Minority\nsqueeze-out is a mode of the takeover process by which majority shareholders acquire\nor cause to acquire the shares held by minority shareholders compulsorily by\nproviding them with compensation in exchange. These often end up being detrimental\nto the rights of minority shareholders, and they have little to no remedy left\nas the courts, following the majority rule laid down in the English case of Foss\nv Harbottle, refrain from interfering with decisions made by a company when\nthey are made with the consensus of the majority shareholders. Scroll down to\ncheck more information regarding Section 235 of the Companies\nAct, 2013.<\/p>\n\n\n\n
Section\n235 of the Companies Act, 2013 (Act) deals with the “power to acquire\nshareholders’ shares dissenting from\nscheme or contract approved from the majority”. Section 235 is more of an\nexit opportunity provided to the minority shareholders where the majority\nshareholders have the upper hand in the transaction. Section 235 of the\nCompanies Act, 2013 corresponds to Section 395 of the Companies Act, 1956. <\/p>\n\n\n\n
Section\n235 (1) of the Companies Act lays down that when an offer is made under a\ncontract or scheme by the transferee Company to the transferor Company to\nacquire the company’s shares, the same would be valid if the shareholders\nholding 90% of the value of shares accept the offer within four months. After\nthe expiry of 2 months from the said four months, the acquirer company make\nsend an offer by sending a notice (Form CAA 14 Rule 26 of CAA Rules, 2016) <\/em><\/strong>to\nthe minority shareholders offering compensation to the tune of the price paid\nto the majority shareholders while acquiring their shares. <\/p>\n\n\n\n Section 235(2) of the Act<\/em><\/strong> allows the dissenting shareholders to approach the Tribunal within one month from the date of notice to oppose the offer. As provided in the explanation of Section 235 of the Companies Act, 2013 \u201cdissenting shareholders\u201d includes those shareholders who have not consented to the transfer of shares<\/a><\/strong> and have refused to transfer their shares to the transferee company in tune with the scheme or contract. <\/p>\n\n\n\n If\nsuch an application is not made by the shareholders or the application, though\nmade, has been dismissed by the Tribunal, the acquirer company would be\nentitled to forcibly affect an instrument of transfer and acquire the shares of\nthe dissenting shareholders at the tune of the price paid to the majority shareholders\nwhile acquiring their shares, unless the Tribunal feels that the dissenting\nshareholder has a right to not part with the shares. The transfer company ought\nto register the transferee company as the holder of shares and inform the\ndissenting shareholders, within one month of the registration, the fact of the\nacquisition and of the receipt of money payable to them. (Section 235(3) of the Companies\nAct<\/em><\/strong>). <\/p>\n\n\n\n Section\n235 (4) of the Act<\/em><\/strong> mandates that any money by the\ntransferor company ought to be disbursed to the shareholders within 60 days. The\ncourts have mandated that for Section 235 of the Act to apply, the transferor\ncompany and transferee company ought to be separate entities [AIG(Mauritius)\nLLC v Tata Tele Ventures<\/em>]<\/p>\n\n\n\n Section\n235 (5) of the Act<\/em><\/strong> mandates that this section would be\napplied retrospectively to the offers which were made even before the\ncommencement of this Act.<\/p>\n\n\n\n Section\n235 of the Companies Act, 2013, is one of the exceptions to the rule that members\ncannot be expelled. From a bare reading of the provision, it is seen that the dissenting\nshareholders do not have adequate remedies to oppose the transfer except to\npresent an application before the Tribunal. The courts have laid down in\nvarious cases that the dissenting shareholders have to prove that the scheme or\ncontract is fraudulent or unconscionable and was solely made to force out the\nminority or that the price paid in exchange is not fair. Only when the\ndissenting shareholders succeed in proving the above can the challenge to the scheme\nor contract succeed. Moreover, there is no legitimate procedure laid down to\ndetermine the \u201cfair price\u201d of shares as is present in Section 236 of the Act,\nwhich lays down that the fair price would be determined by the Registered Valuer\naccording to the CCA Rules, 2016. The dissenting shareholders are required to\naccept the price paid during the transfer of majority shares approved by the\nmajority shareholders. <\/p>\n\n\n\n Section 235 of the Companies Act 2013 clearly gives major power to the majority shareholders and can often be used as a tool to expedite the transfer of shares and avoid a deadlock situation. However, there is a clear imbalance of power, and the minority shareholders often end up being in a disadvantageous situation. Although other provisions of the Act provide certain protections to the minority shareholders, like the right to a class action, the right to approach NCLT<\/strong>[1]<\/strong><\/a><\/sup> for unfair treatment or mismanagement, the progress of a company can truly happen only when the minority shareholders are involved in the decision-making process and opportunities are provided to raise and have their grievances redressed.<\/p>\n\n\n\nConclusion<\/strong><\/h2>\n\n\n\n