SECTIONS EFFECTED BY NCLT PART II [FOCUS ON SECTION 14(1) SECOND PROVISO]

It gives me immense pleasure to be back with my second part of the article, but before I, start discussion about the second part let me take pleasure to thank all of you for overwhelming response to my first part of the article which motivated me to get started with the second part. The topic of the second part as you can see is focused on Section 14(1) second proviso which is any alteration of articles having the effect of conversion of a public company into a private company. The topic is very interesting and it is technical area for company secretary. There are lot of documents required to complete the process which, I will be taking up in the latter part of this article.

Introduction: As the focus of the topic is alteration of the articles, lets first understand what exactly the word ‘alteration’ means as per Companies Act, 2013. The word alteration is used in the act to mean any addition, omission, and substitution in the article. The word substitution cannot be interpreted as adopting another format of the article and substituting the older article, the essence of the legislature is to mean substitution of any clause in the article.

The Ministry of Corporate Affairs (MCA) had given many relaxations to the private companies vide notification date 5th June, 2015 which was done keeping in line with the Government of India initiative of Ease of Doing Business and make the rules and regulation of Companies Act, 2013 simpler and easier for the private companies. The exemptions, exceptions, modifications and adaptations granted under the notification are prospective in nature.

Any transaction entered into by a private company prior to the date of enforcement of the notification will not be covered by the reliefs granted under the notification. There is a specific term used in the circular “ in public interest” in that case if the relaxation in case is against public interest this circular will not apply.

The notification does not apply to a private company which is a subsidiary of a public company as such a company is deemed to be a public company within the definition of “public company” u/s 2(71) which is regarded as a deemed public company. There were many companies who started converting from public to private after the MCA Circular dated 5th June, 2015, but the approach has to be in planned and organised manner.

Provision of Section 14(1) second proviso: 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 NCLT which shall make such order as it deem fit. This proviso was notified on 1st June, 2016 vide notification by Ministry of Corporate Affairs (MCA)

Provision of Section 14(2): Every alteration of the articles under this section and a copy of the order of the NCLT 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 form INC — 27 from the date of receipt of the order from the NCLT.

Procedure for Approval of NCLT: The procedure for approval of NCLT is a long process it can be divided into many steps. (1) Board Meeting, (2) Notice of General Meeting and General Meeting, (3) Petition to NCLT, (4) Disclosure before the hearing and (5) Notice to government authorities for any objection.

(A) Board Meeting: The notice of Board Meeting shall be given at least 7 days before the meeting as per SS-1. The purpose of the meeting should be (a) Discuss and approve proposal of conversion of the public company to private. In case it is a listed company then the exit price to be also decided for the shareholders. (b) Grant authority to directors to take necessary action. © Decide place, venue, time, date of general meeting and approve notice of general meeting. The listed company should filed with Stock Exchange outcome of meeting within 30 mins from the conclusion of the Board Meeting as per Regulation 30 of SEBI(LODR), 2015. The Listed shall also disclose to the Stock Exchange the Price Sensitive Information within 24 hours from the occurrence of the event as per Regulation 30 of SEBI (LODR), 2015.

(B) General Meeting: The notice of General Meeting shall be given at least 21 clear days before the meeting as per SS -2. The purpose of the meeting should be to approve the conversion of public company to private company by a special resolution.

© Petition to NCLT: As per Rule 68 of NCLT Rules, 2016 a petition for the conversion of public company into a private company shall, not less than 3 months from the date of passing of special resolution be filed to the tribunal in Form no. NCLT — 1 and shall be accompanied by such other documents as are mentioned in Annexure B.

(D) Disclosure before the hearing: As per Rule 68 of NCLT Rules, 2016 the company shall at least 14 days before the date of hearing (a) Advertise the petition in at least once vernacular newspaper of the district where the registered office is situated in principal vernacular language and at least once in English language in an English Newspaper circulating the district. Where any application, petition or reference is required to be advertise it should be advertise in form NCLT — 3A. An affidavit shall be filed to the tribunal, not less than 3 days before the date fixed for hearing, stating whether the petition has been advertised in accordance with this rule with such proof of advertisement and notices duly served upon the persons to be served. The advertisement may be placed in the website of the company.

