February 07, 2024 at 07:18 AM
Section 28 of Companies Act. Offer of sale of shares by certain members of the company.
Section 28 of the Companies Act, 2013 has laid down the procedure for an “offer of sale” by the existing member of the company in consultation with the Board of Directors to offer all or part of their shareholdings to the public. It also provides the non-compliance effect.
A Provisions of “Section 28 of the Companies Act 2013 says, Offer of sale of shares by certain members of company.-
(1) Where certain members of a company propose, in consultation with the Board of Directors to offer, in accordance with the provisions of any law for the time being in force, whole or part of their holding of shares to the public, they may do so in accordance with such procedure as may be prescribed.
(2) Any document by which the offer of sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company and all laws and rules made thereunder as to the contents of the prospectus and as to liability in respect of mis-statements in and omission from prospectus or otherwise relating to prospectus shall apply as if this is a prospectus issued by the company.
(3) The members, whether individuals or bodies corporate or both, whose shares are proposed to be offered to the public, shall collectively authorise the company, whose shares are offered for sale to the public, to take all actions in respect of offer of sale for and on their behalf and they shall reimburse the company all expenses incurred by it on this matter.”
“Rule 8: (1) The provision of chapter 1 of chapter 3 namely “prospectus and allotment of securities” and rule made thereunder shall be applicable to an offer of sale referred to in section 28 except for the following, namely:-
(2) The prospectus issued under section 28 shall disclose the name of the person
or persons or entity bearing the cost of making the offer of sale along with
Also, they are collectively liable to reimburse the company for all the costs incurred during the offer process.
As we discussed earlier “certain members”, should qualify under the provisions given in The Companies (Prospectus and Allotment of SecuritieS) Rules,2014. Certain members are
Consultation with the Board of Directors for the offer of sale to the Public is mandatory. It should not be a casual notification from one way. There shall be meaningful and detailed engagement between the selling members and Board.
Prescribed procedure given by the Companies (Prospectus and Allotment of Securities) Rules, 2014. It includes
If there is a objection or refusal due to potential market impact, negative publicity, or violation of agreements, shall address while fulfilling the objectives of the both parties.
If both the parties failed to negotiate and disagree on an offer of the sale to the public, the may opt for
Section 28 of the Companies Act, 2013 has important provisions for the offer of sale of shares by certain members to the public. The procedure and effects have been given in the subsections of Section 28. There are eligibility criteria under Rule 8 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 with certain conditions with legal liabilities. It gives a clear perspective of the legal significance of the offer documents and the liability that arises out of it.Overall it talks about offering shares, statutory provisions related to it, extensive Involvement of the Board, and proactive measurements for dispute resolution for offer of sale to the public.
While the boundaries remain subject to ongoing judicial interpretation, Section 28’s reach primarily targets internal company matters affecting shareholders’ interests. However, its application has extended to certain external stakeholder concerns under specific circumstances, particularly when oppressive actions directly impact minority shareholders or creditors’ legitimate expectations.
Aggrieved shareholders are usually defined based on individual holding or specific class membership and can file petitions. Yes but it vary. some jurisdictions have a limit of minimum shareholding percentages or define proportion of aggrieved shareholders.
Petitions demand specific information and evidence demonstrating oppression or mismanagement, often including board resolutions, financial records, and expert opinions. To initiate proceedings it is very crucial when satisfy the court.
0. What are the different steps prescribed in a petition under Section 28 related to timelines, potential interlocutory applications, and burden of proof?
Following established procedures is involved under section 28. The timeline for it varies but interim relief (interlocutory applications) may be sought. The burden of proof typically lies with the petitioner to establish oppression or mismanagement
Below remedies court can grant injunctions against specific action to company wind up. Yes, orders can be directed at individual directors, the entire board, or the company itself but it can be depending on particular circumstances.
0. Are the court’s power to grant relief under Section 28 has any limitations, like restructuring company’s governance structure or restrictions on financial orders?
Yes, the Court has limitations but the court may use its discretionary powers and relevant legal precedents for such matters.
0. Are there an option to approach for alternative dispute resolution procedure within the company’s structure or broader legal system in specific situations that can be prefered under Section 28?
Yes, an alternative dispute mechanism is available. Through Arbitration or mediation, can be opted for in certain situations like issues related to cost, confidentiality, and willingness to participate by both the parties and there is a clause mentioned in the agreement.