The Promoter Paradox: Mapping Control And Disclosure In India - Part I

How evolving jurisprudence and shifting market dynamics are redefining what it truly means to be a 'promoter' and to exercise 'control' in India's corporate ecosystem.

The contours of "promoter" and "control" in India's corporate ecosystem are being redrawn amid seismic shifts in global and domestic capital markets. Between Q3 2020 and Q4 2021, global IPOs surged on post-pandemic liquidity and investor optimism, only to cool through 2022–2024 under geopolitical and macroeconomic strain. Yet by Q1 2025, as volatility persisted across the U.S. and Europe, India emerged as a standout performer hosting 62 IPOs that raised USD 2.8 billion and capturing 22 percent of global IPO activity, according to the EY Global IPO Trends Q1 2025 Report. Securities and Exchange Board of India (SEBI) Annual Report 2024–25 reinforced this momentum, recording fund mobilisation of nearly ₹2.1 lakh crore through IPOs, FPOs, and Rights Issues a 2.5-fold increase from the previous year.

Beneath these numbers lies a regulatory transformation that is redefining market trust. SEBI's sharpened emphasis on promoter identification and control has elevated this concept to a substantive inquiry into who truly drives corporate decision-making. By tightening definitions and scrutinising indirect or coordinated influence, the regulator has dismantled long-standing opacity in ownership structures. This marks a decisive shift towards a governance regime that balances disclosure-led accountability with control-led assessment governance regime where the real question is no longer who owns, but also who influences.

This article moves beyond definitions to examine how the legal framework governing promoters translates into real-world practice. It explores how statutory constructs of "promoter" and "control" are being tested in IPO disclosures. By tracing these developments, the discussion highlights how evolving market realities are reshaping governance norms and the balance between ownership, influence, and accountability in India's capital markets.

The Chariot Analogy: Understanding Control in Corporate Governance

To understand the concept of promoter identification and control, consider the metaphor of a horse-drawn chariot, the chariot represents the company itself, a vehicle designed to carry wealth, enterprise, and stakeholder interests toward growth and prosperity. The reins of the chariot represent control: the rights and powers that determine the company's direction, and ultimate destination. The person who holds the reins is the charioteer, in a company, that's the promoter who actually controls its operations. The horses symbolize the company's operational power: its management capabilities, business strategy, and execution strength. The wheels represent the foundational elements of control: shareholding patterns, voting rights, board composition, and contractual arrangements that support the exercise of influence.

The fundamental question in corporate governance mirrors the inquiry in this chariot scenario: Who truly holds the reins? Is it the person visibly seated at the front, or someone else directing from behind? Is control exercised by one person alone, or shared among multiple individuals acting in concert? Can someone sitting as a mere passenger holding no reins, issuing no directions, exercising no influence be considered a charioteer simply by virtue of their presence in the chariot?

The chariot analogy elegantly captures the essence of control: it lies not with those who merely sit in the vehicle or enjoy the journey, but with those who guide its direction, command its speed, and determine its destination. Similarly, in corporate governance, proximity to ownership or management does not automatically imply promoter status what matters is the actual ability to direct the company's affairs and decisions.

The Complexity Beneath the Surface:

While this chariot analogy offers a vivid and accessible illustration, the reality of corporate governance is more complex. In practice, determining who truly holds the reins in a corporate structure requires a meticulous, case-to-case examination of numerous facets including but not limited to shareholding patterns, voting rights and powers, board composition, familial relationships, economic circumstances, historical roles, contractual arrangements, trust structures, and behavioural patterns.

The simplicity of the chariot analogy stands in stark contrast to the intricate reality of modern corporate structures. In the chariot, we deal with tangible, visible elements: animals, leather reins, wooden wheels, and charioteer. The lines of control are clear and direct.

However, in the corporate world, this clarity dissolves into a complex web of individuals, corporate entities, trust structures, family arrangements, and layered shareholding patterns. Control in the corporate world, by its very nature, is elusive and those who exercise it are often even more elusive. Unlike the straightforward relationship between charioteer and horses, corporate control may lurk through multiple intermediaries such as holding companies controlling subsidiaries, family trusts holding shares, relatives and employees acting as proxies, nominee directors representing hidden interests, and shareholders' agreements creating invisible but binding obligations. The "reins" of control may be distributed across dozens of legal documents, split among family members across generations, or exercised through informal influence that leaves no paper trail. The true controllers may deliberately obscure their influence, operating through layers of corporate veils, family arrangements, and nominee structures that mask the reality of who truly commands the enterprise.

Much like water that takes the shape of its container, control too can change its facets by adapting to different corporate structures, flowing through various legal forms depending on the governance architecture within which it operates. The concept of "control" lies at the core of corporate law and governance and can manifest in multiple forms. Identifying who actually controls a company becomes an exercise in unravelling this intricate web. A promoter may exercise control not through direct shareholding but through a son who sits on the board, a daughter who manages operations, a family trust that holds shares, and a private company that acts as an investment vehicles. Each thread of this web must be traced, analyzed, and understood in the context of actual decision-making patterns, not just formal legal structures.

