flawed. We’ve seen enough M&A disputes where minority or ESOP holders held up exits just because basic documentation was ignored. So, before structuring any transaction, especially one with foreign involvement, map out every class of shareholder, and make sure their rights, obligations, and exit paths are addressed clearly.
Legal Framework Governing Shareholder Rights in India
The legal protection of shareholder rights in cross-border M&A transactions is governed by a combination of statutory frameworks, regulatory conditions, and enforceable contractual arrangements. Each of these regimes operates in parallel, but often overlaps, especially when foreign shareholding and jurisdictional elements are involved.
For promoters, acquirers, and foreign investors, understanding how these frameworks interact is central to both transaction structuring and long-term shareholder management.
The following are the primary legal pillars shaping shareholder rights in cross-border M&A transactions involving Indian entities:
Companies Act, 2013
The foundation of shareholder protection in India lies under the Companies Act, 2013, which governs both private and public companies. It defines key rights such as:
- Voting rights (ordinary and special resolutions).
- Class protection rights for preference or differential shareholders.
- Mechanisms for minority shareholder protection in India, especially through Sections 241–242 (oppression and mismanagement).
- Rights relating to inspection of records, requisition of meetings, and shareholder remedies through the National Company Law Tribunal (NCLT).
The Act also prescribes specific approvals and thresholds where shareholders’ consent is mandatory, particularly in mergers, related-party transactions, and reduction of capital.
FEMA and RBI Regulations
For non-resident investors, shareholder rights are subject to the Foreign Exchange Management Act (FEMA), read with sectoral policy restrictions notified by the Reserve Bank of India. These regulations:
- Govern foreign investors’ rights in Indian companies.
- Define pricing, transferability, and repatriation norms.
- Restrict shareholder rights in certain sensitive sectors like defence, telecom, and media.
- Require prior RBI approval for rights that exceed limits set under the automatic route.
One of the common issues faced in cross-border mergers and acquisitions in India is the assumption that foreign shareholders enjoy the same governance freedom as domestic ones, which isn’t always the case.
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
For listed companies, the SEBI Takeover Code is critical. It mandates:
- Open offers upon acquisition beyond specified thresholds;
- Protection to existing shareholders through exit offers at a fair price;
- Specific timelines for disclosures and public announcements; and
- Restrictions on inter-se promoter transactions and creeping acquisitions.
The code is particularly relevant where foreign acquirers cross control thresholds but fail to trigger open offer conditions in time, a recurring challenge in secondary share deals.
Shareholders’ Agreement (SHA)
A well-drafted shareholders’ agreement in M&A deals remains one of the strongest tools for customizing shareholder rights, especially in transactions involving foreign private equity or strategic investors. Commonly protected rights include:
- Tag-along and drag-along rights
- Anti-dilution protection
- Information rights and reporting standards
- Reserved matters requiring affirmative votes
However, the courts in India have repeatedly held that SHA clauses must align with the Articles of Association to be enforceable. A mismatch between the two can result in such rights being deemed unenforceable, particularly in disputes between minority and majority shareholders.
In the landmark case of V.B. Rangaraj vs. V.B. Gopalakrishnan (1192) 1 SCC 160, wherein an oral shareholder agreement was entered into between parties, imposing share transfer restrictions, which conflicted with the AOA of the company. The Supreme Court held that the AOA of the company is its constitutional document, binding on both the company and the shareholders, and any shareholder agreement that contradicts the AOA of the company is void and unenforceable.
FDI Policy (DPIIT) and Sectoral Caps
The FDI Policy, as issued by the Department for Promotion of Industry and Internal Trade (DPIIT), lays down sector-specific caps and conditions that directly influence the nature and scope of foreign investor rights in Indian companies. For example:
- In sectors like insurance or broadcasting, foreign ownership beyond a certain threshold may dilute voting or board rights.
- Some sectors (like e-commerce) prohibit control rights even with a minority stake.
- Beneficial ownership disclosures and UBO tracking have increased regulatory scrutiny.
It is also worth noting that enforcement of shareholder rights, where parties are based in different jurisdictions, requires careful alignment between Indian contract law, arbitration clauses, and FEMA compliance. We’ve seen cases where rights were clearly defined in the SHA but struck down in enforcement due to a lack of RBI approvals or a mismatch with Indian corporate filings.