(E) Notice to government authorities for any objection: As per Rule 68 of NCLT Rules, 2016 the company shall serve the notices at least 14 days before the date of hearing. Notice it to be served by registered post with acknowledgement due, to each debenture holder and creditor of the company and notice with the copy of petition to the Central Government, ROC and SEBI ( if listed company). The individual notices shall be sent in the form no NCLT — 3B. If there is any objection of any person whose interest is likely to be affected by the proposed petition received by the company, it shall serve a copy thereof to the ROC on or before the date of hearing.

NCLT, if it is satisfied that circumstances exist which shows the conversion would not be in the interest of the company or is being made with a view to contravene or to avoid complying with the provisions of the Act, disallow the conversion with reasons to be recorded in writing.

Disclosure related to petition as per Rule 68, NCLT Rules, 2016: Every petition filed shall set out following particulars: (a) Date of BM, (b) Date of GM, © State at which the registered office is situated, (d) no of members of the company, members attended the meeting and number of members voted for or against, (e) reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders and other related parties, (f) listed or unlisted public company, (g) nature of the company, that is, a company limited by shares, a company limited by guarantee ( having share capital or not having share capital) and unlimited company, (h) whether the company is registered under section 8 company.

Disclosure related to application as per Rule 68, NCLT Rules, 2016: In the application there shall be an attachment of list of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of petition by not more than 2 months setting forth following details (a) names and address of every creditor and debenture holder of the company (b) nature and respective amounts due to them in respect of debts, claims or liabilities © in respect of any contingent or unascertained debt or any such claim admissible to proof in winding up of the company, the value so far as can be justly estimated of such debt or claim.

An affidavit shall be filed by the company signed by CS of the company, if any, and not less than 2 directors of the company, one of whom shall be Managing Director, where there is one, to the effect that they have made a full enquiry into the affairs of the company and having done so have formed an opinion that the list of creditors is correct and that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimate of the value of such debts and claims and there are no other debts of or claims against the company to their knowledge.

A duly authenticated copy of the list of creditors shall be kept at the registered office of the company and any person desirous of inspecting the same way, at any time during the ordinary hours of business, inspect and take extracts from the same on payment of Rs 10/page to the company.

Annexure B Documents: (a) Copy of MOA, (b) Copy of the documents showing that the company ceased to become a public company, © affidavit verifying the petition, (d) bank draft evidencing payment of application fee.

Forms:

• MGT — 14 — Filing of special resolution with 30 days of passing the resolution.
• NCLT — 1 — A petition for conversion of public company into private company not less than 3 months from date of passing of special resolution.
• NCLT — 3A — Advertisement of the petition at least 14 days before the hearing.
• NCLT — 3B — Individual Notices to be sent at least 14 days before the hearing.
• NCLT — 4 — General heading in all proceedings before the Tribunal, in all advertisements and notices.
• NCLT — 2 — Attachments of NCLT — 1
• NCLT — 6 — Every petition or application shall be verified by an affidavit.
• NCLT — 5 Notice to be issued by the Tribunal.
• INC — 27 — Application for conversion of public company into private company.
• INC — 27 — A copy of the order of the NCLT approving alteration together with printed copy of altered articles within 15 days of the date of receipt of the order.

Note: There is no approval required where there is only change in the name of the company is the addition or deletion of private consequent on the conversion of any class of companies to another class.

Additional Documents Required by some NCLT: Affidavit of Directors/MD/WTD stating:- (a) never listed on Stock Exchange, (b) never accepted deposit, © no demand from Sales tax/Income Tax/Excise, (d) certificate of commencement of business, (e) proof of filing of statutory report with ROC, (f) list of pending cases before any court of law where company is a party.

The official link of MCA Circular dated 5th June, 2015 is given below will make you understand why companies started converting itself to private company.

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Regards,

PCS Gourav Saraf