Moreover, while the chariot involves inanimate objects and animals acting on instinct, corporations involve human actors with their own agency, motivations, and relationships, and non-individual entities like companies, trusts, and partnerships that can themselves be controlled by other layers of individuals and entities. This human and institutional complexity introduces ambiguity, conflicting interests, evolving relationships, and the challenge of distinguishing genuine control from mere advice, legal rights from customary deference, and formal authority from practical power.

A family patriarch may no longer hold formal office but may still whisper strategic directions that shape every major decision. A professional CEO may hold the title of managing director but operate entirely under the shadow of a dominant investor. A founder may have diluted their shareholding to negligible levels yet retain decisive influence through trust structures, nominee arrangements, or informal authority rooted in legacy and loyalty.

The chariot analogy illustrates the conceptual challenge of identifying who truly commands a company's course. However, the application of the legal framework for promoter identification depends significantly on the nature of the company itself, its ownership structure and governance model. Not all companies are structured alike. Some are built around founding families while others have evolved into entities where ownership is dispersed, professional management runs operations. Understanding these different governance structures is essential because the same shareholding percentage or board position may signify promoter status in one context but not in another.

Family Owned & Managed Companies vs. Professionally Managed Companies (PMC): The Promoter Divide

India's corporate landscape rests upon two dominant governance archetypes: Family-Owned and Managed companies and Professionally Managed Companies, each embodying distinct philosophies of ownership, control, and accountability that influence governance and decision-making.

Family-owned and managed companies are typically controlled and directed by members of the same family, who act as promoters and exercise influence through family trusts, crossholdings, or voting arrangements. Control in such enterprises is both legal and behavioural, deriving not only from shareholding but also from familial hierarchy and entrenched management participation.

In contrast, professionally managed companies are characterized by the structural separation of ownership and operations. However, it is critical to understand that a company is professionally managed not because it has professionals on its board, but because its governance is shaped by systems, processes, and institutional frameworks rather than concentrated individual or family control. A company qualifies as professionally managed when it has no identifiable promoters exercising control over its affairs. The distinction lies not in who runs the company at an operational level, but in how it is managed and governed.

In a professionally managed company, operational authority is delegated to professional executives and the board of directors, while ownership remains dispersed among institutional and public shareholders. The governance framework is board-driven and fiduciary in nature, emphasizing institutional accountability rather than concentrated promoter discretion, thereby ensuring that decision-making is guided by professional competence and regulatory compliance rather than personal or family interests.

When family-run companies go public, the challenge lies in accurately identifying and disclosing promoters and promoter groups. Crossholdings through immediate relatives, private family trusts, and layered shareholding structures often make promoter mapping complex. Misidentification or under-disclosure during IPO filings can invite SEBI scrutiny, delay listing approvals, or expose issuers to penalties. Also, in recent years, several companies have sought to classify themselves as "professionally managed" entities, expressly stating in their offer documents that "our company does not have an identifiable promoter."

Given these complexities, a key question arises for every company preparing to enter the capital market through an IPO: What specific parameters determine accurate promoter classification in today's evolving regulatory landscape, and how can companies ensure full compliance with statutory requirements?

While the precise parameters for promoter classification are often nuanced and context-dependent, their correct identification is pivotal to the integrity of public issue documentation. Under SEBI's heightened scrutiny, promoter determination is no longer a mere procedural formality. The regulator now examines not only the black-letter law under the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018, but also the substance of control and influence within each corporate structure.

In recent times, SEBI has increasingly issued observation letters on Draft Red Herring Prospectus (DRHPs), questioning promoter disclosures and testing them against case-specific indicators such as board control, shareholder agreements, family trusts, and indirect holdings. The regulatory intent is clear: to ensure that every person or entity exercising significant control or influence is correctly classified as a promoter.

SEBI's approach to promoter identification has evolved from a numerical test to a behavioural one, grounded in the principle of substance-over-form disclosure. Today, the regulator expects criteria-based and transparent reporting anchored in the Companies Act, 2013 and the SEBI (ICDR) Regulations, 2018. The emphasis is no longer only on how much an individual owns, but also if and how much control they exercise whether through decision-making influence, board alignment, or coordinated action with others.

Who Qualifies as a Promoter?

The concept of a "promoter" finds its roots in common law principles, as reflected in Black's Law Dictionary, which characterizes a promoter as a "A founder or organizer of a corporation or business venture; one who takes the entrepreneurial initiatives in founding or organizing a business or enterprise. – Formerly also termed as projector.

"[A] person may be said to be a promoter of a corporation if before its organization, he directly or indirectly solicits subscriptions to its stock, or assumes to act in its behalf in the purchase of property, or in the securing of its charter, or otherwise assists in its organization. It must, however, be remembered that calling a person a 'promoter' does not of itself impose any responsibility upon him. The responsibility of the promoter depends upon what he does, not upon the name by which he is called." Manfred W. Ehrich, The Law of Promoters 15-16 (1916)."