To summarise, the legal framework governing shareholder rights in India operates through a blend of statutes, regulatory permissions, and contractual instruments. However, merely having rights on paper is not enough. Enforceability, regulatory compliance, and alignment across instruments are what define successful protection of rights in cross-border M&A environments. Failure to harmonise these layers may lead to unenforceable clauses, blocked exits, or litigation that can drag on for months. In our view, legal diligence on shareholder frameworks must begin even before term sheets are signed, and must extend through execution, closing, and post-deal governance.
Common Shareholder Rights in M&A Transactions
One of the most critical areas that tends to get misunderstood or under-negotiated in cross-border deals is the scope and enforceability of shareholder rights. Especially when you’re dealing with foreign entities, promoter-led companies, and investor groups operating across different legal systems. The question of what rights shareholders hold becomes far more layered than what’s just in the SHA.
Now, under Indian law, the starting point of the transactions is considered to be the Companies Act, 2013, but in actual dealmaking, that’s just one piece. Most shareholder protections, especially in cross-border mergers and acquisitions in India, depend on a mix of statutory, contractual, and regulatory structuring.
In our deal experience, rights can be bucketed into four functional sets: governance rights, information and inspection, economic and exit protection, and enforcement mechanisms. Each carries different weight depending on the nature of the shareholder, whether strategic, financial, or passive.
The following are what typically form the base set of shareholder rights in cross-border M&A:
Voting Rights on Structural Events
This includes voting on mergers, capital restructuring, asset sales, and changes to articles. These rights are statutory for all shareholders, regardless of class. Special resolutions (which require 75% approval) are where minority shareholder protection in India becomes particularly relevant, as blocking powers can shift entire negotiations.
Pre-emption Rights – ROFR/ROFO
These rights are contractually provided and protect existing investors against dilution or transfer to third parties. The Right of First Refusal (ROFR) and Right of First Offer (ROFO) are especially common in private equity-led shareholders’ agreements in M&A deals.
Tag-along and Drag-along Rights
Tag-along rights are often non-negotiable for financial or minority shareholders, ensuring they can exit if the majority sells. Drag-along rights are the opposite; they give controlling investors the ability to “pull along” minority shareholders in a sale. Both are central to fair exit, and when not aligned with foreign investor rights in Indian companies under FEMA, the clauses can turn paper-thin. This is a recurring incident that has happened more than once in dual-jurisdiction deals.
Exit Rights & Buyback Clauses
Put options, IPO-linked exits, and buyback triggers are standard for financial investors, but the biggest challenge is enforceability. Any clause involving foreign investor exit must comply with pricing norms, timelines, and RBI approval requirements. Even cleanly written terms often get struck down because they don’t pass the FEMA lens. We’ve seen PE funds wait years longer than expected because the term sheet lacked post-deal regulatory conditions.
Access to Information
Shareholders, by law, are entitled to inspect records and receive periodic updates, but promoter-led companies can, and often do, delay or restrict access. In practice, unless this right is clearly and tightly defined in the shareholders’ agreement in M&A deals, enforcement becomes slow. Courts generally favour openness, but if the language is weak, there’s limited remedy till damage is done.
Protection from Oppression & Mismanagement
Oppression and Mismanagement are undoubtedly the most litigated shareholder rights in India, ensured under Sections 241–242 of the Companies Act. This remedy is available to shareholders holding 10% or more (or 100 members in a public co.), and it’s one of the strongest fallback options when contract rights fail. In cross-border mergers and acquisitions in India, this provision is frequently invoked by offshore minority investors when their veto or board participation rights are sidelined.
In most real-life transactions, these rights aren’t just listed; they’re negotiated over weeks, sometimes months. What looks neat in a term sheet might not survive regulatory review or stand up in NCLT unless the contract drafting is tight and fully aligned with statutory law.
Even experienced investors sometimes miss that if the SHA terms contradict the articles of association, the latter usually wins in Indian courts. Worst case scenario, if RBI or SEBI hasn’t cleared certain rights (like put options or assured returns), enforceability isn’t just tough, it’s invalid, and we’ve seen deal teams, even global ones, treat these as boilerplate, whereas they’re not.
Protections for Minority Shareholders in Cross-Border M&A
In any M&A transaction, minority shareholders often carry the greatest exposure with the least power. Their interests can easily be overridden by majority-controlled board decisions, aggressive buyout terms, or strategic shifts post-acquisition. That concern becomes sharper in cross-border mergers and acquisitions in India, where foreign law, multi-jurisdictional contracts, and sectoral restrictions further dilute practical control. That’s why it is strongly advised to include layered protection for minority shareholders; it’s not optional, it’s essential.
