Board’s powers - What amounts to disposal of property to attract restriction contemplated in clause (a) - Companies Law - No. 2/3/69‑CL-V,

Circular : No. 2/3/69 ‑ CL-V, dated 31 ‑ 7 ‑ 1970. Subject:- Board s powers - What amounts to disposal of property to attract restriction contemplated in clause (a) The question of interpretation of section 293(1)(a) has been receiving the attention of this Department for quite some time and the Department has given clarifications in their Circulars of even number, dated 19‑2‑1969, 5‑9‑1969 and 12‑1‑1970. The Department has since considered the matter once again in the light of different opinions expressed on the subject. In view thereof, the Department feels that the aforesaid Circular may be treated as cancelled. Circulars referred to in Clarification Circular, dated 12 ‑ 1 ‑ 1970 ‑ Attention is invited to this Department letters of even number, dated 19‑2‑1969 and 5‑9‑1969 on the above noted subject and to state that the matter has been re‑examined recently in the light of judgment delivered by the Mysore High Court in International Cotton Corporation (P.) Ltd v. Bank of Maharashtra. In this case the Court has held the view that the property of a company, which is not connected with the essential part of the business activity of the company and parting with which will not have the effect of affecting the business of the company, cannot be construed as being either the undertaking or a part of the undertaking within the meaning of section 293(1)(a). The Department has not been advised that all types of mortgages of such essential properties or the undertakings of a company, which happen to be an essential part of the business activity, so as to constitute its undertaking would require compliance with the provisions of section 293(1)(a) and not otherwise. Circular, dated 5 ‑ 9 ‑ 1969 ‑ Attention is invited to this Department letter of even number dated 19‑2-1969, and to state that after a careful reconsideration of the matter, this Department has been advised that in all forms of mortgages, apart from simple mortgages and mortgages by deposit of title deeds, the mortgaged property is conveyed to the mortgagee subject of course to the mortgagor s equity of redemption. Any form of mortgage requiring the property charged to be conveyed to the mortgagee should be deemed to amount to a disposal of property within the meaning of section 293(1)(a). Circular, dated 19 ‑ 2 ‑ 1969 ‑ A question has recently been raised about interpretation of the word substantially in section 293 and whether mortgage of company s properties amounts to disposal to attract the provisions of the section. The matter has been considered by the Department and it is viewed that if a company makes assignable mortgage of the whole or substantially the whole of its undertaking for obtaining loans or other financial assistance, it need not comply with the provisions of section 293(1)(a) but in case such mortgage is a usufructuary mortgage the said section would be attracted.