In India, this conceptual understanding has been codified into statutory form. Notably, the term "promoter" found no express definition under either the Companies Act, 1913 or the Companies Act, 1956. The Companies Act, 2013 remedied this gap by formally defining and classifying who qualifies as a promoter. Building on this statutory foundation, the SEBI (ICDR) Regulations, 2018 adopt and align with the Companies Act definition to ensure uniformity and consistency across corporate and securities regulatory frameworks. The specific definitions of a promoter under the Companies Act, 2013 and SEBI (ICDR) Regulations, 2018 are outlined below:

The definition of "promoter" under the Companies Act, 2013 and the SEBI (ICDR) Regulations, 2018 is drafted as a three-limbed construct, with each limb separated by the word "or". In legal effect, meeting any one of these criteria is sufficient to confer promoter status, regardless of whether the others are fulfilled. The statutory scheme, therefore, contemplates three distinct but intersecting bases of identification:

Sub-clause (a) of Section 2(69) of the Companies Act: Named Promoter

Individuals or entities expressly identified as promoters in the prospectus or annual return of the company.

• Illustration: If Mr. A is named as a promoter in the prospectus filed with SEBI, he is legally recognized as a promoter, irrespective of his shareholding or management role.

Sub-clause (b) of Section 2(69) of the Companies Act: Control-Based Promoter

Persons who, directly or indirectly, exercise control over the affairs of the company as shareholders, directors, or through other means.

• Illustration 1: ABC Pvt. Ltd. holds strategic decision-making powers and affirmative rights including right to appoint KMPs/Directors under a shareholders' agreement, enabling it to control the company's affairs. Even without majority ownership, ABC Pvt. Ltd. may be classified as a promoter due to its control.
• Illustration 2: X holds negligible or no direct shareholding in the company. However, through a web of cross-holdings, he is positioned to exercise power over two major shareholders without requiring the consent or concurrence of others, thereby indirectly influencing the company's affairs. Despite holding only a negligible or no direct shareholding, he may still qualify as a promoter based on his indirect control under sub-clause (b).
• Illustration 3: Y holds 15% equity and serves as Managing Director with rights to appoint the CFO and COO, as well as the authority to enter into material contracts on behalf of the company. Despite minority shareholding, his management rights and operational authority make him a control-based promoter.

Sub-clause (c) of Section 2(69) of the Companies Act: Influence-Based Promoter

Persons whose advice, directions, or instructions the board of directors customarily follows in decision-making, except for those acting in a professional capacity.

• Illustration 1: X, a founder, no longer holds board or managerial positions but continues to influence board decisions informally through his associates on board. His guidance is routinely followed, making him an influence-based promoter.
• Illustration 2: Z, initially appointed as strategic advisor, but later regularly directs key management decisions. The Board seeks his approval for annual budgets, senior appointments, and major contracts. Despite no shareholding or board position, Mr. Z is an influence-based promoter as the Board customarily follows his instructions and relinquished their own independent judgment and discretion.
• Illustration 3: X, father of promoters Mr. and Mr. B (both directors of Company ABC Ltd.), holds no shares or board position. However, major business decisions are made only after his approval. Mr. X exercises indirect control through his sons and may be classified as an influence-based promoter under sub-clause (c).

The tests under sub-clauses (b) and (c) require a logical conclusion test based on the totality of facts and circumstances. Both tests demand a fact-intensive, substance-over-form inquiry that examines actual behavior and decision-making patterns, not merely formal structures.

While the second and third limbs are substantive in nature, resting on demonstrable tests of control and influence, the first limb under sub-clause (a) is distinct for its formal and declaratory character. As observed in ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1 (decided on October 04, 2018, sub-clause (a) refers to a de jure position, where a person is expressly named in a prospectus or identified by the company in an annual return as a promoter. In contrast, sub-clauses (b) and (c) speak of de facto positions. Under sub-clause (b), any person who has "control" over the company's affairs, directly or indirectly, in any manner, is a promoter. Under clause (c), such a person need not be a board member but can be one who advises, directs, or instructs the board to act. Significantly, only a person acting in a professional capacity is excluded from clause (c).

Sub-clause (a) provides a prima facie indication of who is a promoter. Firstly, it establishes a formal record at key junctures in a company's lifecycle: at the time of incorporation, at the time of filing the annual return, and, where applicable, at the time of a public issue through the prospectus. This naming is not a mere formality; it represents the company's considered position based on the substantive test of sub-clauses (b) or (c), subject to regulatory scrutiny and legal consequences. Secondly, once a person/entity is named in the prospectus or annual return as a promoter, this creates a rebuttable presumption of promoter status that carries significant legal and compliance implications. However, the saga remains the same: on what basis a promoter should be identified?