Indian law recognises the need for this protection, especially in the context of mismanagement, coercive exits, and unequal valuation, but enforcement still depends on how well these safeguards are built into the deal documentation and governance framework.
Below are five legal and structural instruments that commonly protect minority shareholder rights in cross-border M&A.
Statutory Protection: Oppression and Mismanagement (Sec. 241–242, Companies Act)
These sections provide shareholders with a direct remedy before the National Company Law Tribunal (NCLT) when they face conduct that is oppressive or prejudicial to their interests. It applies to shareholders holding at least 10% of the share capital or 100 members (in public companies).
We’ve seen this invoked in multiple cross-border scenarios, particularly where foreign investors allege exclusion from decision-making or dilution of their equity without consent. While these sections offer relief, proceedings can be time-consuming, and if the minority doesn’t maintain a consistent paper trail, the petition often collapses.
SEBI-Mandated Exit Offers (Listed Companies)
In listed company M&A deals, minority shareholder protection in India is further secured through the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations. These rules require acquirers crossing specified thresholds (25% and beyond) to extend an open offer to all remaining shareholders at a fair price.
This provides a structured and time-bound exit route to retail and non-promoter shareholders. However, problems occur when disclosures are delayed or pricing mechanisms aren’t transparent. In such cases, regulatory pushback becomes reactive, and minority protection suffers if SEBI orders come late.
Fair Valuation Mechanisms
A recurring source of conflict in shareholder rights in cross-border M&A is unfair or manipulated valuation, particularly where majority stakeholders initiate exits or internal restructuring. Indian courts, while generally conservative in intervening on valuation, have upheld minority claims where pricing methods were arbitrary or not in line with prescribed standards.
Best practice requires valuation to be done by independent, SEBI-registered valuers and benchmarked against asset, income and market approaches. In SHA, it’s important to mention methods to ascertain the fair market value. We’ve handled disputes where a minor drafting ambiguity created valuation disputes dragging on for 18+ months.
Contractual Rights via Shareholders’ Agreement (SHA)
A properly negotiated shareholders’ agreement in M&A deals is often the first, and sometimes only, line of defence for minority shareholders. Key clauses include:
- Affirmative vote rights for major corporate decisions;
- Exit provisions like tag-along rights or time-bound put options;
- Anti-dilution protection during funding rounds; and
- Right to nominate board representatives.
However, for foreign investors or non-promoter shareholders, the biggest mistake is assuming SHA rights will always be automatically enforced. Indian courts have made it clear that if a right in the SHA contradicts the Articles of Association or Indian law, it won’t hold.
Role of NCLT and Judicial Oversight
The National Company Law Tribunal plays a central role in maintaining minority shareholder protection in India. It has the power to freeze share transfers, reverse board decisions, or appoint administrators in cases of sustained oppression; that said, the threshold for intervention is high. The petitioner must prove consistent prejudice, not just one-time exclusion. Also, in foreign investor rights in Indian companies, NCLT’s jurisdiction often overlaps with arbitration forums or international tribunals, leading to delay and confusion over where to file.
In closing, minority protections in M&A cannot rely on just one tool; they must be layered. A combination of legal compliance, good contract drafting, board discipline, and prompt enforcement defines whether a minority investor survives or suffers post-acquisition. While Indian law offers the foundation, it’s the clarity and structure of the documentation that ultimately preserves shareholder rights in cross-border M&A. Missing even one layer may open the door to disputes that take years to resolve, and cost far more than the stake at issue.
Role of Shareholders’ Agreement in Cross-Border M&A
The shareholders’ agreement in M&A deals plays a foundational role in defining investor rights, corporate governance thresholds, and exit mechanics, particularly when foreign parties are involved. In the context of cross-border mergers and acquisitions in India, its importance is not only legal but strategic.
While statutory frameworks such as the Companies Act and FEMA provide the regulatory skeleton, the SHA becomes the muscle, negotiating flexibility, enforcing commercial understanding, and resolving future disputes. What’s essential is, merely signing a shareholder agreement isn’t enough. The strength of a SHA lies in how enforceable it is under Indian law, aligned with articles of association, and structured to handle jurisdictional overlap.
