The MCA has amended the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 to insert a new rule 26A to provide for the process for purchasing minority shareholding under section 236 of the Companies Act 2013 (the “Act”), where such shareholding is held in demat form. For this purpose it has introduced a definition of “corporate action”, to mean any action taken by the company relating to transfer of shares and all the benefits accruing on such shares namely, bonus shares, split, consolidation, fraction shares and right issue to the acquirer. The process to be followed under the new rule is as under:

1. The company shall verify the details of the minority shareholders holding shares in dematerialised form within two weeks from the date of receipt of the amount equal to the price of shares to be acquired by the acquirer.

2. Post verification, the company shall notify (by registered post/speed post/courier/email) the minority shareholders about a cut-off date on which their shares will be debited from their account and credited to the designated DEMAT account of the company, unless the shares are credited in the account of the acquirer, as specified in such notice, before the cut-off date. The cut-off date shall not be earlier than one month after the date of sending of the notice. The notice will be published simultaneously in two widely circulated newspapers (one in English and one in vernacular language) and also uploaded on the website of the company.

3. Post publication of the notice, the company shall inform the depository about the cut-off date and submit the following declarations :

• • that corporate action is being effected in pursuance of section 236 of the Act;
  • that minority shareholders whose shares are held in demat form have been informed about the corporate action;
  • that minority shareholders shall be paid by the company immediately after completion of corporate action;
  • that any dispute or complaints arising out of such corporate action shall be the sole responsibility of the company.

4. Upon receipt of the abovementioned information, the depository shall transfer the shares of the minority shareholders who have not transferred their shares in favour of the acquirer on their own, into the designated DEMAT account of the company on the cut-off date and intimate the company.

5. Upon receiving intimation of successful share transfer, the company shall immediately disburse the price of the shares so transferred to each of the minority shareholders after deducting the applicable stamp duty in accordance with the Indian Stamp Act, 1899 ( to be paid by the company on behalf of the minority shareholders). Upon successful payment to the minority shareholders, the company shall inform the depository to transfer the shares of the shareholders kept in the designated DEMAT account of the company, to the DEMAT account of the acquirer. The company shall continue to disburse payment to the entitled shareholders where disbursement could not be made within the specified time and transfer the shares to the DEMAT account of acquirer after such disbursement.

6. Where any transfer of shares and payment of dividend has been restrained by  a specific order of Court or Tribunal or statutory authority or where such shares are pledged or hypothecated under the Depositories Act, 1996, the depository shall not transfer such shares to the designated DEMAT account of the company.

To refer to the Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020 dated 17 December 2020, click here.