National Herald and the Companies Act, 2013


National Herald was a newspaper and is a building and, for most political activist on social media, a case by a politician against its rivals.

For one set of political fighters, as it seems on social media, this is now a High Court Judgment or order which exposed a political party, a political family, a political culture and a political ideology. For another set of political fighters, as it seems on social media, this is dictator’s verdict came through the mouth of the court. All is hype and intentionally biased. Some elements of dishonour for Parliament and/or Judiciary from both sets are present in the process.

The High Court just said; please follow the course of law in a case which evidences a criminal intent, no guilty verdict yet. The Copy of the order may be accessed here.

This is case of three legal persons; a Political Party, a Private Limited Company and a Not For Profit Company. This is, allegedly a game of seven natural persons.

In Para 8, the court reproduced the chart, which show:

  1. Composition of Office Bearers of Political Party:
    1. President – A1
    2. Vice President – A2
    3. Treasurer – A3
    4. General Secretary – A4
  2. Members of Board of Directors/ Shareholders of Private Limited Company:
    1. Major Shareholder – A2
    2. CMD – A3
    3. Director – A4
    4. Director – A5
    5. Director – A6
  3. Founder Members/Directors of Not for Profit Company:
    1. Member – A1
    2. Member – A2
    3. Member – A3
    4. Member – A4
    5. Director – A5
    6. Director – A6

The eight steps giving gist of complaint are:

  1. Private Limited Company was terminated printing of the newspapers.
  2. Board of Directors of Not for Profit Company formally passed a Resolution offering to own the outstanding debt of Private Limited Company of Rs. 90 crores. This offer was accepted by the Chairman and Board of Private Limited Company.
  3. Senior Office Bearers of Political Party used their position to provide an unsecured zero interest of loan of Rs. 90 crores.
  4. Private Limited Company thereafter held a meeting of their Board and resolved that in lieu of Not For Profit Company owing the debt and for a further consideration of Rs. 50 Lakhs, the entire share equity of Private Limited Company would be transferred to Not For Profit Company. Thus, Private Limited Company became a wholly owned company of Not For Profit Company.
  5. Office Bearer of Political Party thereafter held a meeting and decided to write off the loan from the Political Party as irrecoverable.
  6. Thus, having possession of the vast Real Estate, the Not For Profit Company declared that it will not engage in publishing a newspaper as it was against the declared objective submitted for obtaining the registration under Section 25 of the Companies Act.
  7. The Memorandum of Association of the Private Limited Company bars the Company from entering into any transaction which is not for furthering its objective to publish newspapers.
  8. There was a prime property in and was given by the Government for the purpose of publishing a newspaper at concessional rates. However, Not For Profit Company has opened this property for commercial renting.

These are basis facts to understand the case. Now, interesting turn, fun or legal angle which came into picture lies in Section 8 of the Companies Act, 2013.

According to Para 35 of the order, “An apprehension was expressed by respondent-complainant that since petitioners have acquired full control of Private Limited Company, therefore, the day is not far away when petitioners would liquidate the assets of Private Limited Company by converting Not For Profit, into any other kind of company as Section 8 of the Companies Act, 2013 now permits adoption of such a course.”

Now, Move out of the case, its legal future, political effects, and historical values.

Relevant Sub – section (4) of Section 8 is reproduced hereunder:

“(4) (i) A company registered under this section shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government.

(ii) A company registered under this section may convert itself into company of any other kind only after complying with such conditions as may be prescribed.

There was not corresponding provision to this sub – section in earlier law, the Companies Act, 1956.

We have Section 8 in questions, what will be future of Subsidized Land allotted to Not For Profit Company?

Here comes a delegated legislation, which may be amended by stroke of a mighty pen of a mighty officer in mighty Ministry. Rule 21 and 22 of the Companies (Incorporation) Rules, 2015 deals with such potential happening.

Rule 21(2)(e) prescribed that the Explanatory Statement annexed to the notice convening the general meeting for such conversion set out details; what are the privileges or concessions currently enjoyed by the company, such as tax exemptions, approvals for receiving donations or contributions including foreign contributions, land and other immovable properties, if any, that were acquired by the company at concessional rates or prices or gratuitously and, if so, the market prices prevalent at the time of acquisition and the price that was paid by the company, details of any donations or bequests received by the company with conditions attached to their utilization etc.

