Minority can be squeezed out if price is fair

In a recent judgment by Bombay High Court in the case of Sandvik Asia Limited v Bharat Kumar Padamsi and Ors, which pertained to the reduction of share capital under sections 100 to 104 of the Companies Act, 1956, it was held that the minority shareholders of a company can be squeezed out if they have been offered a fair value for their shares and the squeeze-out is in accordance with the provisions of the act.

The case involved Sandvik’s proposal to reduce its share capital by extinguishing the entire non-promoter shareholding of the company, which amounted to 4.46% of the total equity shareholding. The exit price offered to the non-promoter shareholders was Rs850 per share which is considerably higher than the book value of Rs687 per share.

During a shareholders meeting convened to vote on a special resolution for reduction of share capital, shareholders representing 99.95% of the total shareholding capital (including non-promoter shareholders) voted in favour, while 0.05% of the shareholders (Padamsi and others) disapproved. When Sandvik filed the petition with the single judge bench of the high court seeking its approval for the reduction of share capital, Padamsi and others filed their objections, and the single judge bench decided in the latter’s favour. The appeal was referred to the two-judge bench of Bombay High Court.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.