Conversion of Public Company to Private Company


Conversion from a private company to public company is not news and has no legal hurdle also. On the other hand, a decision to convert itself into a public company is always big news. According to the second proviso to subsection (1) of Section 14 of the Companies Act, 2013, “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.”

Special Resolution

According to Subsection (1) of Section 14, a company may, by a special resolution, alter its articles including alterations having the effect of conversion of a public company into a private company. This special resolution converting a public company into a private company shall not take effect unless approved by the National Company Law Tribunal.

Petition under section 14

A petition under the second provision to sub-section (1) of section 14 of the Companies Act, 2013 for the conversion of a public company into a private company, shall, not less than three months from the date of passing of special resolution, be filed to the Tribunal in Form NCLT-1 and shall be accompanied by such documents as are mentioned in Annexure – B of the National Company Law Tribunal Rules, 2016.

These documents are 1. Copy of the memorandum and articles of association. 2. Copy of the documents showing that the company ceased to be a public company. 3. Affidavit verifying the petition. 4. Bank draft evidencing payment of application fee. 5. Memorandum of appearance with the copy of the Board Resolution or the executed Vakalatnama, as the case may be.

There should be a gap of 3 months between special resolution and filing of the petition.

Particulars in the petition

According to sub-rule 68(2), every petition shall set out the following particulars:
(a) the date of the Board meeting at which the proposal for alteration of Articles was approved;
(b) the date of the general meeting at which the proposed alteration was approved;
(c) State at which the registered office of the company was situated;
(d) number of members in the company, number of members attended the meeting and number of members voted for and against;
(e) reason for conversion into a private company, the effect of such conversion on shareholders, creditors, debenture holders and other related parties.
(f) listed or unlisted public company;
(g) the nature of the company, that is, a company limited by shares, a company limited by guarantee (having a share capital or not having share capital) and unlimited company;
(h) details as to whether a company registered under section 8 of the Act.

List of Creditors

According to sub-rule 68(3), there shall be attached to the application, a list of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of the petition by not more than two months.

The list of creditors and debenture-holders, set forth the following details:
(a) the names and address of every creditor and debenture holder of the company;
(b) the nature and respective amounts due to them in respect of debts, claims or liabilities;
(c) 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.

Here, term “claim admissible to proof in winding up of the company” is an important test.

According to proviso to sub-rule 68(3), the petitioner company shall file an affidavit, to the effect

  1. 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
  2. that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims and that
  3. there are no other debts of, or claims against, the company to their knowledge.

The affidavit shall be signed by the company secretary of the company, if any, and not less than two directors of the company, one of whom shall be a managing director, where there is one.

According to sub-rule 68(4), 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 may, at any time during the ordinary hours of business, inspect and take extracts from the same on payment of the sum of rupees ten per page to the company.

Advertisement and service of petition

According to Rule 68(5), the company shall at least fourteen days before the date of hearing; –
(a) advertise the petition in accordance with rule 35;
(b) serve, by registered post with acknowledgement due, individual notice in Form NCLT-3B to the effect set out in sub-rule (a) on each debenture-holder and creditor of the company; and
(c) serve, by registered post with acknowledgement due, a notice together with the copy of the petition to the Central Government, Registrar of Companies and to the Securities and Exchange Board of India, in the case of listed companies and to the regulatory body, if the company is regulated under any other Act.

Therefore the copy of petition shall be served on –

  1. Debenture-holders (Form NCLT-3B);
  2. Creditors (Form NCLT-3B);
  3. Central Government;
  4. Registrar of Companies;
  5. Securities and Exchange Board of India, in the case of listed company; and
  6. Concerned regulatory body, if any.

Objection

According to Rule 68(6), where any objection of any person whose interest is likely to be affected by the proposed petition has been received by the petitioner, it shall serve a copy thereof to the Registrar on or before the date of hearing.

Satisfaction of Tribunal

According to Rule 68(7), while passing an order, the Tribunal may, if it is satisfied, having regard to all the circumstances of the case, that:

  1. the conversion would not be in the interest of the company or
  2. 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.

Filing with Registrar

According to subsection (2) of section 14, every alteration of the articles (that is the special resolution passed for the purpose) 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.

According to Rule 33 of the Companies (incorporation) Rules, 2014 for effecting the conversion of a public company into a private company, a copy of order of the Tribunal  approving the alteration, shall be filled with the Registrar in Form INC -27 with fee together with the printed copy of altered articles within fifteen days from the date of receipt of the order from the Tribunal.

The printed copy here means scanned copy of the updated copy of the article of association.

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