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ASSIGNMENT NO.1
OF
MERGER AND ACQUSITION
ON
Squeezing out Minority
Shareholders, Sec 236 of Companies
Act 2013
BY
AKASH KUMAR
C-71
B.B.A. LLB SEM-VII
Squeezing out Minority Shareholders,
Sec 236 of Companies Act 2013
Over the years, the concept of ‘Majority Rule and Minority rights’ has
been a matter of great controversy. It is evident from the principle laid
down in ‘Foss v Harbottle’ that the will of the majority shall hold and
even the Courts refuse to interfere in the internal matters of a company.
However, it is necessary to ensure that the powers of majority are
exercised within reasonable limits and it does not result in oppression
of the minority.
Companies Act 2013 granted legal recognition to concept of Squeezing
out Minority Shareholders under Section236, which is notified by Ministry
of Corporate Affairs with effect from 15th December 2016.
This article seeks to analyse the provision as provided in Act of 2013, the
procedure laid down under the Act, the issues arising out of the new
provisions.
Meaning of Squeeze out:
As per Black’s Law Dictionary, squeeze out means a change in the
structure of a corporation that will eliminate minority share holders
or aim to reduce their power. It is a situation where the majority
shareholders squeeze or drag out the minority shareholding held by the
minority shareholders by purchasing their stake.
Definition of Minority Shareholding:
‘Minority shareholding’ has not been specifically defined under the Act.
For the purpose of Section 236 of the Act, the word Minority shareholding
has been used in respect of registered holders of the issued equity shares
of the company not exceeding ten percent.
Procedure under Sec 236 of Companies Act 2013:
1. An acquirer entity or a person acting in concert with such acquirer
holding at least 90% of the issued equity share capital(by
way of an amalgamation, share exchange, conversion of securities
or any other reason), shall notify the company of their intention
to buy the remaining equity shares;
2. Majority shareholders shall offer to the minority shareholders of the
company for buying the equity shares held by such shareholders at
a price determined on the basis of valuation by a registered
valuer;
3. The section also gives opportunity to the minority shareholders
to offer their holding to the majority shareholders.
4. The majority shareholders are required to deposit an amount
equal to the value of shares to be acquired by them , in a separate
bank account which shall be operated by the company for
payment to the minority shareholders, however, such amount shall
be disbursed to the entitled shareholders within sixty days;
Such disbursement/payment of consideration shall continue to be made
to the entitled shareholders for a period of one year, who
for any reason had not been made disbursement within the
said period of sixty days or
if the disbursement have been made within the aforesaid period of
sixty days, fail to receive or claim payment arising out of such
disbursement
5. Company shall:
Receive and pay the price to minority shareholders
Deliver Shares to the Majority shareholders on receipt of same.
Issue new share certificate to the majority shareholders, in the
absence of a physical delivery of shares by the shareholders within
the time specified by the company.
6. Any shares held by such minority shareholders who have died or
cease to exist or whose heirs , successors , administrators
or assignees have not been brought on record by
transmission shall be transferred to the majority shareholder by
issuance of duplicate share certificate by the company.
The purchase consideration against the same shall remain in the
separate bank account opened by the majority shareholder for a period
of 3 years. If it remains unpaid, the amount shall be transferred to IEPF
account u/s 125 after 3 years.
Additional Compensation:
Section 236 (8) of the Act provides for a typical negotiation deal
between the acquirer and the minority shareholders.