ISSN: 2581-8465

Author: Md Imran Ahmad, Jamia Millia Islamia



The idea and the act of squeezing out minority shareholders have always existed in the corporate framework, however, there was no provision into the state of Companies Act, 1956. This concept has, however, been introduced in the Companies Act, 2013. The circumstance of the predominance of majority rule and in the meantime ensuring the rights and enthusiasm of the minority has dependably been the issue of contention and conflict. It is essential for the rule to guarantee that the powers of the majority are within sensible limits, consequently not bringing about abuse and oppression of the minority. In any case, the pragmatic ramifications of securing minority interests while taking vital business choices frequently lead to issues which lead to delayed legal cases.

Under the explanation provided by Section 151[1] of the Companies Act, 2013 the importance of the term Small Shareholders has been given to mean methods an investor holding shares of ostensible estimation of not in excess of twenty thousand rupees or such other aggregate as might be endorsed. Yet, such significance is limited to this specific section as it were.

Squeeze out, in a setting of acquisition implies a circumstance where the minority shareholders are squeezed or hauled out of their shareholding in the transferor organization by the majority shareholders by buying their stake despite the contradiction by the minorities.

The term squeeze out suggests the necessary acquisition of equity shares[2] of an organization from minority shareholders through money in the form of compensation. This strategy helps shareholders holding 90% or all the more shareholding in an organization to gain the shares in the organization from minority shareholders. Squeezeout alludes to an exchange where the obtaining party is the controller of the company to be acquired. The Companies Act, 2013 accommodates the idea of squeezing out[3] which completely specifies circumstances whereby minority shareholders can be purchased out by the majority shareholders. It provides thatmajority shareholder of an organization holding at any rate 90% of equity shares has a privilege to notify its aim to purchase out minority shareholders who may pitch their shares to the majority shareholders at a cost to be resolved as per the principles under Companies Act, 2013.

Companies Act, 2013

Section 236 of the Act accommodates the buying of minority shareholding by the majority shareholders as per the arrangements of the section read with the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016.

Pervasive practices for squeezing out of the minority shareholding from element organization around the world has for the most part been takeovers, arrangements, mergers, conversion of securities to equity and capital reduction.

In the instance of Needle Industries (India) v. Needle Industries Newey (India) Holding Ltd.[4], it is a milestone case regarding this matter and the Supreme Court’s choice for this situation keeps on being an expert regarding the matter. For this situation, the foreign majority affirmed oppression by the Indian minority shareholders as the minority delegated extra executives and issued further shares. The Company Law Board and the High Court held such demonstrations of the minority investor as oppressive. In the appeal for this case, the Supreme Court saw that regardless of whether an instance of mistreatment and oppression fails, the court has the capacity to do generous equity in the issue and accordingly on the realities and condition of the case, the Supreme Court while dismissing the request of abuse, guided the minority Indian shareholders to buy shares held by the majority foreign shareholders.

Certain rules were set by the Bombay High Court in the case of Cadbury India Limited[5]  and it additionally characterized the importance of the word ‘preference’. The court said that in exchanges including minority purchase, it is an obligation of the court[6] to ensure that the plan isn’t against the open intrigue, is reasonable and just, and does not unreasonably oppress or preference a class of shareholders and draws a harmony between the business intelligence of the shareholders communicated at appropriately assembled gatherings. The expression prejudice in connection to the valuation of a plan would mean something more than simply accepting not as much as what an investor wants, being a deliberate endeavor to drive a class of shareholders to strip themselves of their possessions at a rate far beneath what is sensible, reasonable and just.

Acquisition of Shares:

The acquisition[7] under Companies Act, 2013 necessitates that a transferee organization may under a plan or contract; make an idea to the shareholders of the transferor organization to procure their shares. On the off chance that such offer is endorsed by the shareholders holding 90% of the shareholding inside two months after the expiry of four months, the transferor organization may pull out to the disagreeing shareholders, informing them of its aim to secure their shares. Further, if a disagreeing shareholder does not make an application to the National Company Tribunal inside one month from the receipt of such notice, the transferee will be qualified to acquire the shares of the contradicting shareholders on similar terms of the agreement.

The Court in AIG (Mauritius) LLC v. Goodbye Televentures (Holdings) Ltd.[8] tended to the inquiry that if offers were invited for shares comprising 90% or a greater amount of capital of an organization, at that point the rest of the shares would be procured at a similar cost. The Court was of the opinion that the majority group couldn’t use to expel the minority under this arrangement. The court held that it was this very reason the section is considered to be constitutional and if this was strayed from, it would add up to infringement of fundamental rights and accordingly be struck down.

Scheme of Arrangement:

The Companies Act consist of arrangements that license an organization to go into trade-offs and provisions in relation toits shareholders or creditors[9].In regard to squeeze outs, an organization may propose a plan that grants either a controller or the organization itself to buy shares held by the minorities along these lines affecting a squeeze out. The procedure starts with the organization applying to the High Court to assemble gatherings of the different investor classes.[10] The plan must be endorsed by a greater part in number speaking to 75% in the estimation of each class of shareholders present and casting a ballot, in discrete gatherings for each class. Once the endorsement is recieved, the organization should again approach the High Court for the assent of the plan. The High Court will hold hearings in which invested individuals may speak to themselves[11] and, whenever fulfilled, issue a request endorsing the scheme.[12]

Reduction of Capital:

The Companies Act, 2013 gives that the paid up capital of an organization can be diminished by satisfying the minority shareholders.[13] The decrease in such capital is liable to a special resolution which must be additionally affirmed by the National Company Law Tribunal (NCLT) of the concerned purview. Legal points of reference propose situations where specific decreases have been affirmed, enabling certain individuals to hold their shares unreduced while shares of others are doused.

