Takeover Rules for Unlisted Companies

Author: thinkinglegal | March 13, 2020 - 18:50 | Tags: Regulatory Advisory

On February 3, 2020, the Central Government notified the provisions for making a takeover offer as a compromise or an arrangement for unlisted companies under the Companies Act, 2013 (“Act”). The Central Government has further amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“Rules”) to provide a procedure to make an application for a takeover and buying out of minority shareholders by majority shareholders in an unlisted company.

The shareholder along with other members holding not less than 75% of the shareholding of the company can make an application to the National Company Law Tribunal (“NCLT”) for the takeover offer to minority shareholders to buyout the remaining shareholding of the company. The application should be supplemented by a valuation report from the registered valuer disclosing the details of valuation of shares to be acquired by the majority shareholders by taking into account the highest price paid for the shares in past 12 months and fair price of shares of the Company. The majority shareholders further have to open a separate bank account and deposit at least 50% of the consideration of the takeover offer. The details of this bank account are also to be submitted along with the application. This is to ensure that the price paid to the remaining shareholder is fair and reasonable. 

The new provision provides an avenue to the majority shareholders to buy out the minority shareholders of unlisted companies by approaching NCLT through the route of scheme of arrangement. However, the minority shareholders have the right to file an appeal with NCLT in case of any grievances with respect to the takeover offer.

This post has been contributed by Ms. Vaneesa Agrawal and Ms. Aditi Sanghi.

[DISCLAIMER:  This article is for academic purpose and is solely to provide readers with general information regarding developments in Indian law. The information contained herein does not constitute legal or a professional advice.]