A Squeeze-Out Valuer Sets the Price. Unless the Company Is Listed.
Section 236 lets a holder of ninety per cent of the equity buy out everyone else at a price determined by a registered valuer, and reads as a single, uniform mandate. Rule 27 then splits the job in two on listing status, and the split is not about method. This piece works from the text of Section 236, Rule 27 and the neighbouring squeeze-out routes in the same Rules, and takes the listed carve-out as the part worth examining.
Section 236 Carries No 'If Any'
The section engages once an acquirer, or a person acting in concert, becomes "registered holder of ninety per cent. or more of the issued equity share capital." The buyout is then made "at a price determined on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed."
Nothing here is optional. Unlike Section 232's expert report, famously qualified by "if any" and covered in Merger Valuations: Conditional Under Company Law, Mandatory Under SEBI, the mandate is unconditional. Rule 27 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 supplies the prescribed manner, and opens by putting the job on one person: "the registered valuer shall determine the price (hereinafter called as offer price) to be paid by the acquirer."
Unlisted: The Valuer Decides, Against Four Named Parameters
For an unlisted or private company, Rule 27(2) has the valuer do exactly what the opening words say. The offer price takes into account the highest price paid by any person or group for acquisition of shares during the last twelve months, and the fair price determined after considering:
- Return on net worth
- Book value of shares
- Earnings per share
- The price earning multiple against the industry average
A valuation report with justification goes to the board. Four named parameters, one professional, and a number that did not exist until the valuer produced it.
Listed: SEBI Decides, and the Valuer Justifies
Rule 27(1)(i) removes the pricing decision entirely: for a listed company "the offer price shall be determined in the manner as may be specified by the Securities and Exchange Board of India." Rule 27(1)(ii) then keeps the valuer in the transaction anyway, requiring that the registered valuer also provide a valuation report to the board justifying the price.
The word doing the work is "also." The valuer is not giving a second opinion on a contested number and is not checking SEBI's formula. He is producing a justification for an output that a regulation determined. Same professional, same section, same transaction, structurally different function, purely because the target's shares happen to be listed.
This is the same instinct examined in A Listed Share Escapes the Registered Valuer Only When It Actually Trades, where a traded market price displaces professional judgement. Section 236 is the case where the displacement is only partial: the opinion goes, the report stays.
The Same Framework Has Three Squeeze-Out Thresholds
Ninety per cent is not the only door, and the three routes do not agree.
- Rule 26, scheme-based. Governs the older route to acquiring dissenting shareholders' shares. It requires notice in Form CAA.14 and nothing else: no valuer, no price mechanism, no parameters.
- Rule 3, three-fourths. Amended in 2020 to let a member holding not less than three-fourths of the shares apply for an arrangement for the purpose of a takeover offer. The application must carry "the report of a registered valuer disclosing the details of the valuation of the shares proposed to be acquired," on parameters near-identical to Rule 27(2)'s.
- Rule 27, ninety per cent. A registered valuer, on the split described above.
One squeeze-out route at three-fourths requiring a valuer, one at ninety per cent requiring a valuer, and one requiring none.
The Tribunal Has Enforced the Credential, Not Assumed It
In S. Gopakumar Nair v. OBO Bettermann India Pvt. Ltd., Company Appeal (AT) No. 272 of 2018, decided 9 July 2019, the NCLAT read the provision strictly: "Sub-section (2) of Section 236 clearly provides that the offer... has to be at a price determined on the basis of valuation, 'by a registered valuer' 'in accordance with such rules' as may be prescribed."
The point mattered because the valuation in issue had not come from one, and the tribunal held that Section 236 had been improperly invoked.
What This Means in Practice
Establish listing status before scoping the engagement, because it decides what you are being asked to produce. For an unlisted target, you are determining the price and the four Rule 27(2) parameters are your framework. For a listed one, you are justifying a price SEBI has already fixed, and a report written as though you determined it misdescribes the work.
A squeeze-out is the transaction where valuation matters most and consent matters least. The minority is not negotiating and cannot decline. That is what the mandate exists for, and why the tribunal has refused to accept a valuation from anyone else.
The framework treats the valuer's presence and the valuer's discretion as two separate things, and will happily keep one while removing the other.