2020 (3) TMI 525 - AT - Companies Law

Conversion of Public Limited Company to a Private Limited Company - time limitation - petition was delayed as filed after three months from the date of passing of special resolution - Rule 68(1) of NCLT Rules 2016 - HELD THAT - Rule 68(1) of NCLT Rules 2016 provides that a petition under section 14(1) of Companies Act, 2013 for conversion of a public company into private company shall, not less than three months from the date of the passing of special resolution, be filed to the Tribunal in Form No.NCLT-1. It means such petition shall be filed after three months from the date of passing of special resolution. The appellant company has passed the resolution on 14.8.2017. 1st petition was filed on 30.10.2017 which was pre-matured. Therefore, and it was withdrawn on 6.12.2017 and Second petition was filed on 19.12.2017 i.e. after three months from the date of passing of special resolution. Thus the petition is well within limitation. The appellant company is wholly owned subsidiary and unlisted public company. Therefore, in view of sub-rule (2) of Rule 4 of the Companies (Appointment Qualification of Directors) Rule 2014 appointment of at least two independent directors is not necessary. Hence non-disclosures of resignation of two independent directors will not affect the merit of the petition in any manner. The dispute between Ernest and Young and appellant company is pending before the Arbitral Tribunal hence the conversion of appellant company shall not affect the responsibility and liabilities of the appellant company - the appellant company has fulfilled the conditions for conversion and shortcomings pointed out by the NCLT are inconsequential. The special resolution dated 14.08.2017 for conversion of appellant company from public company to private company is approved.

Issues Involved:
1. Limitation period for filing the petition.
2. Validity of the shorter notice for the Extraordinary General Meeting (EOGM).
3. Appointment and actions of the new auditor.
4. Resignation of independent directors.
5. Objections raised by creditors and objectors.
6. Compliance with conditions for conversion from a public company to a private company.

Issue-wise Detailed Analysis:

1. Limitation Period for Filing the Petition:
The primary issue was whether the petition was filed within the prescribed limitation period. Rule 68(1) of NCLT Rules 2016 stipulates that a petition for conversion of a public company into a private company must be filed not less than three months from the date of passing the special resolution. The appellant company passed the resolution on 14.08.2017 and filed the first petition on 30.10.2017, which was premature and subsequently withdrawn. The second petition was filed on 19.12.2017, which was within the required timeframe. Thus, the petition was deemed to be within the limitation period.

2. Validity of the Shorter Notice for the EOGM:
The appellant company convened an EOGM on 14.08.2017 with a shorter notice, which was consented to in writing by all shareholders. Section 101 of the Companies Act 2013 allows for a general meeting to be called with shorter notice if consent is given by at least 95% of the members entitled to vote. The holding company, VPS Healthcare Pvt Ltd, authorized representatives to attend and vote at the meeting. The tribunal found no illegality or irregularity in the passing of the resolution dated 14.08.2017.

3. Appointment and Actions of the New Auditor:
Concerns were raised about the appointment and actions of the new auditor, M/s Dayanand Yadav & Co. The appellant company explained that the new auditor was appointed as a tax auditor on 02.09.2016 and as a statutory auditor on 17.10.2016. The new auditor had reviewed and signed the financial statements for FY 2015-16. The Institute of Chartered Accountants of India (ICAI) exonerated the auditor from any professional misconduct, thus resolving the issue satisfactorily.

4. Resignation of Independent Directors:
Two independent directors resigned after the EOGM, and this fact was not initially disclosed in the petition. However, the appellant company, being a wholly-owned subsidiary and an unlisted public company, was not required to appoint independent directors as per sub-rule (2) of Rule 4 of the Companies (Appointment & Qualification of Directors) Rules 2014. Therefore, the non-disclosure of their resignation did not affect the merit of the petition.

5. Objections Raised by Creditors and Objectors:
Objections were raised by creditors holding only 0.05% of the total debt and contingent debt of 1.39%. The appellant company settled claims with all objectors and filed no dues certificates. The dispute with Ernst & Young was pending before the Arbitral Tribunal, and the conversion would not affect the appellant company’s responsibilities and liabilities.

6. Compliance with Conditions for Conversion:
The tribunal reviewed the compliance with the conditions for conversion from a public company to a private company and found that the appellant company had fulfilled the necessary conditions. The shortcomings pointed out by the NCLT were deemed inconsequential.

Conclusion:
The tribunal set aside the impugned order and approved the special resolution dated 14.08.2017 for the conversion of the appellant company from a public company to a private company. No order as to costs was made.

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