The board of directors of Bengaluru-based software firm Mindtree, which is meeting on Wednesday, cannot pursue a buyback plan in view of the restrictions placed by the SEBI regulations, say corporate governance experts.

“The moment an open offer is announced, the company cannot go ahead with a buyback plan at the board level,” said Shriram Subramanian, founder & managing director at InGovern Research Services, a proxy advisory services firm.

L&T has appointed Axis Capital and Citigroup Global Markets as managers for the open offer through which it aims to acquire 31% of shares in Mindtree.

Subramanian quoted Section 26 (2-d) of Substantial Acquisition of Shares & Takeover (SAST) Regulations of the SEBI, which states that upon the public announcement of an open offer, the board of the target company shall not implement any buy-back of shares or effect any other change to the capital structure unless the approval of shareholders by a special resolution by postal ballot is obtained.

Mindtree board will meet because the company has already notified the exchanges, and the board is empowered to take a call whether it is appropriate at this stage to pursue a buyback when the open offer is in circulation, said Vivek Mallya, a practising chartered accountant.

“From the governance and corporate hygiene perspective it is better to adjourn the subject till such time a price is discovered under the open offer. Independent directors will have bigger responsibility of protecting the interests of minority shareholders,” he said.

According to him, it is not in the best interests of the company to dip into own cash reserves when an outsider (L&T) is willing to pay a remunerative price to minority shareholders. “When they have the option to save cash reserves, independent directors have to introspect and conserve company’s funds for better deployment in future,” Mallya said.

V.Balakrishnan, a former board member at Infosys, said once the open offer is in place, the company will have certain restrictions on changing the capital structure.

Since the founders of Mindtree have interest in this transaction not going through, the independent members of Mindtree board, he said, should take a view on the whole transaction and conclude and communicate whether it is is in the best interests of all stakeholders namely employees, customers, and investors.

The board of Mindtree should also see whether the offer from L&T is a fair value and if not articulate and communicate the reasons to the investors.

On the deal of this nature being unprecedented in the Indian technology space, Balakrishnan said as the software business has got commoditised, consolidation is inevitable and size is the only moat available against competition.

“Hostile takeovers are not a bad thing to happen. Otherwise, managements will always remain in comfort zone thereby taking investors for granted,” he said.