The Letters From M.C.A. On ‘TAKE-OVER’

Posted On 2023-12-08

Author Ramnarayan V

(The article is provided solely for information purposes. This is not legal advice; no professional-client relationship is created when you read or access this article. The information presented in this article does not constitute legal or professional advice. It should not be relied upon for such purposes or used as a substitute for legal advice.)


(i) The most interpreted section and the most judicially looked upon section by the Courts and the Tribunals is section 230. The ancestors of this young kid are sections 391, 393, and 394 A of the Companies Act, 1956. The ancestors have seen a greater interpretation ranging from the desk of the Registrar of Companies to the bench of the Hon'ble Supreme Court of India.

(ii) Compared to the sections of Companies Act 1956 and Companies Act 2013, Companies Act 2013 provides for legislating new forms of corporate transactions that were pre-existing in the corporate world. Section 230 treads toward making certain disclosures during certain corporate transactions, such as including the details on the reduction of the share capital of the Company, the details to be provided by an auditor through an audit report such as liquidity, etc., which would eventually make the transaction more transparent and ensure that the investors make an informed decision.


(i) The Ministry of Corporate Affairs on 3rd February 2020, by way of a notification, has enforced sub-section (11) and sub-section (12) of section 230.

(ii) The notified sub-sections provide that any compromise and arrangement made under section 230 may include an offer for takeover, the details of which are regulated by rules made by the central government in this regard. However, the companies whose shares are listed on the stock exchange shall follow the regulations made by the Securities and Exchange Board of India for takeover.

(iii) Further, it also informs us the fact that any person aggrieved by the act of the company in making such an offer for takeover, as stated above, has an opportunity to approach the tribunal for necessary relief, stating their grievances in such offer and the tribunal upon receipt of such application pass orders as through fit by the respective tribunal. Furthermore, the companies listed on the stock exchange shall follow the regulations of the Securities and Exchange Board of India for this purpose. They shall not approach the tribunal under this subclause.

(iv) The Tribunal can decide on an application involving a reduction of share capital under section 230, and no separate procedure is required to be complied with for the reduction of the share capital separately under section 66. From the explanation in section 230, it would be evident that for passing an order under section 230 to compromise or make arrangements with creditors and members, the provisions of section 66 should not apply for reduction of share capital, and the Tribunal could pass such an order under section 230.


(i) We all are aware of the relationship that exists between substantive law and procedural law. They share a closer relationship beyond the sacrament concept of marriage as identified in the Indian Matrimonial Laws. A substantive law without a procedural law in a legally crippled law.

(ii) Pursuant to the notification of sub-section (11) and sub-section (12), necessary rules were also being inserted in the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, which would enable the substantive law, i.e., sub-section (11) and sub-section (12), to walk and run around the corporate sphere. The Ministry of Corporate Affairs on 3rd February 2020, by way of a notification, has amended Rule 3 of Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, and sub-rule (5) and sub-rule (6) are being inserted accordingly.

(iii) It provides that an application shall be made by a person or person holding not less than 3/4th, i.e. 75% of the shares in the company, intending to buy the remaining part of the shares of the Company. The shares have been explained to mean equity shares with voting rights, including securities such as depository receipts, etc.

(iv) Further, it explains that nothing in this sub-rule shall apply to any transfer of shares made through a contract, arrangement, succession or any transfer according to statutory or regulatory requirements. Further, it also provides that a separate bank account be opened and an amount equivalent to 50% of the total consideration to be deposited by the transferee.

(v) Interestingly, a single kid would be desolated alone; he requires friends to play around. Therefore, we have a corresponding amendment made in another rule to accompany the new kid in the town.

(vi) The Ministry has also amended the National Company Law Tribunal Rules, 2016, by way of inserting rule 80A, which provides for the format in which the application under sub-section (12) of section 230 be made and also prescribes the documents to be filed with such application.


(i) We understand that the Companies Act 2013 now empowers the companies which intend to occasion an act of compromise or arrangement, under the provisions of the Companies Act, 2013 can also include an offer of takeover in such manner as prescribed in the sub-rule (5) and sub-rule (6) of rule 3 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. 

(ii) As rightly mentioned by Voltaire, "If you wish to converse with me, DEFINE your terms." Now let's quickly see what is a "compromise" and an "arrangement". The Companies Act 2013 does not define the term's compromise or arrangement. A small attempt is seen in the explanation under sub-section (1) of section 230, where it mentions that an arrangement includes a reorganization of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. This might not help us in understanding the meaning of such terms.

