Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020

Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020

The Ministry of Corporate Affairs (MCA) notified the Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020 which seeks to amend the Companies Compromises, Arrangements and Amalgamations) Rules, 2016. Through this amendment, a new definition for the term corporate action has been inserted. Further new rules 26A has been inserted which deals with the purchase of minority shareholding held in Demat form. The current article briefs the Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020.

Definition for the term corporate action

In the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 in rule 2 (1), after clause (d), the following clause (a new definition for the term corporate action) has been inserted.

Corporate action means “any action taken by the company relating to the transfer of shares and all the benefits accruing on such shares namely, bonus shares, split, consolidation, fraction shares and right issue to the acquirer”.

Rule 26 A Purchase of minority shareholding held in DEMAT form

As mentioned above, according to Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020, a new rules 26A has been inserted which deals with the purchase of minority shareholding held in Demat form

Rule 26A (1) Verification of Minority Shareholders Holding shares

As per the new Rule 26 A and section 236 of the Companies Act, the company need to verify the details of the minority shareholders holding shares in the dematerialized form within two weeks from the date of receipt of the amount equal to the price of shares to be acquired by the acquirer.

Rule 26A (2) – Forwarding notice to Minority shareholders

After verification, the company will send notice to such minority shareholders by registered post or by speed post or by courier or by email about a cut-off abacus, which shall not be earlier than one month after the date of sending of the notice.

Rule 26A (3) – Publishing Notice in News Papers

A copy of the notice served to the minority shareholders, will also be published simultaneously in two widely circulated newspapers (one in English and one in vernacular language) in the district in which the registered office of the company is situated and also be uploaded on the website of the company.

Rule 26A (4) – Submission of Declaration

The company will inform the depository immediately after the publication of the notice regarding the cut-off date and submit the following declarations stating that:

  • The corporate action is being effected in pursuance of the provisions of section 236 of the Companies Act, 2013
  • The minority shareholders whose shares are held in dematerialized form have been informed about the corporate action Note: A copy of the notice served to such shareholders and published in the newspapers to be attached
  • The minority shareholders will be paid by the company immediately after completion of corporate action;
  • Any dispute or complaints arising out of such corporate action shall be the sole responsibility of the company

Rule 26A (5) – Submission of Documents to Company Secretary

For transfer of shares through corporate action, the Board will authorize the Company Secretary, or in his absence any other person, to inform the depository and to submit the documents required.

Rule 26A (6) – Transfer of Shares of the Minority Shareholders by Depositor

Upon receipt of information, the depository will make the transfer of shares of the minority shareholders, who have not, on their own, transferred their shares in favour of the acquirer, into the designated DEMAT account of the company on the cut-off date and intimate the company.

Rule 26A (7) – Disbursement of the price of the shares to Minority Shareholders by Company

After receiving the intimation of successful transfer of shares from the depository, the company shall immediately disburse the price of the shares so transferred, to each of the minority shareholders after deducting the applicable stamp duty, which shall be paid by the company, on behalf of the minority shareholders, following the provisions of the Indian Stamp Act, 1899 (2 of 1899).

Rule 26A (8) – Transfer the shares to the DEMAT account of the acquirer

Upon successful payment to the minority shareholders, the company shall inform the depository to transfer the shares of such shareholders, kept in the designated DEMAT account of the company, to the DEMAT account of the acquirer.

Other Conditions

  • The company will continue to disburse payment to the entitled shareholders, where disbursement could not be made within the specified time, and transfer the shares to the DEMAT account of acquirer after such disbursement.
  • If the cutoff date falls on a holiday, the next working day will be deemed to be the cut-off date

The notification pertaining to the Companies (Compromises, Arrangements and Amalgamations) Second Amendment Rules, 2020 is as follows:

SecondAmdtRules_18122020

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Post by Renu Suresh

Renu is experience content writer specialised in compliances and company rules.