The Chennai Bench of the National Company Law Tribunal (NCLT) has clarified that takeover offer under a scheme of arrangement to acquire remaining minority shares under Section 230(11) of the Companies Act, 2013, where shares of non-promoter shareholders are taken over by promoters based on fair valuation prescribed by the Act and applicable rules, cannot be termed as ‘disinvestment’ by a State Government Company.
The NCLT held that a minority shareholder, even if a public sector undertaking, does not have a special right for differential treatment or separate valuation outside the prescribed statutory rules of the Companies Act, 2013, unless such a special right is provided under the Articles of Association or through any other instrument.
An application under Section 230(12) of the Companies Act, 2013 for grievances with respect to a takeover offer must be made when the scheme is under consideration by the Tribunal; and an application for recall or modification under Section 230(12) and Section 231(1)(b) is not maintainable once the scheme has been fully implemented and the consideration has been distributed and accepted, added the Tribunal.
The Division Bench comprising Sanjiv Jain (Judicial Member) and Venkataraman Subramaniam (Technical Member) observed that Section 230(12) of the Companies Act provides an opportunity for an aggrieved person to apply to the tribunal in respect of a grievance, if any, in the takeover offer of the company, and this application should be made when the scheme is under consideration by the tribunal. In the present case, the application was filed much after the scheme was approved and implemented.
The Tribunal observed that Section 231(1)(b) gives power to the tribunal to give directions or modify the scheme for its proper implementation; however, the scheme has been fully implemented, consideration has been distributed to all shareholders other than dormant shareholders, and the Applicant has also received its share of consideration. The Scheme of takeover under Section 230(11) of the Companies Act 2013 was approved by the tribunal after following the due process on 31.07.2024, and the valuation of shares was made as provided under Rule 3(6)(a) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.
The Tribunal further observed that Section 230(11) of the Companies Act was notified on 03.02.2020, providing an opportunity for majority shareholders to squeeze out minority shareholders through a process of selective reduction. The framework set in place by the above provisions does not envisage any inherent right of minority shareholders to retain their shares in the face of fair consideration being offered to them, based on legal precedents such as the Bombay High Court judgment in Sandvik Asia Limited v. Bharat Kumar Padamsi and the Cadbury India Limited principles, which emphasize ensuring fair valuation by reference to the rate at which past offers were effected.
Moving ahead, the Tribunal observed that disinvestment is the process when the Government wants to take back the investment made by it, and the guidelines regarding getting the highest of the valuation from the five valuation methods will be applicable only then. In the present case, it is a scheme under which shares of non-promoter shareholders are being taken over by the promoters based on the fair valuation as prescribed by the Companies Act and applicable rules, so this process in no way can be termed as disinvestment.
Thus, under the Articles of Association or through any other instrument, the Applicant does not get a special right for differential treatment in case of a takeover of shares by promoters under Section 230(11) of the Companies Act 2013, added the Tribunal.
Briefly, the Applicant, Tamilnadu Industrial Investment Corporation Limited (TIIC), is a State Financial Corporation classified as a “State Government Company” owned and managed by the Government of Tamilnadu. TIIC held 71,179 equity shares, constituting 2.39% of the total shareholding of the 3rd Respondent Company, India Forge & Drop Stampings Limited, prior to the Scheme of Arrangement being sanctioned by the Tribunal in 2024.
The 1st and 2nd Respondents, Dipak Raj Sood and Rupa Sood, are the promoters and shareholders of the 3rd Respondent Company, who preferred a Scheme of Arrangement under Sections 230-232 of the Companies Act, 2013 for the purpose of the takeover of public shares belonging to the 3rd Respondent Company. Two valuation reports were obtained by the Respondents: Transaction Square LLP arrived at a value of INR 1,155.60 per share, and PKF Sridhar & Santhanam LLP arrived at a value of INR 1,147 per share. The Respondents decided to offer the highest of the two valuations, which is Rs. 1,156 as the offer price in respect of the take-over of shares.
The Applicant participated in the shareholders meeting held in 2024, raised objections to the method of valuation, voted against the Scheme of Arrangement, and reminded the Company of GO No. Ms. No. 448 dated 19.06.1991 issued by the Government of Tamil Nadu, which laid down guidelines for the disinvestment of equity shares held by TIIC. As per the said GO, the valuation of one equity share of the 3rd Respondent stood at Rs. 5687/-, and the Applicant Company claimed it was entitled to receive Rs. 40.48 crores for its 71,179 equity shares, whereas the Respondents provided only Rs. 8.22 crores.
The Applicant filed application under Rule 11 of NCLT Rules, 2016 read with Section 230(12) & 231(1)(B) of the Companies Act, 2013, seeking to recall/modify the Scheme of Arrangement approved vide order dated 31.07.2024, alleging that the Respondents consciously suppressed the GO before the NCLT and obtained the sanction with strong mala fides. The 1st Respondent issued a letter dated 13.08.2024 enclosing a demand draft amounting to Rs. 8.22 crores, which the Applicant accepted and cashed under protest in Nov 2024.
Appearances:
Advocate K.M. Ashif, for the Applicant
Advocate Shakthivelan, for the Respondent
