CS Deepak Pratap Singh
A Company is run by Board of Directors and officers of the Company. They have been appointed by Shareholders of the Company. The true owner is the Shareholders of the Company, who have exercise their rights through meeting of members.
There are various important decisions, which affects going on concept of a Company, will be approved by the Shareholders in their meetings. Some of decisions are Merger and Amalgamation, Reduction in Share Capital, change in terms and conditions of Contracts, terms and conditions of issue of shares etc. The dissenting shareholders some time block important decisions in the best interest of the Company.
Some important items require approval of majority of Shareholders and even in some decisions requires 100% approval of Shareholders.
In some cases, not all shareholders have accented to resolution put before the meeting. These shareholders are called dissenting shareholders and Company generally provided an exit option to these Shareholders to receive fair compensation against their share with the Company.
The Companies Act, 2013 had introduced an Exit Option Procedure to dissenting shareholders, who have not approved any change in Object or terms and conditions of issue or contract thereof.
The SEBI has also amended certain regulation in SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. A new Chapter VI-A has been introduced.
(1) the provisions of Chapter VI-A are applicable to the offer made by promoters or controlling shareholders to the dissenting shareholders, who opposes the variations in the objects or terms of contract referred to in prospectus.
(2) the provisions of this Chapter VI-A dose not apply, where there is no identifiable promoter or controlling shareholders in the Company.
Applicable Provisions of the Companies Act, 2013;
Section 13(8); A Company, which has raised money from public through Prospectus and still has any unutilised amount of money so raised, shall not change its objects for which it has raised the money through Prospectus unless a Special Resolution is passed by the Company and-
(i) The details as may be prescribed, in respect of such resolution shall also be published in the newspapers (one in English and One in vernacular language), where Registered Office of the Company has situated and also placed on the website of the Company if any indicating therein justification of such change.
(ii) The dissenting shareholders shall be given an opportunity to exit by the promoters or shareholders having control and in accordance with the regulation of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
(1) A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution:
Provided that the details, as may be prescribed, of the notice in respect of such resolution to shareholders, shall also be published in the newspapers (one in English and one in vernacular language) in the city where the registered office of the company is situated indicating clearly the justification for such variation:
Provided further that such company shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed company.
(2) The dissenting shareholders being those shareholders who have not agreed to the proposal to vary the terms of contracts or objects referred to in the prospectus, shall be given an exit offer by promoters or controlling shareholders at such exit price, and in such manner and conditions as may be specified by the Securities and Exchange Board by making regulations in this behalf.
(a) “Dissenting Shareholders” means those Shareholders who have voted against the resolution for change in objects or variation in terms of a contract referred in the Prospectus of the issuer;
(b) “Relevant Date” means the date of the Board Meeting in which proposal for change in objects or variation in the terms of the contract, referred to in the Prospectus is approved, before seeking approval of Shareholders.
Conditions For Exit Offer [Regulation 69C];
The promoters or shareholders in control shall make exit offer in accordance with the provisions of this Chapter VI-A to the Dissenting Shareholders if;
(a) The public issue has opened after April 1, 2014 and
(b) The proposal for change in objects or variations in terms of a contract, referred to in the Prospectus is dissented by at lease TEN (10) % of the Shareholders who have voted in General Meeting and
(c) The amount be utilised for the objects for which the Prospectus was issued is less than SEVENTY-FIVE (75) % of the amount raised (including the amount earmarked for General Corporate purposed as disclosed in the offer document).
Eligibility [Regulation 69D];
Only those Shareholders of the issuer, who are holding share as at the Relevant Date shall be eligible to avail the Exit Offer made according to the provisions of Section 13(8) and 27(2) of the Companies Act, 2013 read with Chapter-VI-A of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
Exit Offer Price [Regulation 69E];
The Exit Price payable shall be higher of the following;
(a) The volume -weighted average price paid or payable for acquisitions, whether by the promoters or controlling shareholders or by any person acting in concert with them, during the Fifty-Two (52) weeks immediately preceding the Relevant Date;
(b) The highest price paid or payable for any acquisition, whether by the promoters or controlling shareholders or at any person acting in concert with them, during the Twenty-Six (26) weeks immediately preceding the Relevant date;
(c) The volume-weighted average market price of such shares for a period Sixty (60) trading days immediately preceding the Relevant Date as traded on Recognised Stock Exchange, where maximum volume of trading in shares of the issuer are recorded during such period, provided such shares are frequently traded;
(d) Where share is not frequently traded, the price determined by the promoters or controlling shareholders and the Merchant Bankers taking into account valuation parameters including Book Value, Comparable Trading Multiples, and such other parameters as are Customary for valuation of share of such issuer.
Manner Of Providing Exit To Dissenting Shareholder [Regulation 69F];
(1) The Notice proposing the passing of Special Resolution for changing the objects of the issue and varying the terms of a contract, referred to in Prospectus shall also contain information about the Exit Offer to the Dissenting Shareholders;
(2) In addition to the disclosure requirements of Section 102 of the Companies Act, 2013 , read with Rule 32 of the Companies ( Incorporations ) Rules, 2014 and Rule 7 of the Companies ( Prospectus and Allotment of Securities) Rules, 2014 and any other applicable law , a statement to the effect that the promoters or the controlling Shareholders provide an Exit opportunity to the Dissenting Shareholders shall also be included in the Explanatory Statement to the Notice for passing of Special resolution;
(3) The issuer shall submit the voting results after passing Special Resolution according to Regulation 44(3) of SEBI(LODR)Regulations, 2015;
(4) The issuer shall also submit a list of Dissenting Shareholders duly certified by the Compliance Officer of the Company to the Stock Exchange;
(5) The issuer shall inform the Stock Exchange regarding Exit Offer given to the Dissenting Shareholders and Price determined by the promoters or the controlling shareholders;
(6) The Stock Exchange immediately on receiving such information disseminate the same to public within one working date;
(7) The promoters or controlling shareholders should open an Escrow Account, which shall be interest bearing and deposit the amount to be paid to dissenting shareholders, before two working days of the date of opening of tender period;
(8) The tendering period should start not later than Seven (7) working days from the date of passing of Special Resolution and shall remain open for Ten (10) working days;
(9) The dissenting shareholders, who have tendered their shares in acceptance the exit offer shall have the option to withdraw such acceptance till the date of closure of the tendering period;
(10) The promoters or controlling shareholders shall facilitate tendering of shares by the shareholders and settlement of the same through recognised stock exchange mechanism as specified by SEBI.
(11) The promoters or controlling shareholders shall make the payment to dissenting shareholders, who have accepted the Exit Offer within a period of Ten (10) working days for the last date of tendering period;
(12) Within a period of Two (2) working days the promoters or controlling shareholders shall give the details of shares tendered, accepted, payment of consideration and post-offer shareholding pattern of the issuer and the report by the Merchant Banker that the payment has been duly made to all the dissenting shareholders whose shares have been accepted in the Exit offer.