How to Determine Fair Value Under Section 236

When an acquirer crosses the 90% ownership threshold in a company, Section 236 of the Companies Act, 2013 gives them the right to squeeze out the remaining minority shareholders but only at a price a registered valuer certifies as fair. Getting that number wrong doesn't just expose the acquirer to litigation from dissenting shareholders; it can stall the entire buyout in front of the NCLT.

What Section 236 Actually Triggers

An acquirer whether acting alone or with others, who becomes the registered holder of ninety percent or more of a companys issued equity share capital can notify the company that the acquirer intends to buy out the remaining minority shareholders. This can occur after an acquisition, an amalgamation or a share exchange. The company must then deposit an amount equal to the offer price in a separate account, and disburse it to minority shareholders within 60 days. The valuer's fair value determination sits at the center of that entire process.

How the Offer Price Is Actually Calculated

Rule 27 of the Companies (Compromise, Arrangements and Amalgamation) Rules, 2016 splits the approach by whether the company is listed or unlisted.

Listed companies follow the pricing mechanism SEBI prescribes under its own regulations, with the valuer providing a report to the board justifying that price.

Unlisted and private companies — the more common scenario in practice — require the valuer to weigh two distinct inputs:

• The highest price paid by the acquirer for any acquisition of the company's shares in the preceding twelve months. This anchors the offer price to real, recent transaction evidence rather than a purely theoretical model.
• The fair price of the shares, determined using standard valuation parameters — return on net worth, book value per share, earnings per share, and the price-earnings multiple relative to the industry average, alongside any other parameter customary for valuing that type of company.

The offer price is effectively the higher of these two anchors, since the rule exists precisely to prevent a majority shareholder from squeezing out minority holders below a price they were themselves recently willing to pay.

Why the Recent-Transaction Test Matters

The twelve-month lookback is the part of Rule 27 most often underweighted in practice. It functions similarly to a backsolve, real, arm's-length pricing takes precedence over a projected or model-derived value whenever it exists. A valuer who builds a DCF or comparable-companies model without first checking whether the acquirer paid a higher price for shares within the past year risks producing a fair value the NCLT can challenge on its face.

Where Disputes Tend to Arise

Minority shareholders most commonly challenge Section 236 valuations on two grounds: that the valuer used stale or unrepresentative comparables for the price-earnings benchmark, or that a recent transaction at a higher price was overlooked or excluded without justification. Courts have consistently held that majority power must be exercised reasonably, and a valuation report that can't demonstrate how both Rule 27 inputs were weighed invites exactly that kind of challenge.

A defensible Section 236 valuation is not merely a fair value calculation, with a single add‑on rule; it is a two‑step test. First recent transaction evidence must be recorded. Second core valuation parameters must also be matched. The higher of these two figures will determine the offer price. Skipping the twelve-month transaction check, or leaning on stale industry comparables, is where most challenges to these valuations originate.