When a company incorporates, the determination of who should be named as a promoter is tested based on whether they satisfy the criteria in sub-clauses (b) or (c). At such times, a person or entity is generally named as a promoter based on factual involvement or initiative in formation with their knowledge and consent. Post-incorporation, once a person or entity is named as a promoter in the prospectus or annual return, it becomes part of the record under clause (a). This does not diminish the significance of sub-clause (a); rather, it establishes a purposive relationship between formal designation and substantive reality. The three clauses operate in concert: sub-clauses (b) and (c) provide the analytical framework for determining who exercises control or influence, while clause (a) formalizes that determination through official disclosure, a formalization that presupposes the named person's consent to being so identified.

However, merely obtaining a person's consent to be named as a promoter cannot override the substantive tests under sub-clauses (b) and (c). If a person neither exercises control under clause (b) nor influences board decisions under clause (c) and is not acting in concert with other promoters having no commonality of interest or being completely unrelated to the actual control structure, naming them as a promoter, even with their consent, would be contrary to the intent and letter of the law. In many instances, the person who actually wields control and influence over the company's affairs may use such consent as a tool or device to conceal the true seat of control by naming a nominal figurehead as promoter while the actual person exercising control or influence remains undisclosed. This arrangement undermines the very framework of corporate governance by disguising the true controlling mind behind a nominal front.

Such mischief is not uncommon in certain Indian contexts, where individuals with no substantive role in corporate decision making, such as a driver, domestic help, or merely an employee with no decision-making authority are named as promoters to obscure the identity of the real controllers. These individuals possess no control, exercise no influence, share no interest in the business, and are entirely unrelated to the company's governance structure. Their consent to be named as a promoter is procured as a façade, enabling the actual promoter to operate from behind the veil while avoiding disclosure obligations, lock-in restrictions, and regulatory accountability.

The tests laid down under sub-clauses (b) and (c) are mandatory inquiries that cannot be circumvented through voluntary labelling. The substance of control and influence must be established factually, not merely asserted through documentation. More importantly, the tests under sub-clauses (b) and (c) are not static; they are holistic tests that operate contemporaneously and continue forward into the future, requiring continuous reassessment based on prevailing control and influence patterns.

Further, sub-clause (a) contains a dual reference to both the prospectus and the annual return. Though they appear within the same clause, each serves a distinct regulatory purpose and operates within a different temporal context.

When a person is named as a promoter in a prospectus, the classification is historical and fixed. It reflects the ownership and governance structure at the time of the company's public issue and becomes part of the company's permanent disclosure record. The status, once captured in the prospectus, remains embedded in the company's IPO history.

Conversely, when a person is identified as a promoter in the annual return under Section 92, the classification is contemporaneous and fluid. It is reviewed and reaffirmed each financial year based on the prevailing control, influence, or governance pattern. The annual return serves as a living document, reflecting the current state of corporate control and influence, evaluated through the holistic tests of sub-clauses (b) and (c).

This duality produces a regulatory tension. If a person who was named as a promoter with their consent at incorporation, or in the prospectus or in a previous annual return no longer exercises control or influence under sub-clauses (b) or (c), questions arise about whether their continued identification as a promoter remains appropriate.

The naming of a promoter under sub-clause (a) though provides a prima facie view of who is the promoter of the company, but it should never be a mechanical or historical exercise; it must rest on the substantive tests contained in sub-clauses (b) and (c). A person's mere inclusion in a prospectus at the time of an IPO should not translate into perpetual promoter status, particularly when the underlying conditions of control or influence no longer exist. Conversely, where an individual or entity continues to exercise decisive influence or effective control, whether through shareholding arrangements, voting agreements, trust structures, or aligned board control, their continued identification as a promoter remains consistent with the statute's disclosure and accountability objectives and the holistic, forward-looking test imposed by sub-clauses (b) and (c).

Control and influence operating as holistic, contemporary, and forward-looking tests become the operative factors in promoter identification, capturing not just legal ownership, but also the practical ability to direct management or policy decisions, whether exercised directly or indirectly.

Understanding 'Control':A Conceptual and Practical Inquiry

Before examining the statutory definitions, it is essential to understand that control, as a concept, is inherently elusive and dynamic. It is not a static attribute but rather a transferable power that travels from one person or entity to another as ownership structures evolve and governance arrangements shift. Control in essence is inheritable in nature as it follows a trail, passing through various hands over a company's lifecycle. While a company is perpetual in nature and may exist indefinitely, the persons or entities in control of it keep changing over time. Importantly, corporate structures are merely vehicles or arrangements; behind every structure, there must ultimately be one or more individuals exercising control. Where the person in control appears to be a corporate entity, trust, or other non-natural person, there invariably exists an individual or group of individuals acting either individually or in concert who exercise ultimate control and influence over that entity, and by extension, over the company itself.

At inception, when a company is incorporated, the initial subscribers are typically the promoters and directors who exercise control over the company's affairs. However, as the company grows, raises capital, or undergoes ownership changes, this control can migrate to new individuals or entities be it investors, strategic partners, family trusts, holding companies, or professional management. This fluidity demonstrates that control is not permanently vested in any one person; it is a dynamic power that can be acquired, transferred, diluted, or consolidated depending on the evolving corporate structure and contractual arrangements.