The court, in Chetan Cholera v. Rockwell,[14] was of the opinion that companies in India regularly embrace this strategy to specifically expel the non promoter minority. The Court was reproachful of this perception and repeated that it is significant for Courts while securing the privileges of worker/representatives/shareholders/promoters to not just cling to the procedural and substantive parts of the plan of course of action. The Courts ought to likewise think about Articles 38 and 39 of the Constitution which guarantees and verifies the residents a communist state. The Court stressed upon the obligation of controllers like SEBI to protect the premiums of the financial specialists.

Exit Price:

Section 236(2) of the Act accommodates a pre-decided exit cost to be offered to the minority shareholders to be determined by an enrolled valuer in accordance with CAA Rules, 2016[15] which accommodates assessment criteria for recorded companies just as unlisted companies.

To continue with the buying of minority shareholding, the majority shareholders are required to store a sum equivalent to the estimation of shares to be gained by them of the minority shareholders in a different financial balance which will be worked by the transferor organization for atleast one year for installment to the minority shareholders, in any case, such sum will be dispensed to the entitled shareholders inside sixty days;

Such dispensing will keep on being made to the entitled shareholders for a time of one year, where the entitled minority shareholders have neglected to get or guarantee installment emerging out of such payment.

Suo moto offer by the minority shareholders:

The minority shareholders can suo moto give an offer to the majority shareholders to buy their value shareholding under Section 236(3) of the Act at a cost touched base as per the previously mentioned CAA Rules, 2016.

Negotiation deal:

Section 236 (8) of the Act accommodates a commonplace exchange bargain between the acquirer and the minority shareholders. This arrangement enables the majority shareholders to share the extra pay paid by them for coming to from a stake of 75% to a stake of 90% in the transferor organization with the minority shareholders. This is by all accounts a defensive arrangement for the minority shareholders.


Squeeze outs are the kind of controller exchange that can conceivably harm minorities. Over the world, there are various ways to deal with offsetting the worries related to ensuring minorities and worries with not anticipating esteem upgrading press outs. These reactions run from those depending on genuinely basic standards, from casting a vote by ballot by minorities to more full‐scale court supervision and intercession. In India, the assurance for minorities in squeeze outs is genuinely feeble by worldwide norms and there is a solid case that can be made for upgrading security.

As there was no comparing arrangement in the past Companies Act, 1956, Section 236 of the Companies Act, 2013 acquires the Indian professional workplace arrangement with the worldwide corporate world by presenting the idea of squeezing out of minority shareholding. It very well may be viewed as a dynamic move for development and shirking of dubious hindrances.

Be that as it may, there can be a few breaches seen in the arrangements of Section 236 of the Act identifying with the purchase of minority shareholding as to no clearness on whether minority shareholders will undoubtedly acknowledge the idea as it represents a genuine danger on the privileges of minority shareholders. On the off chance that the equivalent is translated as a mandatory securing, there is no extension for resistance by the disagreeing shareholders. Notwithstanding this, there is no arrangement for holding a different gathering of the minority shareholders to cast a ballot against such press out. The arrangements of Section 236 plainly consolidate the idea of squeeze out existing in different nations however with specific holes in the rule for the previously mentioned issues, the functional ramifications of this section will go about as a support in choosing the advantages and obstacles it would make in the coming corporate future.

While we have set out a portion of the more substantive changes to address the issues radiating from squeeze outs in India, in the more drawn out term there is a need to streamline this zone of the law through authoritative intercession. As we have seen, the law identifying with squeeze outs in India is divided. The law identifying with necessary acquisitions is the main statutory arrangement that explicitly ponders a squeeze out of minorities and was expected explicitly for that reason; the training shows that it has been utilized least in India. Rather, other exchange structures, for example, plans of course of action and decrease of capital, which were planned for different purposes, have been utilized to impact squeeze outs.

While we have set out some of the more substantive reforms to address the problems emanating from squeeze outs in India, in a longer term there is a need to streamline this area of the law through legislative intervention. As we have seen, the law relating to squeeze outs in India is fragmented. Instead, other transaction structures such as schemes of arrangement and reduction of capital, which were intended for other purposes, have been used to effect squeeze outs.

[1] Appointment of director elected by small shareholders.-A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed.

[2] Minority Squeeze Out, R. Luthra

[3] Section 236 of Companies Act, 2013; Section 395 of Companies Act, 1956

[4] Needle Industries (India) v. Needle Industries Newey (India) Holding Ltd., AIR 1981 SC 1298

[5] (1976) 1 W.L.R. 123

[6] Under the 1956 Act the High Court was the authorised body but under the Companies Act, 2013 tribunal is the authorised body.

[7] Section 235 of Companies Act, 2013

[8]AIG (Mauritius) LLC v Tata Televentures (Holdings) Ltd., (2003) 43 SCL 22 (Del.)

[9] Section 230 of Companies Act, 2013

[10] Section 230(1), (6) of Companies Act, 2013

[11] Section 230(4) of Companies Act, 2013

[12] Section 66 of Companies Act, 2013


[14]Chetan Cholera v. Rockwell, (2010) 102 SCL 93 AP

[15] Rule 27 of CAA Rules, 2016