2017 (8) TMI 389 - Tri - Companies Law

Change of company status from public to private company - matter pertaining to probate of Will pending before the Hon ble High Court - scheme of consolidation of shares seeked - Held that - Objectors have not been in a position to explain as to how the interest of the company would be prejudiced if the application of the company is allowed for conversion of its status to private limited. The Objectors could not offer reasons to show that the application for conversion is being made with a view to contravene or to avoid the compliance with any of the provisions of the Companies Act, 2013. The only issue that has been raised by the First and the Third Objectors is that against the scheme of consolidation of shares a suit has been filed and a matter pertaining to probate of Will pending before the Hon ble High Court of Madras is not a sufficient ground to reject the present application of the company. The objections raised by the objectors are devoid of merits and therefore, stand rejected. o fulfil the requirements under law, the Board of Directors has convened a meeting on 26.05.2016 wherein the Board decided for conversion of the applicant company from public to private and sought to convene an EoGM. The EoGM has been convened and conducted on 20.06.2016. Eleven out of 15 shareholders have participated. Out of the eleven shareholders, ten have consented and one dissented. The resolutions have been passed by the majority of 95.5% by resolving that the status of the company may be changed from public to private and also to bring alteration in the Articles of Association in order to align the same with the provisions of the Companies Act, 2013.The list of creditors is made available for inspection at the registered office of the applicant company and individual notices have been served on all the creditors. The benefits which have been shown for conversion of public to private company are available which show that the conversion from public to private would enable the company to take decision and action swiftly without waiting for regulatory compliance. It would also facilitate quick and efficient decision making within the organisation. It would further benefit ensuring greater control over the operations and functioning of the petitioner company by its shareholders and its Board of Directors would be in a position to avail the privileges and exemptions granted to private companies under the Companies Act, 2013. Petition allowed. Allow the company petition by permitting the conversion desired.

Summary

Issues:
1. Conversion of a public company to a private company under the Second Proviso to Section 14(1)(b) of the Companies Act, 2013.

Analysis:
The application sought to change the status of a public company to a private company under the Companies Act, 2013. Three objectors raised concerns regarding the consolidation of shares, rights of shareholders, and participation in a rights issue. The first objector argued that the consolidation of shares was not lawful and disadvantaged small investors. The second objector opposed the conversion without providing substantial reasons. The third objector, a Trust, raised issues related to a rights issue and sought protection. However, the objectors failed to demonstrate how the company's interests would be harmed by the conversion. The objections were deemed meritless and rejected by the tribunal.

The applicant company, a public limited company, disclosed its details, including authorized and paid-up capital. It conducted a rights issue to raise funds for business investments. The Board of Directors decided to convert the company to a private entity to enhance operational efficiency and decision-making. An Extraordinary General Meeting (EoGM) was held, where the majority of shareholders approved the conversion and amendments to the Articles of Association. The company provided a list of creditors for inspection and published notices in newspapers as required by law.

The benefits of converting from a public to a private company were outlined, including quicker decision-making, enhanced operational control, and access to exemptions under the Companies Act, 2013. The tribunal approved the conversion, stating it was in the company's best interest to operate more efficiently under the new status. The conversion was deemed not prejudicial to members or creditors. The tribunal directed the necessary alterations in the Articles of Association and registration with the Registrar of Companies within a specified timeframe. The company petition was disposed of in favor of the conversion.