Moreover, control is always exercised in respect of something, it does not exist in isolation. In the corporate context, control is intrinsically linked to specific legal rights and mechanisms such as shareholding patterns, voting rights, board composition, policy making, management authority, or contractual provisions in shareholders' agreements. Control, therefore, is a relational concept; it derives its meaning and effect from the legal framework within which it operates.

Control, importantly, cannot operate passively, it functions as a stimulus, a deliberate and intentional exercise of authority. Intent is a necessary but not sufficient condition for control. While intent alone does not determine control, control cannot be determined without intent. It must be purposeful and sustained, not fleeting or momentary. As an indicator, control typically manifests as a pattern of behavior where the likelihood of success in directing decisions is more probable than failure. Control may be said to exist where there is more support than opposition, where the controller's directives are more likely to be followed than resisted.

Control is not a binary attribute confined to a single axis it can be dispersed both vertically and horizontally across corporate structures. Vertical dispersion occurs when control flows through layers of corporate hierarchy: from a holding company to subsidiaries, or from a family patriarch through intermediate family trusts to operating entities. Horizontal dispersion manifests when control is shared among multiple actors at the same structural level co-founders, consortium investors, or family members acting in concert each contributing to the collective exercise of influence over the company's direction.

In its abstract sense, control denotes the power or authority to manage, direct, superintend, restrict, regulate, govern, administer, or oversee. The Merriam-Webster dictionary defines 'control' in noun form as "the power to make decisions about how something is managed or done; the ability to direct the actions of someone or something; an action, method, or law that limits the amount or growth of something." As a verb, 'control' is defined as "to direct the behaviour of (a person or animal); to cause (a person or animal) to do what you want; to have power over (something); to direct the actions or function of (something); to cause (something) to act or function in a certain way."

In Bank of New South Wales v. Commonwealth [76 CLR 1], Dixon J. observed that the word 'control' is "an unfortunate word of such wide and ambiguous import that it has been taken to mean something weaker than 'restraint', something equivalent to 'regulation'."

In Indian corporate law, control, at its most visible and traceable level, flows from voting rights attached to shares. Section 47 of the Companies Act, 2013 provides that every member of a company limited by shares and holding equity share capital shall have a right to vote on every resolution placed before the company. However, as the statutory definitions and judicial interpretations discussed below demonstrate, control extends far beyond mere shareholding, it encompasses the ability to influence management, policy decisions, and strategic direction through various direct and indirect means.

The Control-Accountability Paradox: Why the Elusiveness of Control Persists

Control and accountability are intrinsically linked in corporate governance where one exists, the other must follow. Control, by its very nature, carries with it the burden of responsibility, liability, and regulatory scrutiny. However, human behavior tends toward the avoidance of accountability. Agency theory, as articulated by Jensen and Meckling, posits that individuals act as rational, self-interested agents who seek to maximize their own utility, often at the expense of principals. In the corporate context, this manifests as managers and controllers attempting to minimize personal costs including legal liability and regulatory scrutiny while retaining the benefits of their position. Therefore, those who exercise control over corporate affairs often seek to minimize or obscure their visible footprint in governance structures, preferring the benefits of influence without the burden of disclosure or legal responsibility.

This creates what may be termed the "Control-Accountability Paradox": the more substantial the control, the greater the incentive to conceal it. Nobody willingly garlands themselves with accountability when it can be avoided or distributed among layers of intermediaries. This is precisely why complex corporate structures proliferate; holding companies, family trusts, nominee arrangements, and cross-holdings serve not merely as vehicles for tax efficiency or succession planning, but as deliberate mechanisms to diffuse accountability while retaining control.

Layering in corporate structures is, at its core, a trade-off: it allows the true controller to exercise decisive influence while remaining partially or wholly invisible in formal disclosures. Complex structuring used a shield against the accountability. The person actually exercising control may deliberately hide from public records, annual returns, or prospectuses, yet they remain more relevant to the company's decision-making than those who are formally disclosed. This is the structural opacity that Indian corporate law and SEBI regulations seek to pierce through.

The regulatory framework's emphasis on substance over form is precisely designed to counter this paradox: to ensure that those who genuinely command the corporate chariot cannot hide behind layers of intermediaries while enjoying the benefits of control without bearing its responsibilities. The true test of promoter identification, therefore, lies not in accepting formal structures at face value, but in tracing the actual lines of authority and influence, however obscured they may be through deliberate structuring.

The Entrepreneur's Idiosyncratic Vision: A Theoretical Framework for Control

Understanding why concentrated control persists in certain corporate structures requires examining theory of the Entrepreneur's Idiosyncratic Vision. This theory provides an economic justification for concentrated ownership exist in modern corporate structure. The entrepreneur's idiosyncratic vision refers to a unique business strategy, execution method, or approach to achieving above-market returns that may not be fully observable, verifiable, or agreed upon by outside investors. This vision might involve innovative products, unconventional market approaches, distinctive production techniques, or particular methods of employee motivation and financial strategy.

