I. WHAT ARE DEFENSIVE TACTICS?

Tactics to make hostile takeover expensive / unattractive:

Pre-Bid (Shark Repellents):

• Poison Pill (Flip-in): If acquirer crosses say 15%, existing shareholders get right to buy new shares at discount - dilutes acquirer. Most powerful defence in US.
• Poison Put: Bondholders can put bonds at premium on takeover.
• Staggered Board / Classified Board
• Differential Voting Rights (DVR) / Promoter holding >26% to block special resolution
• Crown Jewel Defence: Lock valuable assets in separate subsidiary
• Golden Parachute: Huge payout to management if they are removed post-takeover

Post-Bid (Active Defenses):

• White Knight: Find friendly acquirer offering higher price - SEBI Regulation 25 allows white knight to make competing offer.
• White Squire: Allot shares to friendly investor without giving control
• Pac-Man Defence: Target itself tries to acquire acquirer
• Greenmail: Buy back acquirer's shares at premium to make him go away
• Scorched Earth / Sale of Crown Jewels
• Litigation / Regulatory Delay: File complaint to SEBI / RBI / CCI to delay open offer

II. WHY DEFENSIVE TACTICS ARE ILLEGAL / RESTRICTED IN INDIA - DISPUTE ARISES HERE

Unlike US (Delaware allows poison pills), India prohibits most defensive tactics during offer period.

Regulation 23 of Takeover Code - Frustrating Action:

After public announcement is made by acquirer, the board of target company shall not:
a) Issue or allot authorized but unissued securities carrying voting rights
b) Enter into material contracts outside ordinary course
c) Sell, dispose, encumber material assets
d) Buy-back or alter capital structure

Regulation 26 - Obligation of Board:
Board must constitute Independent Directors Committee (IDC) to give reasoned recommendation on offer. Board can only recommend for/against, cannot deploy value-destructive tactics.

If Board violates, SEBI can under Sec 11, 11B SEBI Act reverse transaction and impose penalty. This creates Defensive Tactics Dispute.

For Banks/NBFCs - Double Lock:
SEBI + RBI both must approve. Target bank board can use RBI approval as defence.
As noted in Indian Corp Law analysis:

"This interdependence can be used by target NBFCs as defence strategy to resist hostile takeovers by delaying or withholding statutory approvals like RBI application, thus rendering hostile takeovers obsolete"

So banking hostile takeovers are almost impossible in India.

III. BANKING SPECIFIC DEFENSIVE TACTICS DISPUTE

Example Dispute Scenario:

• Foreign fund tries to acquire 26% in Indian private bank (say Yes Bank / IndusInd)
• Board of bank does not want it. Board refuses to recommend RBI application, or allots preferential warrants to promoter to increase holding above 26%, or finds white knight (SBI/LIC)
• Acquirer goes to SAT / SEBI / RBI saying board has taken frustrating action under Reg 23.

RBI 2023 rule: Any person acquiring >5% up to 10%, or >10% needs prior RBI approval. RBI can reject if not "fit and proper". Board can lobby RBI to reject.

IV. LEADING CASE LAWS

A. USA Foundation Cases - Applied as Persuasive in India by SAT

1. Moran v. Household International, Inc., 500 A.2d 1346 (Del. 1985) - Legality of Poison Pill

• US Supreme Court Delaware upheld poison pill as valid if adopted in good faith. Martin Lipton's creation. Indian legal community says in Indian environment, three features make flip-in pill difficult - Indian company law prohibits non-cash dividends except bonus shares, which rules out standard poison pill structure.
• This case is cited in every Indian defensive tactics dispute to argue poison pill legality.

2. Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985) - Business Judgment Rule for Defence

• Test: Board's defensive tactic must be (a) reasonable in relation to threat posed, (b) in good faith, not to entrench management. This is now adopted in SEBI Regulation 26 guidance.

3. Revlon, Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173 (Del. 1986)

• Faced with hostile bid from Pantry Pride, Revlon board adopted poison pill in form of note purchase right plan. Court held initial adoption valid as good faith to protect corporate entity, but once sale became inevitable, board's duty shifts to maximising shareholder value (Revlon duties). No favouritism to white knight.
• In India, this is basis for Independent Directors Committee cannot favour one acquirer.

B. Indian Cases

4. SEBI v. Akshya Nidhi Ltd. and Luxeone Case - Supreme Court on Frustrating Action (2022) - "Supreme Court Reinforces Sanctity of a Takeover Offer"

• Facts: Acquirer made hostile offer, target management indulged in defensive tactics such as filing multiple complaints before SEBI to delay open offer, and non-cooperation in RBI approval.
• Supreme Court held: SEBI delay in disposing complaints itself can be used as defensive tactic. SC directed SEBI to decide offer within strict timelines. Target board cannot use litigation as defence.

5. Adani Enterprises Ltd. v. NDTV Ltd. - 2022 - Most Recent Hostile Takeover & Defensive Tactics Dispute in India

• Facts: Adani acquired VCPL which held warrants convertible into 29.18% of NDTV, then made open offer for 26%. NDTV promoters argued loan agreement contained restriction on transfer (deemed poison pill), and that SEBI approval + Income Tax approval pending.
• Issue: Can contractual restriction act as defensive tactic?
• SEBI held: Under Takeover Code, restrictive clause in loan agreement that prohibits promoter from selling without lender consent is not valid frustrating action once open offer triggered. Open offer succeeded. SEBI Takeover Code mainly benefits acquirers by limiting available defensive options.
• This case established that shark repellents written in private contracts cannot override SEBI Code.

6. Bank of Rajasthan Ltd. v. RBI & SEBI - 2010 - Banking Defensive Tactics

• Tayal family (promoters) tried to issue warrants to themselves to increase holding from 28% to 55% to block ICICI Bank's friendly merger. RBI rejected allotment as not fit and proper, SEBI held it violates Reg 23 (frustrating action). Merger forced.

7. Ing Vysya Bank - Exim Bank Takeover Attempt (2004)

• Board tried crown jewel defence - selling profitable subsidiaries. RBI intervened and said material sale during takeover needs RBI prior approval under Banking Regulation Act. Set precedent that RBI approval is additional defence layer.

8. SAT Order - Jaiprakash Associates Ltd. v. SEBI (2018) - White Knight Dispute

• White knight offered higher price than original acquirer under Reg 25. Original acquirer challenged white knight's funding. SAT held white knight provision is legitimate defence but must meet same disclosure and financial ability as original acquirer.

V. HOW COURTS DECIDE DEFENSIVE TACTICS DISPUTE - TEST

SAT / Supreme Court applies 3-step test (derived from Unocal + Reg 26):

1. Was tactic pre-bid or post-bid? Pre-bid shark repellents with shareholder approval by special resolution (Sec 62, 180) are allowed. Post-bid tactics without shareholder approval violate Reg 23.
2. Was it approved by shareholders? Under Companies Act, poison pill = further issue of shares, needs shareholders special resolution + in-principle approval of Stock Exchange (Sec 62). Board alone cannot adopt.
3. Is it proportionate? Even if shareholder-approved, does it destroy shareholder value? If yes, SEBI can intervene.

Practical Consequence for Banks:
In banking, poison pill is virtually impossible because:

• Any issue of shares >5% to new person needs RBI approval.
• SEBI LODR + Banking Regulation Act require RBI approval before allotment.
• So best defensive tactic in Indian banks is RBI Fit and Proper defence + White Knight (SBI/ LIC) + Litigation delay.