Why excluding daughters-in-law from SEBI’s takeover rules is becoming a succession headache: Experts explain

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• Business families urge Sebi to update takeover rules on "immediate relatives" definition.
• Excluding in-laws complicates succession planning for business promoters.
• Outdated rules delay ownership transfers, risking governance gaps, experts say

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India’s market regulator is facing growing calls to update its decades-old takeover rules, with prominent business families warning that the restrictive definition of "immediate relatives” that excludes sons and daughters-in-law is stalling succession plans.

At issue is the Securities and Exchange Board of India (Sebi)’s definition of who counts as a “relative” under the takeover code, which determines whether internal transfers of ownership can proceed smoothly or trigger onerous regulatory consequences.

As promoters prepare for generational transitions, the exclusion of sons- and daughters-in-law from this definition has emerged as a recurring obstacle. Legal experts say this is no longer a theoretical concern but a practical bottleneck that affects how families structure trusts, transfer control, and plan leadership succession.

A regulatory definition out of step with family realities

Sebi’s takeover regulations recognise only a few relationships -- spouses, parents, siblings, and children -- as “immediate relatives.”

This classification matters because transfers of shares within this circle are presumed to keep control within the promoter group, allowing families to avoid open-offer obligations meant to protect minority shareholders.

However, this narrow framing does not reflect the composition of many modern promoter families. Daughters-in-law, in particular, are often part of ownership planning, governance roles, or long-term succession arrangements.

Despite this, their inclusion as trustees or beneficiaries of family trusts can disrupt eligibility for automatic exemptions under the takeover code.

Sadia Khan, Partner at law firm Shardul Amarchand Mangaldas & Co, highlights how this gap has become increasingly visible as more businesses transition to the next generation.

“As an increasing number of family businesses transition to the next generation, succession planning must also adapt to the modern succession realities. In many contemporary family enterprises, daughters-in-law play substantive roles in ownership, management and governance; however, their exclusion from the statutory definition of ‘immediate relative’ complicates routine succession planning," she said.

Private family trusts are commonly used to maintain continuity, consolidate promoter holdings, and minimise disputes.

But when only a restricted group of family members can be trustees or beneficiaries, promoters are forced to design structures that prioritise regulatory compliance over practical family arrangements.

“These issues are particularly acute in succession arrangements that involve promoter families settling shareholdings into private trusts, where only ‘immediate relatives’ may be trustees or beneficiaries, often necessitating additional regulatory approvals or workarounds,” Khan added.

'Regulatory anachronism'

Legal experts argue that the rigidity of the takeover code can push promoters into difficult trade-offs.

Rather than enabling orderly transitions, the current framework may encourage delays, inefficient structuring, or the retention of control by senior family members longer than intended.

Namit Saxena, lawyer and founder of the law firm Chambers of Namit Saxena, describes the situation as a mismatch between regulatory design and lived experience.

"SEBI’s refusal to recognise daughters-in-law and sons-in-law as ‘relatives’ is a regulatory anachronism that ignores the evolving reality of Indian business families," he told Moneycontrol.

He points out that other Indian laws have already expanded their understanding of family relationships, while the takeover code remains static.

“While the Tax and Companies Act has modernised, SEBI’s rigid Takeover Code forces patriarchs to choose between inclusive succession and punitive open-offer triggers,” Saxena said.

Open offers are intended for acquisitions that alter ownership or control in a meaningful way. Applying the same obligations to internal family realignments, experts argue, imposes costs and delays that were never meant for succession planning.

This can discourage promoters from proactively restructuring shareholding arrangements, even when doing so would improve long-term governance stability.

Saxena also flagged the inconsistency in how leadership roles are evaluated versus ownership relationships. "If a ‘daughter-in-law’ is trusted enough to lead a boardroom, she must be recognised as a ‘relative’ in the eyes of the market regulator to ensure seamless generational transitions," he said.

The longer-term costs of narrow definitions

Beyond immediate compliance challenges, the restrictive definition of “relative” can have broader implications for the resilience of family-run listed companies.

Delayed or fragmented succession planning can leave firms exposed during leadership changes, increasing uncertainty at critical moments.

Ashwini Kumar, advocate and founder of the My Legal Expert website, said that promoters often encounter procedural hurdles that do little to advance investor protection.

"SEBI’s tight definition of ‘immediate relatives’ that does not cover sons- and daughters-in-law sets up barriers that are not needed for family business succession; the tax laws, on the other hand, have a more extensive recognition of these relations," Kumar told Moneycontrol.

According to Kumar, the need to seek individual exemptions or build complex trust arrangements slows down the transfer of ownership and control.

"The promoters are then forced to go through a time-consuming trust structure, which requires individual exemptions, making the transfer of wealth slower and putting the firms at risk of being taken over," he said.

Such delays can undermine the very stability that takeover regulations aim to preserve. When succession remains unresolved, companies may face governance gaps, leadership uncertainty, or vulnerability during periods of transition.

Kumar said that expanding the definition of relatives does not imply weaker oversight.

"Allowing for a wider interpretation would not only bring the regulations in line with the times but also safeguard minority shareholders and facilitate smooth generational transfers, which are critical for India’s family-run businesses," he added.

Experts suggest that Sebi’s takeover framework is confronting family structures it was not built to accommodate. As succession timelines shorten and family roles diversify, the existing definition of “relative” has become a structural constraint.

The debate, experts say, is less about relaxing safeguards and more about aligning regulation with contemporary governance realities -- so that internal family succession does not become an unintended regulatory risk.