The idiosyncratic nature arises from asymmetric information and differences of opinion: minority shareholders and outside investors may not fully comprehend the vision's value, feasibility, or the entrepreneur's capability to implement it. Entrepreneurs value control precisely to protect this vision from mid-stream investor doubts, objections, or interference. Control enables them to make strategic decisions, continue pursuit despite setbacks, or pivot strategies even when investors might attribute underperformance to agency costs rather than temporary market conditions.

Consider the case of Henry Ford, who prioritized worker wages and affordable cars over immediate dividend maximization, leading to conflicts with minority shareholders. His insistence on control was not primarily about private benefits but about securing the authority to implement his vision uncontested.

This theoretical framework has important implications for promoter identification. It explains why promoters in family-owned enterprises resist dilution beyond necessary thresholds and structure their holdings through complex arrangements. The control they seek bundles cash-flow rights with decision-making power, simultaneously committing the entrepreneur's own capital while protecting minority investors from pure expropriation. The substantial equity stake aligns the promoter's interests with investors, reducing agency costs while enabling vision pursuit.

Quantitative vs. Qualitative Control: The Global Debate

The academic and regulatory discourse on corporate control reflects an enduring tension between certainty and substance. This debate shapes how jurisdictions around the world determine who truly exercises influence over a company. The core question remains whether control should be identified by fixed numerical thresholds or by a more flexible, substantive assessment of real-world decision-making power.

The quantitative approach relies on bright-line ownership thresholds to determine when control is presumed to exist. By setting explicit percentage limits of voting rights or shareholding, this method provides a clear and objective benchmark for identifying control. Common global benchmarks include 30% in the United Kingdom, the European Union, Singapore, and Hong Kong; 25% in Germany; 33.33% in France; and 50% in Australia. This approach offers several advantages: it ensures legal certainty, enabling all parties to know where the regulatory line lies; promotes predictability, reducing compliance costs; and maintains objectivity by limiting discretion in interpretation.

However, bright-line thresholds often fail to capture the complexity of modern corporate governance. Their numerical precision can be arbitrary, with little theoretical justification for the chosen percentage. They can also be circumvented by sophisticated structuring such as shareholder agreements, trusts, or layered entities that allow effective control to be exercised without breaching the numerical limit. Most critically, this model risks a disconnect from reality, as control in practice is often exercised through contractual, relational, or operational mechanisms rather than pure ownership.

The qualitative approach, by contrast, focuses on the substance of control. It assesses who actually directs or influences a company's decisions, considering a range of factors such as shareholding dispersion, board appointment rights, contractual arrangements, and the capacity to shape management or policy outcomes. This approach values flexibility, recognizing that control can be exercised through many channels. It prevents circumvention by addressing informal or indirect influence and upholds the principle of substance over form, emphasizing actual decision-making power over nominal shareholding.

Yet, the qualitative model introduces challenges of its own. Its reliance on subjective assessment breeds uncertainty for companies and investors, who cannot easily predict how regulators or courts will interpret particular arrangements. The fact-intensive nature of the inquiry heightens dispute risk, while broad regulatory discretion can produce inconsistent outcomes.

In essence, the global debate on control reflects a trade-off between clarity and realism. The quantitative model offers precision but may overlook substantive influence, while the qualitative model captures economic power but compromises predictability. Modern governance frameworks increasingly seek balance by combining numerical thresholds with contextual, behaviour-based analysis to ensure that control is identified not merely by who owns the shares, but by who genuinely directs the company's course.

Decoding 'Control': From Ownership to Operational Influence: Insights from SAT, Courts, and Comparative Jurisprudence

While the definitions of control under the Companies Act, 2013, SEBI (ICDR) Regulations, 2018, FDI Policy, and the Competition Act, 2002 vary slightly in wording, they converge on a common understanding the ability to direct or influence the management, operations and policy decisions of a company, whether directly or indirectly.

Across all governing statutes in India, control is not merely the possession of a particular ownership threshold but the ability to influence corporate decision-making. The emphasis lies on substance over form examining whether a person can direct, shape, or restrain a company's management or policy outcomes through any means, formal or informal.

The inclusive framing of control under Indian laws reflects the legislature's intent to encompass both explicit and implicit forms of influence. Given this breadth, judicial interpretation has played a pivotal role in delineating the functional contours of what constitutes "control," ensuring consistency and substance in regulatory application. A series of judgments discussed below have clarified how control operates in reality and what it means functionally in corporate governance.

Indian Jurisprudence: The Foundation

This concept of "control" was comprehensively articulated in Subhkam Ventures (I) Pvt. Ltd. v. SEBI, 2010 SCC OnLine SAT 35, (decided on January 15, 2010) where the Securities Appellate Tribunal (SAT) laid the foundational test for differentiating between proactive (positive) control and reactive (protective) rights. The Tribunal held that protective rights such as veto powers on select matters do not amount to "control" unless they enable the investor to dictate or steer the company's affairs. It clarified that control lies not in the ability to apply the brakes, but in having access to the steering wheel and accelerator i.e., the power to initiate and shape the company's strategic and policy directions.

