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Minority Shareholder Squeezeout - Multiple, Conflicting, Loosely Drafted Provisions

Jayant M. Thakur
Companies Act, 2013

The Companies Act, 2013, (“the Act”) is gradually coming into force, with 98 sections duly notified and several set of draft rules circulated for feedback. The target for the Act to fully come into force by end of this financial year seems achievable. But how desirable is such speedy implementation? The common argument for quick implementation is that the new law has been in contemplation/consideration for too long and it is high time we have a modern law. The reality is that each successive version of the Bill has seen major changes/new provisions which, both in terms of drafting and implications, have been inadequately discussed. Worse, and that is one of the issues presented in this article, there are provisions that seem to overlap or are in conflict with other laws. In particular, for some reason, the lawmakers have sought to duplicate requirements that SEBI has already framed. These include provisions relating to Independent Directors, Audit Committee, bonus shares and many others. In subsequent issues, we will discuss such duplicate provisions. To begin with, the vexed topic of ‘Minority Squeeze-out’ is considered here.

What is buy-out vs. squeeze-out?

Simply described, minority Squeeze-out involves marginalising of and buying out of minority shareholders, often forced (hence the word “squeeze”) out of a lower value than fair value. As compared to buyouts which may be mandatory on the offers or but optional for the sellers, a squeeze-out gets greater publicity in case of listed companies though it is common in unlisted companies also. There was a time when companies sought to increase minority shareholding by issuing shares through a public issue. The process of listing ensured a higher issue price. Over a period, with increasing compliance and other requirements and depressed share prices, the status of listing can become burdensome. Worse, ...

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