Macro/Finance Group, NIPFP

Exit Offer to Dissenting Shareholders

Exit Offer to Dissenting Shareholders:Bhargavi Zaveri, Shefali Malhotra, Sumant Prashant and Prateek Mishra Response to SEBI Discussion Paper, December 2015.

The Companies Act, 2013 (Act) obligates the promoters and the majority shareholders of a listed company to buy-out dissenting shareholders, where the company has passed a special resolution (a) amending the terms of a contract referred to in the prospectus; and (b) amending the main object for which the money was raised from the public. The Act requires SEBI to frame regulations for the exercise of the exit right by the dissenting shareholders. SEBI issued a discussion paper on this subject seeking public comments. In our response to the discussion paper, we recommend:

  1. deletion of the provisions because the statutory obligation created under the Act cannot be linked to any market failure, increase the cost of contracts and incentivise opportunistic behaviour on the part of the shareholders;
  2. alternatively, that the regulations must specify certain threshold conditions for triggering this statutory obligation, keeping in mind the legislative intent behind these provisions.