In the case of Vodafone International Holdings BV v. Union of India, (2012) 6 SCC 613, (decided on January 20, 2012), the Supreme Court unequivocally held that "control" is a mixed question of law and fact, and that controlling interest is not a separate or independent asset, but merely an incident of shareholding. The Court emphasized that control flows directly from the voting rights attached to shares, and that the rights associated with shareholding including management control form an indivisible bundle. The ability to influence a company's decisions is, therefore, a legal consequence of ownership, not an extraneous or separately transferrable right.

This interpretation was later affirmed by the Supreme Court in ArcelorMittal India Pvt. Ltd. v. Satish Kumar Gupta (Supra), where the Court explicitly adopted the principle that "control" must mean positive control, i.e., the de facto power to initiate or determine management and policy decisions, not merely the ability to prevent them. The emphasis was placed on substantive decision-making power, rather than formal or structural rights that do not translate into operational influence.

The doctrine was further reinforced in Vishvapradhan Commercial Pvt. Ltd. v. SEBI, 2020 SCC OnLine SAT 1128, (decided on July 20, 2022), where SAT reaffirmed that mere possession of protective rights even if contractually entrenched does not confer control, unless such rights are exercised in a manner that overrides the board's autonomy or assigns the investor an active role in shaping the business or strategic outcomes. The functional test, as consistently applied, centres on whether the alleged controller has the power to direct, not merely restrain, the management's decision-making process.

The Calcutta High Court, in Universal Cables Limited v. Arvind Kumar Newar 2023 SCC OnLine Cal 4959, (decided on December 14, 2023), also provided an interpretation of the concept of "control," holding that control must stem from a right specifically one that is legally enforceable and not from mere personal influence or historical association. The Court clarified that control is not a matter of perception or personal authority; rather, it must be grounded in law and linked intrinsically to shareholding, voting power, or rights conferred under agreements. In this case it was alleged that Mrs. Priyamvada Devi Birla, exercised control over certain companies through her stature and personal charisma despite holding a relatively limited shareholding. The Court however, observed that, holding influence without underlying legal rights does not constitute "control" within the meaning of the Companies Act. It further emphasized that merely being a promoter does not by itself confer control, as promoters may carry statutory obligations but do not possess any inherent or automatic right to manage or direct a company's affairs.

The Universal Cables judgment draws a clear line between de jure control, which is enforceable in law, and de facto control, which lacks legal basis and cannot be equated with control under statutory frameworks. However, the decision invites an important conceptual reflection: does personal charisma generate control, or does the exercise of control create the perception of personal charisma? The Court's analysis focused primarily on the absence of formal legal rights, without delving deeper into the broader factual circumstances under which Mrs. Priyamvada Devi Birla was considered to be in control. The Court did not expressly engage with this causative dimension, leaving the question open for further judicial examination and academic discourse. As on date this matter remains sub-judice before the Hon'ble Supreme Court of India.

Comparative Insights: Delaware's Approach to Control

In re Tesla Motors, Inc. Stockholder Litigation, C.A. No. 12711, 2018 WL 1560293 (Del. Ch. Mar. 28, 2018), the Delaware Court of Chancery confronted the question of whether Elon Musk, holding approximately 22% of Tesla's stock, could be considered a controlling stockholder. The case arose from Tesla's acquisition of SolarCity, where Musk held interests on both sides of the transaction.

The Court found it "reasonably conceivable" that Musk was a controller despite his minority ownership. This determination was not based on his shareholding percentage alone, but on the totality of circumstances demonstrating his "outsized influence" over Tesla:

• Visionary Leadership: Musk's role as CEO, Chairman, and the face of Tesla, including his public articulation of the company's "master plan" that encompassed the SolarCity acquisition.
• Board Dynamics: Evidence that the board was deferential to Musk's strategic vision, proceeding with the acquisition at his urging despite concerns about SolarCity's financial health.
• Personal Relationships: Strong ties between Musk and board members, including business relationships spanning decades, financial entanglements, and familial connections (his brother served on the board).
• Operational Dominance: Musk's involvement in day-to-day operations and his history of recruiting board members.

In re Oracle Corp. Derivative Litigation, C.A. No. 2017-0337, 2018 WL 1381331 (Del. Ch. Mar. 19, 2018) involved Oracle's $9.3 billion acquisition of NetSuite. Larry Ellison, Oracle's co-founder, Executive Chairman, and CTO, owned approximately 28% of Oracle's shares and 40% of NetSuite.

The Delaware Court found that a majority of Oracle's board could not impartially consider a demand because directors lacked independence from Ellison. The analysis focused on:

• Professional Relationships: Long-standing business connections and shared board seats between Ellison and directors.
• Philanthropic Ties: Ellison's substantial donations to institutions where directors held positions.
• Personal Friendships: Close personal relationships that raised questions about directors' ability to exercise independent judgment.