(iii) Now, let's look for help outside the Companies Act 2013 to understand the meaning of these terms. We understand that the courts/tribunals have attempted to provide meaning to these terms; let's examine one of such meanings. "Compromise" is an expression which implies the existence of a dispute, such as relating to rights, which it seeks to settle. Still, the word "arrangement" is a term of very wide import, and its meaning is not to be limited to something analogous to a compromise. All modes of reorganizing the share capital takeover of one company's shares by another, including interference with preferential and other special rights attached to shares, can properly form part of an arrangement with members.

(iv) From the above, we can identify two important elements, namely;

(a) A Compromise is an act between a creditor(s) and the Company, which would be on the pretext of an existing dispute. However, an act of arrangement is between a member(s) of a Company and the Company; a dispute need not be a pre-text in this case.

(b) The concept of takeover had already been included in the term "arrangement" by the Court during the pronouncement of this judgement in 1960. Therefore, the notification of sub-sections (11) and sub-sections (12) makes no new move by the Ministry of Corporate Affairs; it could be stated as clarifying the existence of the law in force.

(v) Other quick pointers in this HUMAN LENS are:

(a) From the plain reading of sub-section (11) of section 230, we can understand that a takeover is a mere ingredient under a scheme for either compromise or arrangement or both under section 230 and does not have an independent identity per se. An application for such compromise or arrangement may include a prayer of takeover and not otherwise.

(b) One should also note that the grievance redressal option granted to the member under subclause (12) of section 230 precisely limits the scope of the Tribunal to grant relief only in the case of a grievance concerning a takeover offer. Any other prayers cannot be honoured under sub-section (12) of the section 230.

(c) The term securities is being used in the amended rules, and the Companies Act 2013 defined 'securities' as defined in the Securities Contracts (Regulation) Act, 1956, which typically covers all types of instruments. We need to closely observe how the courts would work around this definition since this is open-ended.

(d) It is interesting to note that a clear non-applicability clause in the amended rule excludes all the transfer or transmission of shares through a contract, arrangement, succession or any transfer made under any statutory or regulatory requirement. A contract would include the existing shareholders and share-purchase agreements, thereby not disturbing the understanding of such agreements. This also throws out an understanding that, in the case of companies which do not have such a structured understanding, the law would be their recourse in enabling such a right for the takeover.

(e) Opening a separate bank account is required, with a deposit of 50% of such total consideration of the takeover. This would be difficult in several instances; we must again closely observe the position of law as taken by the Court concerning the identification of any alternate mode of deposit or a partial or complete waiver of such deposit on a case-to-case basis.

Exploring the Role of CFOs in Takeovers

When delving into the intricate realm of takeovers, it's imperative to recognize the pivotal role that Chief Financial Officers (CFOs) occupy in these business transactions. CFOs are more than financial experts; they are strategic decision-makers, guiding companies through complex financial landscapes. In this section, we'll explore how CFOs, such as experienced CFO consultants, leverage their expertise to ensure the financial success of firms not only during but also after takeovers.

Why CFO Expertise Matters in Takeovers?

In the world of takeovers, CFOs, often backed by experienced CFO consultants, serve as the guardians of financial prudence. They diligently evaluate the financial health of target companies, analyzing balance sheets, income statements, and cash flows to uncover potential risks and opportunities. These financial experts ensure precise asset valuation, thus influencing the terms of the deal. They play a crucial role in aligning the takeover's financial aspects with the acquiring company's strategic goals. Beyond crunching numbers, CFOs also offer valuable CFO consulting, providing strategic foresight to help mitigate risks and navigate the complex post-acquisition landscape.

  • Businesses can leverage the expertise of virtual CFO services, which provide access to seasoned financial professionals without the commitment of hiring a full-time CFO.
  • Virtual CFO services offer valuable support during takeovers, ensuring financial considerations align with the company's strategic vision.
  • The utilization of outsourced CFO services brings flexibility and cost-effectiveness to financial management. Whether there's a temporary need for an interim CFO or ongoing support, these services ensure that financial decisions are well-informed and strategic.
  • With a CFO's guidance, companies can enhance their chances of success during takeovers and fortify their financial stability.
  • In essence, CFOs and their services are instrumental in ensuring the financial success of businesses in today's dynamic marketplace.


However, being a well-informed minority shareholder or investor and foreseeing any infringement of rights by the acts of the majority of shareholders, one can always find recourse under rule 25 of the National Company Law Tribunal Rules, 2016, which enables him to file a caveat petition and ensures no ex-parte orders are being passed, against his interest.

Want to unlock the secrets to successful M&A and takeovers, and discover how to maximize your business's financial potential? Visit our website!


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