Here are five essential aspects that every SHA must address in cross-border M&A scenarios:
Binding Nature of Rights – Enforceability in India vs Offshore
One of the most misunderstood issues in SHA drafting is enforceability. Clauses related to put options, exit triggers, or assured returns often violate foreign investor rights in Indian companies under FEMA or conflict with Indian public policy. If a clause appears valid under foreign law but is contrary to Indian exchange control regulations, courts here may refuse enforcement, even if parties agreed to it.
We’ve reviewed several deals where foreign investors relied on a New York or Singapore-governed SHA, only to realise that Indian courts wouldn’t honour certain terms, especially when RBI approvals were bypassed. The mistake was in assuming contract law is universal; it’s not.
Dispute Resolution Clauses – Domestic vs International Arbitration
This is where deal structuring requires real foresight. In shareholder rights in cross-border M&A, disputes can involve both Indian and foreign entities, and the major concerns that arise are where the arbitration should be seated. Who appoints the tribunal? Is Indian law the governing law or just procedural?
Parties often default to SIAC or ICC arbitration seated in Singapore or London, but this creates difficulties during enforcement in India, especially for interim relief. If urgent injunctions or board control are needed, Indian courts may have limited scope to intervene unless the seat is domestic. Therefore, to avoid such complexities, many law firms now recommend a dual approach, arbitration offshore but with interim jurisdiction in Indian courts.
Deadlock Resolution & Voting Thresholds
Deadlocks are more common than many expect, especially in joint ventures or in 50:50 deals, where investor and promoter interests begin diverging post-closing. A strong SHA should define:
- What events qualify as a deadlock?
- Escalation mechanism (board to shareholders);
- Deadlock resolution methods (buy-sell clauses, Russian roulette, etc.); and
- Voting thresholds (simple majority vs supermajority)
In practice, we’ve seen SHAs with vague deadlock definitions collapse when neither party agreed on what constituted a disagreement worth triggering the clause. The solution is simple: clarity at the drafting stage, not at the litigation stage later.
Capital Infusion Language & Dilution Protection
Dilution is one of the most sensitive issues in M&A structuring, especially for financial investors and minority shareholder protection in India. SHA must cover:
- Proportionate subscription rights in future rounds;
- Anti-dilution provisions (full ratchet or weighted average); and
- Pre-emptive rights and consent before third-party investment.
But errors often creep in without being noticed. For example, anti-dilution clauses are included but silent on whether they survive exit or IPO. What’s even worse, they aren’t mirrored in the company’s Articles of Association, rendering them unenforceable in Indian courts. This is particularly damaging in deals involving foreign investor rights in Indian companies, where cross-border capital movement needs clarity.
Alignment with Articles of Association
Even the most carefully negotiated SHA can become legally meaningless if not properly integrated into the Articles of Association. Indian courts have consistently ruled that shareholder rights in cross-border M&A, if purely contractual and not reflected in the Articles of Association, may not bind the company itself.
This disconnect happens when companies sign the SHA but fail to amend the Articles of Association accordingly. We’ve handled enforcement cases where rights like tag-along or information access existed in the SHA but were ignored because they weren’t in the company’s charter documents.
Regulatory Approvals Affecting Shareholder Rights
In cross-border mergers and acquisitions in India, understanding the role of regulatory approvals is critical, not only for closing the transaction but also for preserving the enforceability of negotiated shareholder rights. Whether the parties are private equity funds, multinational strategic buyers, or family offices, regulatory conditions often override what’s agreed in term sheets or shareholders’ agreements in M&A deals.
The rights of investors, especially foreign shareholders, can be significantly impacted if the approvals aren’t in place or if structuring is done without considering Indian exchange control, competition law, or securities regulation frameworks, which happens more often than it should.
Let’s break down the main regulatory gates that affect shareholder rights in cross-border M&A.
FDI vs ODI Compliance and Approval Requirements
Foreign investment into India is governed by the Foreign Exchange Management Act (FEMA) and the corresponding FDI Policy, while outbound investment by Indian entities is regulated through the Overseas Direct Investment (ODI) framework. Both routes have approval thresholds and conditions that directly impact foreign investor rights in Indian companies.
For example:
- If the target operates in a sector under the government approval route, foreign shareholders must obtain prior clearance, even for indirect control.
- ODI structures involving layered entities require disclosures that can delay execution.
- Rights like assured returns or fixed IRR-based exits may violate FEMA norms unless specifically approved.
