Treasury Shares Cancellation: The 3-Year Deadline for Group Companies#
Under the Companies Act, a company generally cannot hold its own shares. However, prior to the strict enforcement of the 2013 Act, many companies ended up holding their own shares (Treasury Shares) indirectly, usually as a result of complex mergers and amalgamations where shares were parked in a trust for the benefit of the transferee company.
These treasury shares often create artificially inflated balance sheets and opaque voting structures. The Corporate Laws (Amendment) Bill 2026 introduces a strict mechanism to eliminate them through a new proposed section: Section 233A.
Understanding Section 233A#
The new section explicitly targets treasury shares created through past compromises, arrangements, or mergers.
The 3-Year Ultimatum#
The law will mandate that any shares of the transferee company held by itself, or held through a trust on its behalf, must be dealt with decisively. Companies will be given a strict 3-year transition window from the commencement of the amendment to resolve this.
The Options Available#
During this 3-year period, the company has two choices regarding these treasury shares:
- Dispose/Sell: Sell the shares in the open market or to strategic investors, bringing actual cash into the company and putting the shares into the hands of real shareholders.
- Automatic Cancellation: If the shares are not disposed of by the end of the 3-year deadline, they will be automatically cancelled by operation of law. The company's share capital will be correspondingly reduced without needing the lengthy NCLT approval process normally required for capital reduction.
Impact on Voting Rights#
To prevent management from misusing treasury shares parked in trusts to consolidate their power, the amendment also proposes that no voting rights shall be exercised on such treasury shares during the 3-year transition period.
What Companies Need to Do#
Conglomerates and holding companies that have historically used trust structures for mergers need to urgently audit their cap tables. If treasury shares exist, the Board must strategize whether to liquidate them for capital or simply let them extinguish to clean up the balance sheet. Inaction is no longer an option, as the 3-year deadline is absolute and will result in automatic cancellation.