The corporate affairs ministry on Monday notified an amendment to the Companies (Compromises, Arrangements and Amalgamations) Rules, 2020, adding a provision for majority shareholders to buy out minority stockholders.

With the changes taking effect, while Tata Sons could potentially use the provisions to force Cyrus Mistry and Shapoorji Pallonji Group, who hold an 18% stake, to exit, it will, however, need to pay at least half of the total stake value upfront.

According to estimates, the stake of Mistry family is currently valued at more than ₹1.5 trillion, which includes the value of equity shares of Tata Sons as well as the estimated valuation of the Tata brand name.

The ongoing battle between the two sides is currently in the Supreme Court, which last month stayed a National Company Law Appellate Tribunal (NCLAT) order which called for reinstatement of Cyrus Mistry as the executive chairman of Tata Sons and for his restoration as a director in Tata Sons as well as a few other group companies.

While the stay order was on expected lines, the apex court also barred Tata Sons from potentially using Article 75 of its articles of association (AoA) under which, by a special resolution it could force, any minority shareholder such as Mistry to exit the company by acquiring their shares.

The amendment, issued by the ministry on Monday, states that “A member of the company shall make an application for arrangement, for the purpose of takeover offer in terms of sub-section (11) of section 230, when such member along with any other member holds not less than three-fourths of the shares in the company, and such application has been filed for acquiring any part of the remaining shares of the company."

The notification by the ministry said that for such an application of takeover, the applicant will have to submit the report of a registered valuer disclosing the details of the valuation of the shares proposed to be acquired by the member after taking into account the following factors: - (i) the highest price paid by any person or group of persons for acquisition of shares during last twelve months; (ii) the fair price of shares of the company to be determined by the registered valuer after taking into account valuation parameters including return on net worth, book value of shares, earning per share, price earning multiple vis-a-vis the industry average, and such other parameters as are customary for valuation of shares of such companies.

While the new amendment allows for minority shareholders to be bought out, a person directly aware of the internal deliberations said the Shapoorji Pallonji group is expected to challenge any move to enforce the same by Tata Sons. “The way it is prescribed is that they will have to put up half of the amount upfront, which in the case of Tata Sons will be several billions of dollars," the person said.

Additionally, the amendment prescribes that the whole process has to be carried out under the scheme of arrangement mechanism, which means it will have to go through another whole round of NCLT, NCLAT and Supreme Court, if Mistry family opposes it, the person said, adding that this could easily be a three to five-year long process.

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