Many SHA clauses look perfect on paper but collapse under scrutiny if the investment route wasn’t compliant from the start.
RBI Prior Approvals for Share Transfers in Certain Sectors
In sectors like defence, print media, and satellite communications, transfer of shares (especially from resident to non-resident) often requires prior approval from the Reserve Bank of India. Even in non-sensitive sectors, any deviation from sectoral caps or downstream investment rules can invite regulatory pushback.
Where minority shareholder protection in India is structured via put/call options or exit pricing linked to IRR, the RBI review becomes necessary. The issue persists is, parties often ignore these requirements during the initial drafting phase, assuming post-closing compliance will fix it later which rarely works.
Competition Commission of India (CCI) – Control Analysis
The CCI approval requirement is not limited to large mergers; even minority acquisitions that cross the threshold of control, including veto rights, affirmative voting, or board seat entitlements, can trigger notification under the Competition Act, 2002.
This has a direct bearing on the structuring of shareholder rights in cross-border M&A, especially where SHA clauses provide joint control or influence. Delays in CCI approval or incorrect assessment of control can derail the transaction or expose parties to penalties.
What’s often overlooked is that even protective investor rights, when bundled together, may be treated as de facto control. This affects both the timing and the legality of the deal.
SEBI Regulations – Listed Entity Shareholder Rights
In listed companies, shareholder rights are also governed by SEBI regulations, including the Listing Obligations and Disclosure Requirements (LODR) and Substantial Acquisition of Shares and Takeovers (SAST) norms.
Key implications include:
- Certain SHA rights (like veto over management decisions) may be considered as control, requiring an open offer under SAST.
- Promoter reclassification or pledge of shares may need disclosure and prior approval; and
- If exit rights are not consistent with public shareholder interests, SEBI may raise compliance flags.
This becomes especially tricky in deals where listed parent entities are part of the cross-border mergers and acquisitions in the Indian structure. Rights that appear routine in private companies may breach SEBI norms in public deals.
Sectoral Restrictions – Strategic Industries
Sectors such as defence, telecom, insurance, and broadcasting are subject to both FDI caps and qualitative restrictions, and even if numerical thresholds are met, foreign investor rights in Indian companies may still be limited due to:
- Restrictions on board representation
- Prohibition of control rights without a licence
- Localisation and data storage mandates in tech-heavy sectors
- Additional filters under National Security clearance (especially in telecom or satellite investments)
In such cases, SHA clauses like drag-along rights, reserved matters, or information access may need modification to avoid non-compliance.
Practical Challenges in Enforcing Rights Across Jurisdictions
Drafting rights is one part of the legal effort in cross-border M&A, enforcing them, especially when the parties and contracts span across different legal systems, it is often more complicated than anticipated. While most shareholders’ agreements in M&A deals include standard protections and dispute clauses, their enforcement becomes far less predictable once jurisdictions start to diverge.
In the Indian context, we’ve consistently seen that shareholder rights in cross-border M&A may be commercially sound, but structurally weak in terms of post-deal enforceability and this risk increases when contracts are governed by foreign law, arbitration is seated outside India, and enforcement is dependent on domestic relief.
Here are some of the more pressing legal and practical issues we regularly observe:
Speed and Effectiveness of Enforcement (India vs. Foreign Jurisdictions)
Arbitration seated abroad (Singapore, London, etc.) may promise neutrality and speed, but translating that award into actual relief in India, especially when injunctive or interim relief is sought, can be slow. Indian courts follow the New York Convention for the enforcement of foreign arbitral awards, but procedural delays are real. If minority shareholder protection in India involves time-sensitive matters (like stopping a dilution or sale), foreign arbitration often becomes too late to be useful. Even domestic litigation isn’t fast, NCLT may take months to even admit an oppression petition. Many foreign investors assume court processes are faster than they are, which is one of the most common strategic miscalculations.
Dual Law Regime – Indian Entity, Foreign Buyer
Where the target is an Indian company, but the acquirer is foreign (or vice versa), disputes often involve overlapping laws, such as the Companies Act, FEMA, and the foreign investor’s jurisdictional regulations. In one transaction we advised, an overseas shareholder who tried to enforce a put option based on a UK-governed SHA but ran into FEMA limitations that made the clause technically unenforceable in India.
