The corporate affairs ministry is finalising a takeover code for unlisted companies that is likely to be rolled out soon, Business Standard reported on Monday, citing a government official.

Under the proposed code, a major shareholder alone or with other parties, together representing three-fourth of the shareholding in the company, could move a company law tribunal to take over rest of the stake, the report said.

The move to bring out a takeover code for unlisted companies comes in the wake of one of the most bitterly fought corporate battles in India involving Tata Sons, the holding company of Tata group companies. The National Company Law Appellate Tribunal (NCLAT) had set aside in December the conversion of Tata Sons into a private company from a public company. The matter is now pending before the Supreme Court which stayed the NCLAT order.

Experts said takeover of minority shares in unlisted companies is different from the takeover of minority shares in listed entities which is covered by capital market regulator SEBI’s takeover code. Listed companies have to have a minimum public float of 25% and often have large number of small shareholders, which SEBI’s takeover code seeks to protect. The makeup of minority shareholders in unlisted companies may be different. The public interest in unlisted companies is mainly through its exposure to debt from financial institutions rather than through participation by retail investors.

“Providing for the exit of minority shareholders in unlisted companies in the law may be good thing but implementing a mechanism for this is not an easy task. Unlike many listed companies, unlisted ones have fewer shareholders. There has to be further discussions on this and any offer to take over minority shares or exit of minority shareholders in an unlisted company have to be voluntary,” said Pavan Kumar Vijay, founder of advisory firm Corporate Professionals.

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