Several promoter families have approached the market regulator seeking a change in takeover rules to allow daughters-in-law to be recognised as “relatives,” citing the need to streamline succession planning and trust-based ownership in family-run listed companies, according toThe Economic Times.
Currently, the Securities and Exchange Board of India (Sebi) takeover regulations do not include sons- or daughters-in-law within the definition of “immediate relatives,” unlike the Income Tax Act, which treats them as relatives for gifting purposes. Experts say this gap creates hurdles for promoters transferring shares to family trusts as part of long-term succession planning.
Over the past decade, an increasing number of business families have moved promoter holdings, or portions of them, into private family trusts with family members as beneficiaries. Under Sebi’s takeover code, acquisition of 25% or more shares in a listed company, or any change in control, typically triggers an open offer to public shareholders. Sebi grants exemptions where promoters gift shares to family trusts, provided the trustees are recognised relatives. While sons can be appointed trustees, daughters-in-law are excluded under current rules, forcing many families to seek case-specific regulatory exemptions. Around a dozen business families are reported to have made such requests.
Past exemptions have allowed trust-based transfers in listed companies such asPI Industries, Prince Pipes & Fittings, Everest Kanto Cylinders, Jyothy Labs,andBorosil Glass Works, provided control remained unchanged and minority shareholders were protected. However, these approvals have been granted on a case-by-case basis rather than as automatic exemptions.
Advisers argue that the repeated need for Sebi approvals highlights structural gaps in the regulations. While the exemption process was streamlined in 2017 with a standard format and administrative scrutiny, the framework has not fully adapted to modern family structures and governance needs.
Other challenges include restrictions for families with minor children, the inability to create sub-trusts for different family branches, and the rule that shares of a newly listed company can only be transferred to a private trust three years post-listing. Legal experts note that in many cases, transferring shares to a family trust while the promoter continues as managing trustee does not effectively change control.
The contrast with tax law is notable: under income tax provisions, gifts to sons- or daughters-in-law are exempt from tax, though income generated from such assets is taxable.
For promoter families, the request to Sebi is straightforward:update the definition of “relatives” to reflect contemporary family and governance structures, reducing the need for repeated exemptions that no longer serve a clear investor-protection purpose.
