Sections 230(11) and 230(12) of the Companies Act, 2013 ("the Act") were brought into force on 3 February 2020, nearly four years after the rest of Chapter XV was notified. The provisions permit a scheme of compromise or arrangement to include a takeover offer, and they create a grievance mechanism for aggrieved parties in companies other than listed companies. For listed companies, the takeover offer remains governed by the SEBI Takeover Regulations.
The Statutory Permission and the Prescribed Manner
Section 230(11) provides that any compromise or arrangement may include a takeover offer made in such manner as may be prescribed. The proviso states that in the case of listed companies, the takeover offer shall be as per the regulations framed by SEBI. The provision does not create a free-standing takeover power; it embeds the takeover offer within the scheme process, so that the offer is approved by the NCLT as part of the scheme.
Rules 3(5) and 3(6) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 prescribe the mechanics. Rule 3(5) permits a member, together with other members holding not less than three-fourths of the voting shares, to apply for an arrangement to acquire any part of the remaining shares. Rule 3(6) requires a registered valuer's report considering the prescribed valuation parameters and the opening of a separate bank account containing not less than one-half of the total takeover consideration.
The Safeguards and the Grievance Mechanism
The three-fourths threshold protects the majority from a minority blocking a takeover that the overwhelming majority supports. The registered valuer requirement protects the minority from an undervalued offer. The escrow requirement protects the minority from a buyer who does not have the funds to pay.
Section 230(12) permits an aggrieved party concerning a takeover offer of a company other than a listed company to approach the NCLT. Rule 80A of the NCLT Rules, 2016 provides the procedural mechanism for such applications. The NCLT's jurisdiction is to determine whether the takeover offer was made in accordance with the rules, not to substitute its own valuation for the registered valuer's.
The Strategic Use and the Limits
The scheme route allows a acquirer to combine a takeover with a restructuring—for example, to acquire the minority stake and simultaneously merge the target with an affiliate. The scheme route is not available for a simple takeover that does not involve a compromise or arrangement; a straightforward acquisition of control must comply with the SEBI Takeover Regulations or the contractual route.
A takeover offer through a scheme is a technically demanding transaction. It requires a valuation report that satisfies the registered valuer requirements, an escrow that is funded before the scheme is sanctioned, and a scheme that clearly identifies the shares to be acquired and the consideration.
Call to Action
Anuj Desai & Associates advises acquirers, target companies, and minority shareholders on takeover offers through a scheme—from the Rule 3(5) and 3(6) compliance and the registered valuer process to the NCLT sanction and the Section 230(12) grievance mechanism. If you are structuring a takeover through a scheme, we can help you meet the statutory safeguards.
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