India’s Business Families Seek Regulatory Recognition of Daughters-in-Law as ‘Relatives’ Under SEBI Takeover Norms

New Delhi: Indian business families are pressing for a regulatory rethink, urging the Securities and Exchange Board of India to formally recognise daughters-in-law as “relatives” under India’s takeover and promoter group regulations. The proposal has sparked an important debate at the intersection of corporate governance, family succession planning, gender roles, and minority shareholder protection.

The demand follows growing unease among promoter groups over the rigidity of the existing definition of “immediate relatives” under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011. Business families argue that the current framework no longer reflects the realities of modern Indian family-run enterprises, where daughters-in-law often play central roles in ownership structures, trust management, and long-term succession planning.

Regulatory Background and the Existing Legal Position

Under the SEBI Takeover Code, the definition of “immediate relatives” plays a decisive role in determining whether a transfer of shares or voting rights triggers a mandatory open offer to public shareholders. Transfers among recognised relatives enjoy exemptions, allowing promoter families to reorganise shareholding without incurring significant compliance costs or diluting control.

At present, the definition includes spouses, parents, siblings, and children. However, daughters-in-law and sons-in-law are excluded. As a result, any transfer of shares or control involving a daughter-in-law is treated as a transfer to a non-relative, even when the transaction is purely intra-family and intended for succession purposes.

Legal advisors point out that this narrow definition creates unintended regulatory consequences, particularly for families using trusts as succession vehicles.

Family Trusts and Succession Planning Under Strain

Over the past decade, Indian promoter families have increasingly relied on private trusts to consolidate shareholdings, ensure smooth inter-generational transfer of control, and avoid fragmentation of ownership. These trusts often hold substantial stakes in listed companies and are structured to take advantage of exemptions available under takeover regulations.

However, SEBI currently allows only relatives to act as trustees or beneficiaries in promoter-controlled trusts without triggering takeover obligations. As daughters-in-law are not classified as relatives, families are effectively barred from appointing them as trustees, even when they are actively involved in managing family affairs or safeguarding the interests of minor beneficiaries.

This restriction has become particularly problematic in situations involving early succession, widowhood, or the need for female family members to assume fiduciary responsibilities within the family structure.

Open Offer Risks and Compliance Burdens

If a daughter-in-law is appointed as a trustee or receives shares through a trust or settlement, the transaction may be interpreted as a change in control or acquisition beyond permitted thresholds. This can trigger a mandatory open offer, requiring the acquirer to purchase at least 26 percent of shares from public shareholders.

Such an obligation can impose substantial financial and procedural burdens on families, even when there is no real change in management or decision-making authority. Market participants argue that this outcome defeats the underlying purpose of succession planning and discourages orderly corporate governance transitions.

Inconsistencies Across Indian Laws

One of the strongest arguments advanced by corporate lawyers is the lack of consistency in how Indian law defines the term “relative.” Under the Income Tax Act, certain in-laws are recognised as relatives for the purpose of exempting gifts from tax. The Companies Act, 2013 adopts yet another definition for disclosure and compliance purposes.

SEBI’s approach, critics say, is unusually restrictive and fails to align with the broader legislative intent seen in other statutes. This regulatory mismatch has created uncertainty for promoter families attempting to comply with overlapping legal regimes.

Gender Dimension and Changing Family Roles

The issue has also acquired a gendered dimension. Legal commentators note that excluding daughters-in-law from the definition of relatives reinforces outdated assumptions about women’s roles within business families. In many contemporary enterprises, daughters-in-law are professionally qualified, actively involved in operations, or entrusted with safeguarding family assets.

By denying them recognition under takeover regulations, the law arguably lags behind social and economic realities. Several governance experts have suggested that regulatory reform could also advance substantive gender equality in corporate ownership structures.

Concerns Over Minority Shareholder Protection

At the same time, investor protection advocates caution against diluting the safeguards embedded in the takeover code. The open offer mechanism exists to ensure transparency and provide an exit option to minority shareholders whenever control changes hands.

Regulators will therefore need to assess whether expanding the definition of relatives could be misused to mask genuine changes in control or to bypass disclosure obligations. SEBI is likely to weigh whether adequate checks and safeguards can be built into any revised framework.

Possible Regulatory Pathways

Legal experts suggest several possible approaches SEBI could consider. These include selectively expanding the definition of relatives for trust-related exemptions, introducing conditional recognition subject to disclosure requirements, or issuing clarificatory guidance rather than amending the regulations outright.

Any such reform would likely follow a consultation process involving public comments, industry feedback, and investor representations.

Broader Implications for Corporate India

The demand to recognise daughters-in-law as relatives reflects a broader shift in Indian corporate governance, where traditional family structures are intersecting with increasingly sophisticated regulatory frameworks. As family-run enterprises continue to dominate India’s corporate landscape, succession planning is emerging as a critical governance issue with market-wide implications.

For now, business families, corporate advisors, and governance experts await regulatory clarity on whether India’s takeover norms will evolve to reflect changing family and corporate dynamics.