Section 235 of Companies Act 2013: Power to Acquire Shares of Dissenting Shareholders
Section 235 of the Companies Act, 2013 provides a statutory mechanism by which a transferee company may acquire the shares of dissenting shareholders when a qualifying scheme or contract for transfer of shares has received the prescribed level of approval. The provision also gives a dissenting shareholder a limited period to approach the National Company Law Tribunal (NCLT).
- The scheme or contract must involve transfer of shares, or a class of shares, from a transferor company to a transferee company.
- Within four months after the offer, holders of not less than nine-tenths in value of the relevant shares must approve it, excluding the shares specified in sub-section (1).
- The transferee company may give the prescribed notice to dissenting shareholders within two months after expiry of that four-month period.
- A dissenting shareholder may apply to the Tribunal within one month from the date of the notice.
- Rule 26 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 prescribes notice in Form CAA.14 to the dissenting shareholder at the last intimated address.
Meaning and purpose of Section 235
The provision facilitates completion of a share-transfer scheme or contract that has obtained the statutory super-majority approval while preserving a specific Tribunal remedy for shareholders who have not assented, or who have failed or refused to transfer their shares in accordance with the scheme or contract.
Who is a dissenting shareholder?
For Section 235, the Explanation states that a "dissenting shareholder" includes a shareholder who has not assented to the scheme or contract and a shareholder who has failed or refused to transfer shares to the transferee company in accordance with the scheme or contract.
Procedure and statutory timelines
1. Approval within four months
The offer must be approved, within four months after it is made, by holders of not less than nine-tenths in value of the shares whose transfer is involved, subject to the exclusions stated in Section 235(1).
2. Notice by the transferee company
After the statutory approval threshold is met, the transferee company may, within two months after expiry of the four-month period, notify a dissenting shareholder that it desires to acquire the shareholder's shares. Under Rule 26 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, this notice is sent in Form CAA.14 to the shareholder's last intimated address.
3. Application to the NCLT
A dissenting shareholder who receives the notice may apply to the Tribunal within one month from the date on which the notice was given. Unless the Tribunal orders otherwise, the transferee company becomes entitled and bound to acquire the shares on the same terms applicable to the approving shareholders under the scheme or contract.
4. Transfer, registration and payment
If no contrary Tribunal order is made, the transferee company must follow the process in Section 235(3), including sending the notice and instrument of transfer to the transferor company and paying or transferring the applicable amount or other consideration. The transferor company must register the transferee company as holder and inform dissenting shareholders as required by the provision.
5. Separate bank account and disbursement
Money received by the transferor company under Section 235 must be placed in a separate bank account. The money and any other consideration are held in trust for the persons entitled to the relevant shares and must be disbursed to the entitled shareholders within sixty days.
Text of Section 235
235. Power to acquire shares of shareholders dissenting from scheme or contract approved by majority.
(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.
Related provision: Section 236
Section 235 deals with acquisition of shares from dissenting shareholders in a qualifying transfer scheme or contract. Section 236 separately deals with purchase of minority shareholding when the statutory ninety percent threshold described in that provision is reached. See the Section 236 article on purchase of minority shareholding.
Legal note: This page is a general statutory guide. For a live transaction or NCLT proceeding, the current Act, applicable rules, forms, notifications and case-specific facts should be checked.