MCA introduces procedure for takeover of any Company by majority shareholder

The Ministry of Corporate Affairs issues a Notification dated 03 February 2020 called the Companies (Compromises, Arrangements and Amalgamations) Amendment Rules, 2020 [‘Rules’].

By virtue of this amendment, Rule 3 of the principle Rules on: Application for order of meeting is amended and after sub-rule (4), a new Rule 5 & 6 is included. A summary of the newly introduced Rule 5 & 6 is as under:-

• A member along with others holding not less than 3/4th of shares of the Company can make a takeover offer in terms of sub-section (11) of section 230 to acquire the remaining shares of the Company.
• For this purpose the member shall make an application for arrangement before the Tribunal for acquiring any part of the remaining shares of the company.
• Here, “shares” means the equity shares of the company carrying voting rights, and includes any securities, such as depository receipts, which entitles the holder thereof to exercise voting rights.
• The requirement of this sub-rule shall not apply to any transfer or transmission of shares through a contract, arrangement or succession, as the case may be, or any transfer made in pursuance of any statutory or regulatory requirement.
• An application of arrangement for takeover offer shall contain:
  1. the report of a registered valuer disclosing the details of the valuation of the shares proposed to be acquired by the member after taking into account the following factors: –
     • (i) the highest price paid by any person or group of persons for acquisition of shares during last twelve months;
     • (ii) the fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters including return on net worth, book value of shares, earning per share, price earning multiple vis-d-vis the industry average, and such other parameters as are customary for valuation of shares of such companies.
  2. Details of a bank account, separately opened, by the member wherein a sum of amount not less than 50% of total consideration of the takeover offer is deposited.

Further the fee for making such application to the Tribunal for any compromise or arrangement has been fixed at Rs.5,000/-“.

Click here to read the notification