Section 236 of the Companies Act, 2013 deals with the mechanism for the purchase of shares held by minority shareholders when an acquirer or a group of persons becomes the majority shareholder by holding 90% or more of the equity share capital. This provision ensures a smooth exit route for minority shareholders and facilitates the consolidation of ownership by majority stakeholders.

It provides a legal framework for either:

• The majority shareholders to acquire the remaining (minority) shares, or
• The minority shareholders to compel the majority to purchase their shares.

Legal Provision

As per Section 236 of the Companies Act, 2013:

• If an acquirer or person acting in concert (PAC) with others acquires 90% or more of the issued equity share capital, either individually or with others, they are required or entitled to purchase the remaining shares held by the minority shareholders.
• The minority shareholders also have the right to offer their shares to the majority for purchase.
• The price for such acquisition shall be determined by a registered valuer in accordance with prescribed rules.
• Payment for such shares must be made in cash.
• Transfer of shares shall be executed through a dedicated mechanism, and the amount shall be transferred to a separate bank account if shareholders are untraceable or do not cooperate.

Key Definitions

Conditions for Applicability

• Acquirer must hold ≥ 90% of equity share capital.
• Acquisition may be:
  • Through amalgamation, share purchase, scheme of arrangement, or any other method.
• Can be triggered by:
  • Voluntary action of the majority shareholder, or
  • Request by minority shareholders.

Procedure for Purchase of Minority Shares

1. If Majority Shareholder Initiates:

1. Majority shareholders (≥90%) notify the company of their intention to acquire remaining shares.
2. Company appoints a registered valuer to determine the fair value.
3. Company offers the determined price to minority shareholders.
4. Shares are transferred, and payment is made in cash.

1. If Minority Shareholders Initiate:

1. Minority shareholders offer their shares to the majority.
2. Company intimates majority to purchase at a fair valuation.
3. Same process of valuation and transfer follows.

Valuation of Shares

• Valuation is to be conducted by a Registered Valuer under Section 247 of the Companies Act.
• Factors considered:
  • Book value
  • Market value (if listed)
  • Earning potential
  • Comparable transactions

Payment Mechanism

• Consideration must be paid in cash.
• If shareholders are:
  • Untraceable,
  • Non-cooperative, or
  • Refuse to transfer shares,
    then:
  • Amount is transferred to a separate bank account in the company’s name.
  • Shares are deemed to be transferred.

Comparison with SEBI Regulations

Penalty for Non-Compliance

The Act does not prescribe a specific penalty under Section 236, but general penalties under Section 450 may apply:

Fine up to ₹10,000, plus ₹1,000 per day for continuing default.