Conversion of public company into private company- RD authorised one step towards ease of doing business but there seems legal hurdles. Separate laws relating to different type of companies is need of hour to really extend ease of doing business.

[CA DEV KUMAR KOTHARI]

Relevant links and references:

S.O. 6225 (E).- NOTIFICATION dt. 18th December, 2018 issued by MINISTRY OF CORPORATE AFFAIRS found at:

https://www.taxmanagementindia.com/Print/print_notifications.asp?ID=127470

Also see sections of the Companies Act, 2013 referred to in the notification for which links have been added on this website at:

https://www.taxmanagementindia.com/Print/print_Act_Rule.asp?ID=17299

Earlier article webhosted on 04^th December,2018.

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

In earlier article referred to above webhosted on 4^th December, 2018 learned author had made a study and requested for making easy, quicker and less costly procedure for conversion of public company into a private company.

The learned  author had also given logic and reasoning for the same.

The learned author had also given some suggestions in this regard.

First step taken by government:

It is pleasure to observe that by the notification, authorising Regional Directors, mentioned in the notification, the central Government has   taken first step towards such simplification. However, more simplifications and adoption of quicker means of communication is desired to make process easy, quick and less costly.

  Relevant provisions and notification are reproduced with highlights added:

Statutory Provisions

Companies Act, 2013

Definitions

     2. In this Act, unless the context otherwise requires,-

(68) "private company" means a company having a minimum paid-up share capital ¹[***] as may be prescribed, and which by its articles,-

               (i)  restricts the right to transfer its shares;

               (ii)  except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

          Provided further that-

               (A) persons who are in the employment of the company; and

               (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,

shall not be included in the number of members; and

               (iii) prohibits any invitation to the public to subscribe for any securities of the company;

(71) "public company" means a company which-

               (a)  is not a private company; ¹³[and]

               (b)  has a minimum paid-up share capital ²[***] as may be prescribed:

          Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

          (90) "Tribunal" means the National Company Law Tribunal constituted under section 408;

Alteration of articles

     14. (1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of-

          (a)  a private company into a public company; or

          (b)  a public company into a private company:

     Provided that where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company:

     Provided further that any alteration having the effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.

     (2) Every alteration of the articles under this section and a copy of the order of the Tribunal approving the alteration as per sub-section (1) shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such manner as may be prescribed, who shall register the same.

     (3) Any alteration of the articles registered under sub-section (2) shall, subject to the provisions of this Act, be valid as if it were originally in the articles.

Constitution of National Company Law Tribunal

     408. The Central Government shall, by notification, constitute, with effect from such date as may be specified therein, a Tribunal to be known as the National Company Law Tribunal consisting of a President and such number of Judicial and Technical members, as the Central Government may deem necessary, to be appointed by it by notification, to exercise and discharge such powers and functions as are, or may be, conferred on it by or under this Act or any other law for the time being in force.

Delegation by Central Government of its powers and functions

     458. (1) The Central Government may, by notification, and subject to such conditions, limitations and restrictions as may be specified therein, delegate any of its powers or functions under this Act other than the power to make rules to such authority or officer as may be specified in the notification:

     ¹[***]

     (2) A copy of every notification issued under sub-section (1) shall, as soon as may be after it is issued, be laid before each House of Parliament.

 

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 18th December, 2018

S.O. 6225 (E).-In exercise of the powers conferred by section 458 of the Companies Act, 2013 (18 of 2013), the Central Government hereby delegates to the Regional Directors at Mumbai, Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Shillong, the powers and functions vested in it under the first proviso to clause (41) of section 2 and second proviso to sub-section (1) of section 14 of the said Act, subject to the condition that the Central Government may revoke such delegation of powers or may itself exercise the powers under the said sub-section, if in its opinion such a course of action is necessary in the public interest.

2. This notification shall come into force with effect from the date of its publication in the Official Gazette.

[F. No. 1/06/2014-CL-V, Part-I]

K. V. R. MURTY, Jt. Secy.

 Authors observations:

As per Section 458 the Central Government can delegate its powers to any authority. However, we find that in case of conversion of a public company into private company approval of Tribunal is specifically required as per  second proviso to sub-section (1) of section 14 of the said Act. At cost of repetition the said proviso is reproduced below:

          “ Provided further that any alteration having the effect of conversion of a public company into a private company shall not take effect except with the approval of the Tribunal which shall make such order as it may deem fit.”

Unquote:

The above proviso is a part of the main enactment that is the Companies Act, 2013. The language used is mandatory. Whether Tribunal can be called an authority also need to be examined in depth.

Therefore, it need to be further examined whether the present notification in this regard is final or it still require more approvals or amendment in the Act. Author hope to undertake study and come out with his views very soon.

Conclusion:

The NAMO government is aiming to make business easy and also to make life of people easy. However, it seems that there is need of total simplification of laws (Acts, Rules, Notifications, Circulars etc.) however, it is felt that most of amendments are making laws more complex and un-certain. This is indicative of lack of foresight in understanding of problems and finding solutions.

In case of companies separate law can be made for different companies like private company, listed public companies, un listed public companies , one man  companies etc.

This will help each type of company to quickly and easily know the law applicable to it.