Companies Act Section 235 — Power to acquire shares of shareholders dissenting from scheme or contract approved by majority
CHAPTER XV COMPROMISES, ARRANGEMENTS AND AMALGAMATIONS
Commercial / Corporate
Summary
Sub-section (1) sets out when a company can force a shareholder to sell their shares. If one company (the transferee company) makes an offer to buy shares in another company (the transferor company), and within four months of that offer, shareholders holding at least nine-tenths in value of the shares being bought (excluding shares already owned by the transferee company or its subsidiaries) approve the deal, then the transferee company can, within two months after those four months end, give formal notice to any shareholder who did not agree that it wants to buy their shares.
Sub-section (2) explains what happens after such a notice is given. The transferee company must buy those shares on the same terms as the approving shareholders, unless the dissenting shareholder applies to the Tribunal within one month of receiving the notice and the Tribunal decides otherwise. If no such order is made, the transferee company is both entitled and required to acquire the shares.
Sub-section (3) covers the steps after the notice is given and no contrary Tribunal order exists. Once one month has passed from the notice, or if the shareholder's Tribunal application is still pending, after that application is resolved, the transferee company must send a copy of the notice to the transferor company along with a transfer document, and pay or transfer the price for the shares to the transferor company. The transferor company must then register the transferee company as the new holder of those shares, and within one month of that registration, inform the dissenting shareholders that this has happened and that the payment has been received.
Under clause (a) of sub-section (3), the transferor company must register the transferee company as the holder of the shares once the notice and payment are received.
Under clause (b) of sub-section (3), the transferor company must, within one month of that registration, tell the dissenting shareholders about the registration and about receiving the payment or other consideration meant for them.
Sub-section (4) deals with the money received by the transferor company. Any sum received must be put into a separate bank account, and that sum or any other consideration must be held in trust for the shareholders entitled to it, and paid out to them within sixty days.
Sub-section (5) applies special rules to offers made before this Act came into force. Under clause (a) of sub-section (5), for such offers, the wording in sub-section (1) about which shares count is simplified to just "the shares affected." Under clause (b) of sub-section (5), for such offers, the part of sub-section (3) about the transfer document being executed by a person appointed by the transferor company is omitted.
The Explanation clarifies that a "dissenting shareholder" includes anyone who did not agree to the scheme or contract, and also anyone who failed or refused to transfer their shares as required by the scheme or contract.
Official Text
(1) Where a scheme or contract involving the transfer of shares or any class of shares in a company (the transferor company) to another company (the transferee company) has, within four months after making of an offer in that behalf by the transferee company, been approved by the holders of not less than nine-tenths in value of the shares whose transfer is involved, other than shares already held at the date of the offer by, or by a nominee of the transferee company or its subsidiary companies, the transferee company may, at any time within two months after the expiry of the said four months, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire his shares.
(2) Where a notice under sub-section (1) is given, the transferee company shall, unless on an application made by the dissenting shareholder to the Tribunal, within one month from the date on which the notice was given and the Tribunal thinks fit to order otherwise, be entitled to and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee company.
(3) Where a notice has been given by the transferee company under sub-section (1) and the Tribunal has not, on an application made by the dissenting shareholder, made an order to the contrary, the transferee company shall, on the expiry of one month from the date on which the notice has been given, or, if an application to the Tribunal by the dissenting shareholder is then pending, after that application has been disposed of, send a copy of the notice to the transferor company together with an instrument of transfer, to be executed on behalf of the shareholder by any person appointed by the transferor company and on its own behalf by the transferee company, and pay or transfer to the transferor company the amount or other consideration representing the price payable by the transferee company for the shares which, by virtue of this section, that company is entitled to acquire, and the transferor company shall—
(a) thereupon register the transferee company as the holder of those shares; and
(b) within one month of the date of such registration, inform the dissenting shareholders of the fact of such registration and of the receipt of the amount or other consideration representing the price payable to them by the transferee company.
(4) Any sum received by the transferor company under this section shall be paid into a separate bank account, and any such sum and any other consideration so received shall be held by that company in trust for the several persons entitled to the shares in respect of which the said sum or other consideration were respectively received and shall be disbursed to the entitled shareholders within sixty days.
(5) In relation to an offer made by a transferee company to shareholders of a transferor company before the commencement of this Act, this section shall have effect with the following modifications, namely:—
(a) in sub-section (1), for the words “the shares whose transfer is involved other than shares already held at the date of the offer by, or by a nominee of, the transferee company or its subsidiaries,”, the words “the shares affected” shall be substituted; and
(b) in sub-section (3), the words “together with an instrument of transfer, to be executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferor company” shall be omitted.
Explanation.—For the purposes of this section, “dissenting shareholder” includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract.