Ease of doing business – conversion of public company into private company should be made easy, less time consuming and less costly

[CA DEV KUMAR KOTHARI]

Relevant provisions and links:

Section 14 of the Companies Act, 2013,

Rule 68 of the NCLT Rules, 2016

For example case of    RE : MANORAMA INDUSTRIAL  AND TECHNICAL SERVICES LIMITED  2018 (11) TMI 1044 - NATIONAL COMPANY LAW TRIBUNAL, KOLKATA  to show lengthy procedure followed.

Public company vis a vis private company:

A public company can be converted into private company. We find many companies incorporated as public company but they are actually small companies or companies controlled by few persons  who are family members, relatives ,friends and associates. In many such companies there is no involvement of public money in any manner.

Desirable conversion from public to private company:

In many situations it becomes desirable that a public company be converted into private company. To be a private company, the company need to have specified conditions applicable to private company. If such conditions are complied with, then only company can be converted into a private company.

Some practical situations requiring conversion from public to private company:

A. Number of maximum members in private companies:

In case of private companies earlier maximum fifty member were allowed subject to additional numbers for employee or ex-employee of company being members who were allowed to be in excess of 50 members. Now under Companies Act number of members allowed in case of private companies has been increased to 200 + employees/ ex-employees member.

Therefore due to increase in maximum numbers allowed now many public companies are eligible for conversion into private company.

B. Changes in requirements:

Many public companies are having changed circumstances, and now prefer to be converted into private companies.

C. Changes in controlling pattern:

In many case due to developments in families, relatives and associates who controlled a public company, now it becomes desirable to convert such company into a private company.

D. Ease of doing business:

E. In case of private company there is ease of doing business as it is easier to administer and manage private company and make compliance. In case of public companies there ae much more requirement.

F. Unlisted companies - many companies have been delisted buy stock exchanges for many reasons. Many such companies are not even eligible to continue to be listed, but they are kept under surveillances of many types and trading in security of such companies is suspended, and after few years or months they are likely to be delisted.

Ease in conversion is required:

It is desirable that there should be procedural ease in conversion. When a public company is fit and eligible for conversion into a private company, simple procedures should be permitted instead of lengthy and many time consuming procedures, as at present.

If a company is eligible for amendment of its memorandum and articles as required for a private company, then prima facie company can be considered eligible for conversion. Therefore, simple procedures for conversion can be adopted.

To take care of interest of stake holders, provisions can be made to ensure that stake holders are given notice and to file objections with the management. If management is unable to satisfy objections, then such stake holders can be allowed to lodge grievances with MCA on their website. For this purpose some sections of website can be designed.

Requirement for lengthy procedure can be give a go by in most of case because as per empirical experience, in most of cases of conversion there are no objections. However, lengthy procedures are to be complied with.

A simplification of procedure will go a long way in lending ease of doing business and NCLT shall also be relieved of lot of work which can be delegated to lower authorities for check and balance and company management can be relied upon for most of matters of compliance which can be checked and reported by CA and CS.

Therefore, team of      management of company, CA and Cs in practice and Officers of MCA (mainly concerned Registrar and his team) can constitute reasonable team and workforce as well as surveillances for the purpose of conversion.

Considering size of company, members, and creditors, simplified procedures can be applied for two or three categories of public companies who want to be converted into private company.

For example in a recently reported case of IN RE : MANORAMA INDUSTRIAL  AND TECHNICAL SERVICES LIMITED  2018 (11) TMI 1044 - NATIONAL COMPANY LAW TRIBUNAL, KOLKATA

We find that the company had to follow long and time consuming procedures. There was no objection from any side of stake holders. In fact there was no likely hood of objections. Therefore, for such companies simple procedure should be allowed. There are many other cases of similar nature. It can be said that once a company is eligible for conversion, as found by management and if approved by shareholders, debenture holders and creditors, there should not be much restrictions and procedure for converting a public company into a private company.

The article is written with an open mind on making business easy and without going into technicalities and procedures because such formalities and procedures are known to readers on this website and can be searched and found easily.

The date of filing is not available however it was during year 2017, as appears from the case no. The  Extra-Ordinary General Meeting (EOGM) was held  on 05.06.2017. The conversion is approved on 26.09.2018 by NCLT. However we find that still in master data as on 01.12.18 on website of MCA the company is being shown as public company.

We find that in this case attendance and order sheets are for following dates as per website of NCLT:

 27.07.2018

30.08.2018

26.09.2018  order  reserved.

08.10.2018 order pronounced.

If we consider the date of EOGM as starting point that is 05.06.2017 and consider date of pronouncement of order by NCLT that is 08.10.2018 we find that it took about 14 months, Still some compliances are pending for ultimate conversion and recording as private company, which is pending till 01.12.18 as seen from the website of MCA.

On reading of the judgment we find that the company and its Pr. CS were quite prompt in complying with various requirements, still it has been a time consuming procedure. Many of such procedures can be simplified and eliminated in most of such case.

There are many simplification aspects in relation to companies:

In view of advanced technology and platforms for dissemination of information to target and concerned people it is time that the websites of companies, MCA, ROC, and stock exchanges, shareholders / investors/ stake holders can be more effectively used and can cut time requirement and costs as is required in process of advertisements in newspapers,   Many procedures can be simplified and made easy for search, and filing of objections, etc. which is difficult in case of advertisements in news papers.

A designated website for specific purposes can be easily searched and information can be found in web search as compared to search of information in news papers. The search can be made from anywhere at any time ( at least most of times). Therefore, for making procedures easy and fast information technology need to be adopted in relation to procedures under the companies act in more meaningful manner.  

Discussions to this article

[DR.MARIAPPAN GOVINDARAJAN]

Very good suggestive article. It will be applicable to all lengthy procedures.