That’s the key challenge: foreign investor rights in Indian companies are not purely contractual. They are framed within regulatory caps, pricing rules, and prior approvals. The SHA may say one thing, but Indian law may block it or delay it beyond commercial feasibility.
International Arbitration vs NCLT Remedies
Most M&A contracts today choose international arbitration for commercial disputes. But in case of shareholder rights in cross-border M&A, many remedies, like freezing share transfers, inspecting books, or restraining board actions, require urgent relief. Indian courts may decline interim jurisdiction if the seat of arbitration is foreign. On the other hand, NCLT may say it lacks jurisdiction if there’s a valid arbitration clause.
What results is a procedural vacuum. We’ve seen disputes stall for over a year due to this conflict, where no forum wants to (or can) take action. The common mistake is assuming that arbitration replaces everything else, whereas it doesn’t.
Conflicts Between the SHA and the Articles of Association
As Indian law prioritises the Articles of Association over any private agreement, any inconsistency between the shareholders’ agreement in M&A deals and the company’s charter can render rights unenforceable. Foreign parties frequently overlook this, particularly when the SHA is signed but the Articles of Association are not amended.
Rights like tag-along, drag-along, or quorum thresholds, even if written, won’t bind the company unless integrated into its internal governance structure and that’s a gap seen repeatedly in cross-border mergers and acquisitions in India.
Confidentiality and IP Protection Post-Deal
In M&A transactions involving tech, pharma, or defence-linked targets, the confidentiality of IP and access control is paramount. Indian law does offer protections under the IT Act and contract law, but enforcing NDAs or confidentiality clauses across jurisdictions remains a grey area.
Especially in cases where Indian entities are acquired by foreign firms, data security policies and export restrictions may not be mirrored across contracts. We’ve advised clients where IP transfer clauses were clear in the SHA, but enforcement became impossible when the receiving party’s local law contradicted Indian export control norms.
This mismatch also impacts board rights; foreign investor rights in Indian companies may permit oversight, but cannot override local data security laws or employee privacy protections.
FAQs – Shareholder Rights in Cross-Border M&A (India)
1. What rights do shareholders usually get in a cross-border M&A deal?
That really depends on how the deal’s been structured. But typically, you’d expect to see rights around voting, access to board-level info, tag-along/drag-along, pre-emptive rights, and exit triggers like puts or IPO-linked exits. Most of this gets stitched into the shareholders’ agreement in M&A deals, but it only works if supported by the Articles of Association and Indian laws, and that is exactly where many make mistakes by not aligning the two.
2. If a shareholder agreement is governed by foreign law, will Indian courts enforce it?
Not in every case. Even if the parties chose New York or London law, Indian courts would still test the terms for compatibility with FEMA, the Companies Act, and local regulations. If a clause, for instance, a fixed-return exit, goes against foreign investor rights in Indian companies, the court or the RBI may just block it. So yes, the SHA works, but with limits.
3. How does Indian law protect minority shareholders in M&A?
Well, there’s a statutory route, Sections 241 and 242 under the Companies Act, which deal with oppression and mismanagement. Plus, in listed companies, SEBI makes it mandatory to give an open offer when control changes. But we’ve seen most protection come from well-negotiated contracts. Still, enforcement is tricky unless rights are properly worded and documented.
4. Are foreign shareholders treated the same as Indian ones?
Not exactly. While the base corporate rights might be similar, foreign investor rights in Indian companies have to follow the RBI and FDI rules. That can restrict things like put options, assured returns, and sometimes even board seats, especially in restricted sectors. So, the answer’s yes and no.
5. What if a shareholders’ agreement says one thing, but the Articles say something else?
That’s where most people run into trouble. In India, the Articles of Association are what bind the company. If a right exists in the SHA but doesn’t show up in the Articles, it might not be enforceable, even if both parties signed. It’s common in cross-border deals where updating Articles of Association gets pushed post-closing and then forgotten.
6. Can minority investors block a major merger or share sale?
They can, if they hold enough equity to block a special resolution, usually 25% or more. But even smaller stakes can be powerful if the SHA gives veto or affirmative rights. Some investors also go to NCLT if they feel the deal was oppressive or prejudicial. Still, blocking a deal isn’t easy. It needs both leverage and strong documentation.
7. What’s the best way to handle disputes in cross-border M&A deals?
Most parties choose international arbitration, Singapore, London, etc. But the trouble is, arbitration takes time. If the problem is urgent, say, stopping a dilution, you may need Indian court or NCLT help too. Some agreements include dual pathways, arbitration for final issues, and Indian courts for interim relief. It depends on how the SHA is built.
