become unfair. The Companies Act, 2013, is precisely the reason for this. It established a clear, structured, and legally enforceable framework for dealing with minority shareholders. The majority control is really strong. However, if the power is not checked, it can very quickly The framework is outlined in the Companies Act, 2013, Section 236, a provision that changed the interaction of majority shareholders & minority investors during takeovers, reorganizations, & mergers.
Often referred to as the “squeeze-out provision,” Section 236 is a kind of equilibrium between two contradictory interests. Firstly, it enables a controlling shareholder to simplify ownership & management. Secondly, it safeguards minority shareholders against being ejected at unreasonable prices or without proper procedure. Knowing this part thoroughly is essential to all those roles—the ones who start the business, the ones who put money in, the ones who want to buy the company, and even the minority shareholders who are eager to find out their entitlements.
What Is Section 236 of the Companies Act, 2013?
Section 236 of the Companies Act, 2013 provides a legal mechanism for the purchase of minority shareholding by a majority shareholder. It applies when any shareholder holding shares to the extent of 90% or more of the issued equity capital intends to acquire the remaining shares held by minority shareholders.
Here, a detailed legal system is established for the forced buyout of those holding minority shares, thus guaranteeing that the takeover of such shareholders is done openly, equitably, and at a rightful price. Any uncertainties and unofficial pressuring that were a part of the previous company laws have been eliminated.
In simple terms, once a shareholder crosses the 90% threshold, the law permits them to buy out the remaining minority—provided they follow the prescribed process.
Why Section 236 Was Introduced
Minority acquisitions were a nightmare before the enactment of the Companies Act, 2013. Majority shareholders were frequently met with vehement opposition from small shareholders who barely had any stake. Simultaneously, minority investors were exposed to the risk of being pressed, sold below their real value, or simply left out.
Section 236 was introduced to:
- Simplify ownership consolidation
- Protect minority shareholder interests
- Reduce long-term governance conflicts
- Enable smooth restructuring & amalgamation
It ensures that dominance does not turn into exploitation.
Who Can Invoke Section 236?
The eligibility condition under Section 236 is very clear.
- Any shareholder holding shares to the extent of 90% or more of the issued equity capital can initiate the process.
- This includes promoters, holding companies, or acquirers.
- The provision applies whether control arises organically or through acquisition.
Once the threshold is crossed, the law recognizes the shareholder’s right to initiate a squeeze-out, but only within the boundaries of fairness and valuation safeguards.
Minority Shareholders Are Not Powerless
An often-overlooked aspect of Section 236 is that minority shareholders of the company may offer to the majority shareholders to purchase their shares.
This means the law is not one-sided.
Minority shareholders can:
- Initiate an exit
- Demand fair valuation
- Trigger compulsory acquisition if conditions are met
This provision prevents situations where minority shareholders are indefinitely locked into a company with no real influence or liquidity.
The Concept of Squeeze-Out Explained Simply
A squeeze-out happens when a majority shareholder forces the acquisition of remaining shares. Under Section 236, this is no longer arbitrary or informal. It is regulated, transparent, and valuation-driven.
The law ensures:
- Independent valuation
- Fair price discovery
- Mandatory disclosures
- Timely payment to minority shareholders
This makes the purchase of minority shareholding legally sound and commercially efficient.
Valuation: The Heart of Section 236
The most sensitive issue in any takeover of minority shareholders is valuation. Section 236 addresses this directly.
The price must be determined by a registered valuer, considering:
- Financial statements
- Market value
- Earning capacity
- Comparable transactions
This ensures that minority shareholders receive compensation that reflects the true worth of their investment, not just the convenience of the majority.
Payment and Transfer Mechanism
Section 236 mandates that:
- Consideration must be paid promptly
- Shares are transferred only after payment
- Funds may be deposited in a separate bank account if shareholders are untraceable
This eliminates delays, disputes, and misuse of funds during acquisition.
Takeover of Minority Shareholders in Cases of Amalgamation
Section 236 also plays a crucial role in corporate restructuring. Takeover of minority shareholders in cases of amalgamation often becomes unavoidable when two entities merge.
In such cases:
- Minority shareholders may lose strategic relevance
- Continued minority holding may hinder governance
- Section 236 allows clean consolidation post-amalgamation
This ensures smoother integration and avoids prolonged shareholder disputes after mergers.
Why This Section Matters for Corporate India
Section 236 reflects a mature corporate governance mindset. It recognizes that:
- Large shareholders need operational freedom
- Minority shareholders deserve financial justice
- Corporate control should not be fragmented endlessly
It aligns Indian corporate law with global best practices in mergers, acquisitions, and ownership consolidation.
Common Misconceptions About Section 236
Many believe Section 236 allows forced takeovers at will. This is incorrect.
The provision:
- Requires strict thresholds
- Demands independent valuation
- Protects minority exit rights
- Operates under regulatory oversight
It is not a tool for oppression; it is a mechanism for order.
Practical Scenarios Where Section 236 Is Used
- Promoter holding increases beyond 90%
- Group restructuring within holding companies
- Post-amalgamation clean-up
- Strategic buyouts of residual shareholders
- Delisting-like consolidation (in unlisted companies)
In each case, Section 236 provides legal clarity.
How Minority Shareholders Should Respond
Minority shareholders should:
- Review valuation reports carefully
- Seek professional advice
- Understand payment timelines
- Assert their rights under the Act
Knowledge is protection.
Compliance Risks for Majority Shareholders
Failure to follow Section 236 procedures can result in:
- Legal challenges
- Share transfer disputes"
- Regulatory scrutiny
- Delays in consolidation"
Following due process is not optional—it is mandatory.
Final Thoughts: Balance Is the Real Power
Section 236 of the Companies Act, 2013, is not a provision to wipe out the minority. Its main objective is to provide equilibrium, assurance, and justice in the sphere of corporate ownership. The measure gives the controlling shareholders the power to continue their activities while at the same time granting the minority shareholders the opportunity to go away in a respectful manner and with monetary worth.
That balance is what makes modern corporate law effective.
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