03 May 2024
whether a company can issue Fraction of share in a share in India. in the case of Jindal stainless steel Ltd. and Jindal stainless ( Hissar Ltd.) In the case of merger or demerger.
07 July 2024
In India, companies can issue fractional shares under certain conditions, especially in the context of mergers or demergers. Here’s how it generally works:
### Fractional Shares in Mergers or Demergers
1. **Mergers**: When two companies merge, shareholders of the merging companies may receive shares in the surviving entity. In cases where the exchange ratio does not result in whole numbers of shares, fractional shares may be issued. Typically, provisions for handling fractional shares are detailed in the scheme of merger approved by the shareholders and sanctioned by the National Company Law Tribunal (NCLT).
2. **Demergers**: In demergers, where a company divides itself into two or more separate entities, shareholders of the original company may receive shares in the demerged entities. Again, if the share allocation results in fractions, provisions for dealing with fractional shares are included in the demerger scheme sanctioned by the NCLT.
### Legal Framework and Considerations
- **Companies Act, 2013**: The Companies Act, 2013 provides the legal framework for mergers and demergers in India. It includes provisions related to the issue and treatment of fractional shares.
- **Scheme of Arrangement**: The scheme of arrangement, which outlines the terms and conditions of the merger or demerger, typically addresses how fractional shares are treated. This scheme needs approval from shareholders, creditors, and regulatory authorities like the NCLT.
### Treatment of Fractional Shares
- **Cash Payment or Consolidation**: In practice, companies may offer shareholders options such as cash payment in lieu of fractional shares or consolidation of fractional shares into whole shares.
- **Shareholders Agreement**: The treatment of fractional shares is also outlined in the shareholders' agreement or the specific terms of the merger or demerger scheme. This ensures clarity and fairness in dealing with shareholders.
### Example of Jindal Stainless Steel Ltd. and Jindal Stainless (Hisar) Ltd.
In the case of the merger between Jindal Stainless Steel Ltd. and Jindal Stainless (Hisar) Ltd., if fractional shares are issued due to the exchange ratio, the scheme of amalgamation or merger would specify how these fractional shares are to be handled. Shareholders might be compensated through cash payments or other mechanisms as per the approved scheme.
### Conclusion
Yes, companies in India, including in cases like mergers or demergers involving entities such as Jindal Stainless Steel Ltd. and Jindal Stainless (Hisar) Ltd., can issue fractional shares. The treatment of these fractional shares is governed by the Companies Act, 2013, and the specific scheme of arrangement approved by the NCLT, ensuring fairness and compliance with regulatory requirements.
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