Section 236: Purchase of Minority Shareholding
Updated: May 9
Section 236 talks about the purchase of minority shareholding by the majority shareholding it says that if an acquirer has ninety percent or more of the issued equity share capital of the company, he can make an offer to the company by a notification to purchase the remaining shares. Thoroughly reading of this provision gives an impression that there is nowhere mentioned any right of the minority shareholders as to whether they can be informed properly about the same, whether the interest of the dissenting shareholders shall be looked into etc. This provision of the companies Act, 2013 sets out a course of pressing out minority investor by which any investor by which any investor of the organization, either alone or alongside individual acting in show, holding ninety percent or a greater amount of the all out gave value share capital, may obtain the excess value.
Procedure of Section 236 [Effective from 15th December, 2016]
Becoming registered holder:
An acquirer, or a person acting in concert with such acquirer, becoming registered holder of ninety percent or more of the issued equity share capital of a company or on the other hand any person or group of persons, becoming ninety percent majority or holding ninety percent of the issued equity share capital of a company. Such acquire, person or group of persons, shall notify the company of their intention to buy the remaining equity shares.
Offer of equity shares to minority shareholders by acquirer, person or group of persons
The acquirer, person or group of persons 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 value in accordance with Rule 27.
Offer to majority shareholders to purchase the minority equity shareholding
The minority shareholders of the company may offer to the majority shareholders to purchase the minority equity shareholding of the company at the price determined in accordance with Rule 27.
Deposit of amount in separate bank account
The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under sub-section(2) or sub-section(3), as the case may be, in a separate bank account to be operated by the company whose shares are being transferred for at least one year for payment to the company shareholders and such amount shall be disbursed to the entitled shareholders within sixty days:
Provided that such disbursement 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 afores19aid period of sixty days, fail to receive or claim payment arising out of such disbursement.
Role of company whose shares are being transferred to act as a transfer agent in the event of purchase
In the event of purchase under this section, the company whose shares are being transferred shall act as a transfer agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares to the majority, as the case may be.
Company whose shares are being transferred to issue shares
In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the shares certificates shall be deemed to be cancelled, and the company whose shares are being transferred shall be authorised to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law, and make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by despatch of such payment.
Right of shareholders to make an offer for sale of minority equity shareholding
In the event of a majority shareholder or shareholders requiring a full purchase and making payment of price by deposit with the company for-
(a) Any shareholders or shareholders who have died or ceased to exist.
(b) Whose heirs, successors, administrators or assignees have not been brought on record by transmission.
The right of such shareholders to make an offer for sale of minority equity shareholding shall continue and be available for a period of three years from the date of majority acquisition or majority shareholding.
Sharing of additional compensation:
Where the shares of minority shareholders have been acquired in pursuance of this section, and as on or prior to the date of transfer following such acquisition, the shareholders holding seventy five percent, or more minority equity shareholding negotiate or reach an understanding on a higher price for any transfer, proposed or agreed upon, of the shares held by them without disclosing the fact or likelihood of transfer taking place on the basis of such negotiation, understanding the majority shareholders shall share the additional compensation so received by them with such minority shareholders on a pro rata-basis.
On failure of acquisition of shares:
When a shareholder or the majority equity shareholder fails to acquire full purchase of the shares of the minority equity shareholders then the provisions of this section shall continue to apply to the residual minority equity shareholders, even though-
(a) the shares of the company of the residual minority equity shareholder had been delisted
(b) the period of one year or the period specified in the regulations made by the Securities and Exchange Board under the Securities and Exchange Board of India Act,1992, has elapsed.