Bill offers new protections for minority shareholders

While the Companies Act, 1956, includes certain provisions for protection of minority shareholders’ interests, the Companies Bill, 2012, which was passed by the Lok Sabha on 18 December 2012, has introduced further significant provisions in this regard.

Exit provisions

As per clause 232(3)(h) of the bill, in the event of merger of a listed company with and into an unlisted company, the listed company is now required to provide an exit opportunity to its shareholders. In this regard, it is noteworthy that the Securities and Exchange Board of India (SEBI) has also recently revised and bolstered the requirements for listed companies undertaking schemes of arrangement to safeguard minority interests.

As additional safeguards, the bill mandates notification of the scheme to multiple regulatory authorities including the central government, income tax authorities, Reserve Bank of India, SEBI, stock exchanges, Competition Commission of India and any other relevant regulator. Further, valuation reports are now required to be sent to all members along with the notice convening their meeting to consider the scheme.

While the bill does not seek to alter the shareholder approval requirements for a scheme, SEBI has recently mandated that for listed companies, shareholder approval through special resolution passed through postal ballot and e-voting, after disclosure of all material facts, can only be acted on if two-thirds of the public shareholders’ votes were in favour.

Puja Sondhi is a partner and Medha Srivastava is a senior associate at Amarchand & Mangaldas & Suresh A Shroff and Co, New Delhi. The views expressed in this article are those of the authors and do not reflect the position of the firm.