The Oracle decision illustrates an important corollary to the control inquiry: the question of board independence. When a stockholder exercises sufficient influence over directors through personal, professional, or financial relationships, the board may become "controlled" even if the stockholder lacks majority voting power. This concept resonates with the Indian framework's sub-clause (c) of Section 2(69), which addresses situations where the board is "accustomed to act" on a person's directions.

The Delaware Court of Chancery in the case of Basho Techs. Holdco B, LLC v. Georgetown Basho Inv'rs, LLC, 2018 WL 3326693 (Del. Ch. July 6, 2018) introduced the concept of "transaction-specific control". The court defined it as the ability to channel a corporation into a particular outcome in a specific transaction, even without general control over the company's affairs.

Georgetown, a minority investor in Basho Technologies, held contractual blocking rights that allowed it to veto alternative funding sources. When Basho faced financial distress, Georgetown allegedly abused these rights through misinformation and threats, forcing the company into a financing round favorable to Georgetown but harmful to other stakeholders.

The Court found Georgetown exercised actual control over the Series G financing round, owing fiduciary duties despite minority ownership. The decision identified a non-exhaustive list of factors for determining transaction-specific control:

• Stock ownership
• Right to designate directors
• Managerial involvement
• Ability to channel the corporation into a particular outcome
• Veto or blocking rights
• Commercial relationships
• Status as significant customer/supplier
• Technical or infrastructure dependence

This nuanced approach distinguishing between general control and transaction-specific control offers important insights for Indian regulators evaluating whether an investor's rights constitute "control" under sub-clause (b) of Section 2(69). The Basho decision affirms that control is a fact-intensive inquiry that rejects bright-line rules in favor of contextual analysis.

Synthesis: The Constituent Elements of Control

Based on the discussion above and the judicial interpretations examined, the constituent elements of "control" can be distilled into the following key components, which serve as indicative factors rather than exhaustive criteria. It is important to recognize that control is a fact-intensive inquiry, and it is impossible to identify or foresee all possible sources of influence that may establish actual control over a particular decision or corporate matter. The determination of control must be based on broader indicia drawn from probative evidence, reasonable inferences, and the totality of facts and circumstances surrounding the particular arrangement or transaction. Invariably, the specific context will loom large in any assessment of control.

The phrase "in any other manner" reflects the inclusive and expansive nature of the control definition, designed to prevent regulatory arbitrage and ensure that no form of actual control escapes identification merely due to creative structuring arrangements. However, this inclusivity is a double-edged sword. While intended to prevent misuse and close loopholes, it grants regulators wide interpretive discretion, potentially enabling overreach where control may not substantively exist. This provision represents the 'effect without cause' paradox: control can be established based on its effects i.e., actual influence over decision-making without requiring identification of a specific cause or formal mechanism. When combined with other indicators as discussed above, this effect-based test enables holistic assessments that pierce complex corporate structures.

Conclusion: Holding the Reins in India's Corporate Future

The chariot analogy with which this article began offered a vivid illustration of control: the person who holds the reins commands the direction. Yet as the analysis has unfolded through statutory frameworks, judicial precedents, and comparative jurisprudence, a more complex reality has emerged. Control in modern corporate structures is neither as visible as reins in a charioteer's hands nor as straightforward as a single driver steering a vehicle.

Control, in its truest form, operates more like an unguided missile: powerful, consequential, and capable of determining outcomes, yet often lacking a fixed trajectory or clearly identifiable launch point. It travels through complex corporate architectures, changes direction as it passes through family trusts and holding companies and ultimately impacts strategic decisions through routes that may not be immediately apparent. Like an unguided missile, control finds its own path, adapting to the terrain of corporate structures and exploiting gaps in formal governance arrangements.

This characterization of control acknowledges reality. The legislative framework has responded by crafting an inclusive definition employing phrases like "directly or indirectly," "individually or in concert," and "in any other manner." The judiciary has emphasized substance over form, distinguishing between proactive and protective rights, and insisting that control must be grounded in legal rights rather than mere reputation. Yet despite these sophisticated legal tools, the identification of control remains an inherently fact-intensive, context-dependent exercise that resists formulaic application.

The unguided nature of control explains why direct thresholds can never fully capture who truly commands a company's course, why the same shareholding percentage may confer control in one governance structure but not in another, and why influence-based control remains the most elusive category.

For regulators, this reality demands vigilance beyond mechanical application of ownership thresholds. For companies preparing to access public capital, it requires honest introspection into who actually directs strategic decisions. For investors, it underscores the importance of looking beyond prospectus disclosures to the underlying governance realities.

This first part has established the legal and conceptual foundations for understanding promoter identification in India. The next and final part of this article will take that question forward. It will move from the conceptual to the practical exploring how regulators, exchanges, and companies apply these principles in real-world scenarios. It will unpack the shareholding thresholds, contractual arrangements, and governance structures that help determine classification in practice. In short, while this part has addressed who qualifies as a promoter in law, Part II will examine how promoter status is determined in practice through real-world analyses, and case-based insights.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.