Companies Act Section 235

Companies Act, Section 235: Power to Acquire Shares of Dissenting Shareholders in Cases of Majority-Approved Schemes or Contracts

Section 235 of the Companies Act, 2013 empowers a transferee company to compulsorily acquire the shares of dissenting shareholders in situations where a scheme or contract involving the transfer of shares has already been approved by a substantial majority of shareholders. This provision seeks to ensure that corporate restructuring transactions, such as mergers or acquisitions, are not obstructed or delayed by a small minority of shareholders once an overwhelming majority has agreed to the transaction.

This section outlines the conditions, process, timeline, and rights of both the transferee company and dissenting shareholders when a share transfer scheme receives strong majority support but not complete unanimity.

1. Conditions for Acquiring Shares of Dissenting Shareholders

This subsection applies when a scheme or contract for the transfer of shares or any class of shares from one company (the transferor company) to another (the transferee company) is proposed.

If, within four months from the date the transferee company makes the offer to shareholders, the scheme is approved by the holders of at least 90% in value of the shares (excluding shares already held by the transferee company, its subsidiaries, or their nominees), then the transferee company may initiate action to acquire the shares of dissenting shareholders.

The company must issue a notice, in the prescribed manner, to such dissenting shareholders within two months after the expiration of the four-month period, stating its intention to acquire their shares.

Key Criteria:

Offer must be made by the transferee company.
Approval must be secured from at least 90% in value of the relevant shares.
The 90% must exclude shares already held by or on behalf of the transferee or its subsidiaries.
Notice to dissenting shareholders must be given within 2 months following the 4-month offer period.
2. Right and Obligation to Acquire

Once the notice has been served under Subsection (1), the transferee company gains the right to acquire and is also obligated to acquire the shares of the dissenting shareholder unless the dissenting shareholder, within one month of the notice, files an application with the Tribunal challenging the acquisition.

If the Tribunal does not intervene or overrule the acquisition, the transferee company is bound to acquire the shares on the same terms and conditions as those offered to the approving shareholders under the scheme or contract.

3. Execution of Transfer and Consideration

Where no contrary order is passed by the Tribunal (or once any application before the Tribunal is disposed of), the transferee company must:

Send a copy of the notice served to the dissenting shareholder to the transferor company.
Submit an instrument of transfer, duly executed:
On behalf of the dissenting shareholder by a person appointed by the transferor company.
On behalf of the transferee company itself.
Pay or transfer the amount or other consideration payable for the shares to the transferor company.
Once these steps are completed, the transferor company must:

Register the transferee company as the holder of the said shares.
Inform the dissenting shareholders within one month of such registration, confirming both:
That the shares have been transferred.
That the amount or consideration payable by the transferee company has been received.
4. Safeguarding Shareholders' Interests

To ensure transparency and protection of the dissenting shareholders’ financial interests, the transferor company must:

Deposit any consideration or money received in a separate bank account.
Hold such funds in trust for the benefit of the dissenting shareholders.
Disburse the amount or consideration to the concerned shareholders within 60 days from receipt.
This ensures that even though shares are compulsorily acquired, the shareholder is duly compensated in a time-bound manner.

5. Application to Pre-Act Offers

In cases where an offer by a transferee company was made before the commencement of the Companies Act, 2013, the following modifications apply:

(a) In Subsection (1), instead of the phrase “shares whose transfer is involved other than shares already held…”, the term “the shares affected” will be substituted.
This simplifies the calculation for the purpose of older offers.

(b) In Subsection (3), the requirement for an instrument of transfer to be executed on behalf of the shareholder (by someone appointed by the transferee company) and by the transferor company is omitted for pre-Act transactions.