Promoter Families Seek Sebi Approval to Treat Daughters-in-Law as Relatives

Several promoter families of listed Indian companies have approached the market regulator seeking a change in takeover regulations to recognise daughters-in-law as “relatives”, a move they argue is critical for smoother succession planning and modern family trust structures.

According to a report by The Economic Times, these representations highlight a regulatory gap in the takeover code framed by Securities and Exchange Board of India. While India’s income tax laws treat sons- and daughters-in-law as relatives for gifting purposes, Sebi’s takeover regulations exclude them from the definition of “immediate relatives”.

This mismatch has created practical hurdles for promoter families transferring shares to private family trusts as part of long-term estate and succession planning. Over the past decade, an increasing number of business families have moved promoter shareholdings, or parts of them, into private trusts where family members are beneficiaries, a structure widely seen as improving governance continuity and reducing succession disputes.

Under Sebi’s takeover code, the acquisition of 25 per cent or more shares in a listed company, or any change in control, generally triggers a mandatory open offer to public shareholders. However, Sebi grants exemptions for promoter share transfers to family trusts, provided trustees are recognised relatives and there is no effective change in control.

While sons can be appointed trustees even if they are not listed as promoters, daughters-in-law are not covered under the current definition. As a result, promoters wishing to appoint daughters-in-law as trustees — or, in cases involving minor children, to appoint trusted professionals — are required to seek case-specific exemptions from the regulator. Market participants say around a dozen promoter families have made such representations to Sebi in recent years.

In multiple past cases, Sebi has granted exemptions under Regulation 11 of the takeover code where promoter share transfers to family trusts did not alter control or affect public shareholding. These include approvals involving listed companies such as PI Industries, Prince Pipes & Fittings, Everest Kanto Cylinders, Jyothy Labs, and Borosil Glass Works. However, all such approvals have been granted on a case-by-case basis rather than through automatic exemptions.

Advisers argue that the repeated need for individual exemptions exposes a structural limitation in the current rules. Although Sebi streamlined the exemption process in December 2017 by replacing the takeover panel with administrative scrutiny and introducing a standard application format, the underlying definitions have not evolved alongside changing family and governance structures.

The rigidity extends beyond trustee appointments. Current regulations do not permit sub-trusts under a master trust structure, a mechanism often used by large business families to protect the interests of different family branches. Similarly, families with minor children face constraints in appointing trusted non-family trustees in contingency scenarios.

Another area of concern is the rule that shares of a newly listed company can be transferred to a private trust only after three years from listing. Legal experts say this restriction delays legitimate succession planning without offering meaningful additional protection to minority shareholders.

The contrast with tax law remains stark. Under income tax provisions, gifts of money or shares to daughters-in-law are exempt from tax, even though income from such assets continues to be taxed in the hands of the transferor. Promoter families argue that takeover regulations should similarly reflect contemporary family realities.

Their request to Sebi is straightforward: update the definition of “relatives” to include daughters-in-law, reduce repeated regulatory applications, and align takeover rules with modern succession and governance needs without diluting investor protection.