2017 (6) TMI 1004 - Tri - Companies Law

Conversion from public to private - alteration of articles - Held that - The Petitioner has given the Undertaking that no prejudice is going to be caused to any of the member from the Creditors if the conversion is sanctioned. The Petitioner has stated that there are only 11 Sundry Creditors as on 15th February, 2017 who have No Objection if the conversion is allowed. Public Notice by advertising in Newspapers viz. Loksatta and Financial Express was published on 13th April, 2017, relevant evidence is placed on record The Petitioner has complied with provisions of Section 14 to be read with Rule 68 of NCLT Rules, 2016. Therefore, having regard to all the circumstances, the conversion from public to private is in the interest of the Company which is being made with a view to comply efficiently with the provisions of Companies Act, 2013 causing no prejudice either to the members or to the creditors of the Petitioner. Therefore, the conversion is hereby allowed. The Petitioner is hereby directed to give effect of the conversion by requisite alteration in its Articles which is hereby addressed and communicate the altered Articles within a period of 15 days to the Registrar.

Issues involved:
1. Interpretation of Section 14 of the Companies Act, 2013 regarding the conversion of a public company into a private company.
2. Applicability of the Ministry of Corporate Affairs Notification dated 11th June, 2014.
3. Relevance and impact of the Notification on the provisions of Companies Act, 1956 and Companies Act, 2013.
4. Examination of Rule 33 of the Companies (Incorporation) Rule, 2014 in light of Section 14(2) of the Act 2013.
5. Compliance with Rule 68 of the National Company Law Tribunal Rules, 2016 for the conversion of a public company to a private company.
6. Evaluation of the petition for conversion based on reasons provided and capital structure details.
7. Consideration of the company's history, shareholder structure, and creditor no-objection for the conversion.
8. Final decision on the conversion application based on legal provisions and compliance with NCLT Rules.

Analysis:

1. The judgment primarily revolves around interpreting Section 14 of the Companies Act, 2013, which deals with the alteration of articles for the conversion of a public company into a private company. The provision mandates that such conversion requires approval from the Tribunal, and the Tribunal has the authority to make appropriate orders as deemed fit.

2. The relevance of the Ministry of Corporate Affairs Notification dated 11th June, 2014 is crucial in understanding the transitional arrangements between the Companies Act, 1956 and Companies Act, 2013. This notification specified that until corresponding provisions of the Companies Act, 2013 are notified, the provisions of the Companies Act, 1956 shall remain in force.

3. The impact of the notification suspended the applicability of old provisions, including Rule 33 of the Companies (Incorporation) Rule, 2014. The judgment highlights that the operation of Rule 33 became redundant due to the notification and the subsequent enforcement of Section 14(2) of the Act in 2016.

4. The judgment emphasizes that the statutory provisions of the Companies Act, 2013 supersede any conflicting rules, such as Rule 33, and the Tribunal's powers under Section 14(2) take precedence in matters of company conversion.

5. Compliance with Rule 68 of the National Company Law Tribunal Rules, 2016 is essential for the conversion of a public company to a private company. The judgment scrutinizes the petitioner's adherence to the conditions laid down in Rule 68, including board resolutions, reasons for conversion, and capital structure details.

6. The petition's evaluation includes a detailed examination of the company's history, shareholder structure, and creditor no-objection for the conversion. The judgment considers the petitioner's compliance with Section 14 and Rule 68 before granting permission for the conversion.

7. Based on the legal provisions and the petitioner's compliance with NCLT Rules, the judgment allows the conversion from public to private company. The decision ensures that the conversion is in the company's interest, aligning with the Companies Act, 2013, without causing prejudice to members or creditors.

8. The final decision directs the petitioner to effect the conversion by altering its articles within the specified timeframe and communicate the changes to the Registrar, ultimately allowing the conversion application without imposing any costs.

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