8. When does RBI approval become mandatory for exits?
Usually, when the exit involves foreign shareholders, the RBI steps in, especially for puts, assured IRRs, or if the pricing is linked to any guaranteed formula. Even without a specific RBI nod, the exit terms still need to follow FDI pricing guidelines. We’ve seen exits stall because someone missed that the formula breached RBI’s fair pricing norms.
9. What role does SEBI play for shareholder protection in listed M&A?
SEBI oversees public M&A deals. If a buyer crosses 25% shareholding, they must give an open offer to all public shareholders. SEBI also regulates disclosures, voting rights, and promoter reclassifications. In short, it keeps an eye on minority rights, but only in listed entities. Private deals have to depend more on contracts and internal governance.
10. Why do some shareholder rights look strong in documents but fail in court?
Happens way more than you or anyone else would think. The document might be watertight, but if the rights clash with FEMA, SEBI, or the Companies Act, they may be ignored. Also, if they’re not properly mirrored in the Articles of Association or approved by the RBI, courts just won’t enforce them. That’s why aligning legal, regulatory, and practical realities is non-negotiable in shareholder rights in cross-border M&A.
Conclusion
Across transactions, industries, and jurisdictions, shareholder rights in cross-border M&A continue to be one of the most disputed, but least anticipated, elements of deal-making. What starts as a commercial alignment on valuation or equity percentages often evolves into legal complexity, the moment enforcement, control, or exit gets tested.
In our firm’s experience, structuring shareholder rights is not about templates, it’s about understanding the Indian legal framework, the regulatory overlays from FEMA, SEBI, and sector-specific laws, and the real-world enforceability across borders. Most SHA disputes we see could have been prevented at the drafting stage, with better alignment between shareholders’ agreement in M&A deals and the company’s Articles and other charter documents, and more clarity on regulatory compliance steps.
When it comes to minority shareholder protection in India, courts have offered relief where oppression was clear, but in practice, most protection comes from well-negotiated contracts and compliance, not post-dispute litigation. This is especially critical for foreign investor rights in Indian companies, where even standard clauses like tag-along, anti-dilution, or put options get delayed, or struck down, if not framed within regulatory boundaries.
The enforceability of shareholder rights is not decided in the boardroom; it’s shaped in the fine print and confirmed at the regulator’s desk.
To that end, any serious investment, acquisition, or restructuring involving Indian entities must begin with a multi-layered review of shareholder rights in cross-border M&A:
- Are the rights contractually sound and jurisdictionally enforceable?
- Do they comply with Indian exchange control, securities, and company law?
- Are governance rights and exit paths reflected in both the SHA and the Articles of Association?
- Can the dispute resolution clauses deliver relief when needed?
If even one of these layers fails, the risk escalates, quietly at first, then very publicly, and when that happens, it isn’t the size of the investment that matters; it’s how well the rights were structured.
In our view, no deal is future-proof without enforceable shareholder protections. Whether you’re a domestic promoter, a foreign fund, or a strategic acquirer, your first priority should not just be ownership, but the legal infrastructure supporting it.
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Corrida Legal is a boutique corporate & employment law firm serving as a strategic partner to businesses by helping them navigate transactions, fundraising-investor readiness, operational contracts, workforce management, data privacy, and disputes. The firm provides specialized and end-to-end corporate & employment law solutions, thereby eliminating the need for multiple law firm engagements. We are actively working on transactional drafting & advisory, operational & employment-related contracts, POSH, HR & data privacy-related compliances and audits, India-entry strategy & incorporation, statutory and labour law-related licenses, and registrations, and we defend our clients before all Indian courts to ensure seamless operations.
We keep our client’s future-ready by ensuring compliance with the upcoming Indian Labour codes on Wages, Industrial Relations, Social Security, Occupational Safety, Health, and Working Conditions – and the Digital Personal Data Protection Act, 2023. With offices across India including Gurgaon, Mumbai and Delhi coupled with global partnerships with international law firms in Dubai, Singapore, the United Kingdom, and the USA, we are the preferred law firm for India entry and international business setups. Reach out to us on LinkedIn or contact us at contact@corridalegal.com/+91-9211410147 in case you require any legal assistance. Visit our publications page for detailed articles on contemporary legal issues and updates.