Rule 22(4) prescribes that Where the company has obtained any special status, privilege, exemption, benefit or grant(s) from any authority such as Income Tax Department, Charity Commissioner or any organisation or Department of Central Government, State Government, Municipal Body or any recognized authority, a “No Objection Certificate” must be obtained, if required under the terms of the said special status, privilege, exemption, benefit or grant(s) from the concerned authority and filed with the Regional Director, along with the application.

According to (8). On receipt of the application, and on being satisfied , the Regional Director shall issue an order approving the conversion of the company into a company of any other kind subject to such terms and conditions as may be imposed in the facts and circumstances of each case including the following conditions, namely;-

(a) the company shall give up and shall not claim, with effect from the date its conversion takes effect, any special status, exemptions or privileges that it enjoyed by virtue of having been registered under the provisions of section 8;

(b) if the company had acquired any immovable property free of cost or at a concessional cost from any government or authority, it may be required to pay the difference between the cost at which it acquired such property and the market price of such property at the time of conversion either to the government or to the authority that provided the immovable property;

(c) any accumulated profit or unutilised income of the company brought forward from previous years shall be first utilized to settle all outstanding statutory dues, amounts due to lenders claims of creditors, suppliers, service providers and others including employees and lastly any loans advanced by the promoters or members or any other amounts due to them and the balance, if any, shall be transferred to the Investor Education and Protection Fund within thirty days of receiving the approval for conversion.

You as certainly want to say something about law; all comments, suggestions, clarifications are welcome.

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8 responses to “National Herald and the Companies Act, 2013

  1. Pingback: Index of Companies Law Posts | AishMGhrana

  2. A CLEVER ATTEMPT TO BE RICH OVERNIGHT, BUT LACKS IN ETHICAL ASPECTS. THERE ARE CRORES OF MEMBERS OF CONGRESS AND EACH ONE MAY NOT LOSE EVEN 10 Rs. DUE TO WRITE OFF OF Rs.90 CRORES BY THE CONGRESS AS PER DEAL BUT FOUR SHAREHOLDERS OF YI MAY GAIN ABUNDANTLY AT THEIR COST. YI AND AJL MAY BE MERGED BEING HOLDING – SUBSIDIARY WITHOUT ANY HASTLE AND THEN YI CONVERTED FROM SECTION 8 COMPANY TO ANOTHER FORM OF COMPANY.
    I SEARCHED ON MCA SITE FOR AJL BUT COULD NOT FIND IT, HOWEVER THERE ARE FOUR COMPANIES – ASSOCIATED JOURNALS (BOMBAY) PRIVATE LTD; ASSOCIATED JOURNALS (MADHYA PRADESH) PRIVATE LTD; ASSOCIATED JOURNALS (BIHAR) PRIVATE LTD; ASSOCIATED JOURNALS (MADRAS) PRIVATE LTD;

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    • 1 Do not jump the conclusions. This is Criminal case and mens rea is yet to be proved .
      2. My focus is on debate on Section 8 of the Act.

      Like

    • There may be separate entity and divided in Bombay, Madhya Pradesh. Like…May be a part and parcel of AJL… Delhi. Just Go through Balance Sheet of Delhi, Subsidiaries Companies etc. May be separated for some purpose which is circled and called now for Taking assets in private , instead of Trust!!!!!!They have their own interest ……Rs1000000 Crores + Rupees worth assets left by Jawaharlal Nehru , Indira Gandhi and Rajeev Gandhi etc. What about share of Sanjay Gandhi and Family???!!!
      Shah D J

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  3. Some people without reading and understanding the case, jumping to conclusion. As far as Criminal Case concerned, please read this information and understand criminal justice law and system: http://www.thequint.com/opinion/2015/12/13/national-herald-proving-criminal-intent-will-be-swamys-headache

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  4. Passive Mode of Legal Heir for transmission is another angle ==> Associated Journals Ltd shareholder Shanti Bhushan to challenge ‘illegal’ deal – Times of India http://timesofindia.indiatimes.com/india/Associated-Journals-Ltd-shareholder-Shanti-Bhushan-to-challenge-illegal-deal/articleshow/50130056.cms

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    • Good but some self interest only. Not for Public at large!!!!! Are they fight for true case for public at large? No never in their Life , I think and believe.
      God save us.

      Like

  5. Oh Really these is all being complied and carried out properly? And also supervised by Office of Registrar of Company , Offices of Ministry of Corporate Affairs and least but not last SEBI ever and all through in spirit ?
    God save us.

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