Purchase of Minority Shareholding

15.1 Section 236 of the Act deals with the purchase of minority shareholding. This provision refers to the acquisition of shares of a company and contemplates a situation where an acquirer, or a person acting in concert with such an acquirer, becomes a registered holder of ninety percent or more of the issued equity share capital of a company. This provision prescribes that such an acquirer shall notify the company of his intention of buying the remaining equity shares. While Sections 236 (4), 236 (5) and 236 (6) make a reference to a “transferor company”, the term ‘transferor company’ has not been defined in the section itself. The Committee felt that the use of the term ‘transferor company’ in the said Section 236 without providing for a context may ostensibly include even transfer of assets by a company, thereby including amalgamations and mergers within the ambit of this provision, which did not appear to be the intention. Accordingly, the Committee recommended that the references to the phrase ‘transferor company’ in Section 236, may be modified to a ‘company whose shares are being transferred’ or alternatively, an explanation be provided in the provision clarifying that Section 236 only applies to the acquisition of shares.

Purchase of Minority Shareholding: recommend narrowing scope to share acquisitions and excluding asset transfers and amalgamations. Section 236 requires an acquirer who attains near total shareholding to notify the company of intent to acquire remaining equity. The provision's use of the undefined term 'transferor company' could be construed to include asset transfers or amalgamations. The Committee recommends substituting 'company whose shares are being transferred' or expressly explaining that the provision applies solely to acquisition of shares and not to transfers of assets or amalgamations.