NCLT Approval : Conversion of public company into private company

Anjali Gorsia , Last updated: 26 June 2017
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SUMMARY

In this article, the author describes the Section of the Companies Act, 2013 and respective rules thereof for conversion of the public company into a private company under which the Company already being registered can be converted subject to the provisions of this act and procedure to be followed. I have prepared a checklist for the process of conversion of a Public Company into a Private Company, considering provisions of the Act as well as NCLT Rules, 2016. Hope this article is helpful to you all.

Articles of Associations are drawn up for the purpose of internal administration of the business (regarded as bye-laws of the company), containing the regulation of the company and such matters, hence it has to be constructed strictly.

RELEVANT SECTIONS & RULES THEREOF HAVING THE EFFECT OF CONVERSION OF PUBLIC COMPANIES INTO PRIVATE COMPANIES;

1	Section 13	Alteration of Memorandum of Association
2	Section 14(1)(b)	Alteration of Articles of Association having effect of conversion into public into private companies
3	Section 18	Conversion of Companies Already registered
4	Rule 33 of Companies (Incorporation) Rules, 2014	INC-27 for Conversion of Public Company into Private Company

SECTION 14(1)(B): ALTERATION OF ARTICLES

This section vests company with the power to alter or add its articles, if any, by a special resolution. It lays down the procedure for alteration of articles. A company may alter its articles including alterations having an effect of conversions of the public company into a private company, which shall not take effect except with the approval of the tribunal which shall make an order as it deems fit.

COMPANIES (INCORPORATION) RULES, 2014:

For effecting the conversion of public company into private company, copy of order of the competent authority approving the alteration, shall be filed with the Registrar Form No INC 27 with fee together with the printed copy of the altered articles within 15 days of the receipt of the order of the Central Government (Rule 33).

The term 'Competent Authority' means the Central Government.

SECTION 18: CONVERSION OF COMPANIES ALREADY REGISTERED

This section permits a company of any class registered under this act to convert itself in some other class of company by altering its memorandum and articles of association. The conversion shall not affect any debts, liabilities, obligations or contracts incurred or entered into by the company.

APPROVAL OF TRIBUNAL; TO GIVE EFFECT TO SUCH CONVERSIONS;

Ministry of Corporate Affairs vides notifications1 dated 01st June 2016 notified certain provisions of the Companies Act, 2013 Act, thereby making the functioning of NCLT and NCLAT which includes Alteration of Articles having the effect of conversions of a public company into private company shall be effective only after the approval of tribunal.

PROCEDURE LAY BEFORE NCLT AS PER NCLT RULES, 2014;

PART- VIII, PART- RULE 68, 68 (5), PETITION UNDER SECTION 14

1. A petition to NCLT for conversion shall not be made; shall, not less than three months from the date of passing of the special resolution, be filed to the Tribunal in Form No. NCLT-1.

ACCOMPANIED WITH SUCH DOCUMENTS

SHOWING SUCH PARTICULARS

A copy of the memorandum and articles of association.

A copy of the documents showing that the company ceased to become a public company.

Affidavit verifying the petition.

Bank draft evidencing payment of application fee.

Memorandum of appearance with a copy of the Board Resolution or the executed Vakalatnama, as the case may be. (Form NCLT-12)

List of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of a petition by not more than two months, setting forth the following details:

An affidavit, signed by the CS, if any and by two directors, one of whom shall be a managing director, where there is one - that the list of creditors is correct, and that the estimated value are proper estimates of the values of debts and claims and that there are no other debts of, or claims against, the company to their knowledge.

List of creditors shall be kept at the registered office and shall be available for inspection.

(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;

(d) number of members in the company, the number of members attended the meeting and number of members of voted for and against;

(e) The reason for conversion into a private company, an 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.

The company shall at least 14 days before the date of hearing:

Advertise the petition in accordance with Rule 7;
Serve individual notice(s) in Form NCT. No. 3B; and
Serve, a notice together with the copy of the petition to the CG, ROC and to the SEBI, to other the regulatory body, viz IRDA

Objection received - serve a copy thereof to the ROC on or before the date of hearing.

Tribunal may allow the conversion.

May disallow the conversion, if:

Not 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.

SOME PROVISIONS OF RULE 35 OF NCLT RULES, 2016:

Where the advertisement is being given by the company, then the same may also be placed on the website of the company, if any.

An affidavit shall be filed with the Tribunal, not less than three days before the date fixed for the hearing, stating whether the petition has been advertised in accordance with this rule and whether the notices, if any, have been duly served upon the persons required to be served:

Provided that the affidavit shall be accompanied by such proof of advertisement or of the service, as may be available.

PROCEDURE UNDER COMPANIES ACT, 2013.

1. ISSUE NOTICE OF BOARD MEETING

Section 173(3) of the Act & Secretarial Standard-1 (SS-1)

1. Notice
2. Main Agenda of Meeting:

- To consider In principal approval for conversion of Public Company into Private Company by altering Articles.
- To fix the date, time and place for holding Extraordinary General Meeting (EGM) for approval of Shareholders by way of SR for conversion of Public Company into Private Company by altering Articles.
- To approve Notice of EGM along with an explanatory statement to be annexed with the notice as per Section 102(1) of the Act.
- To authorize Company Secretary/Director to issue a notice of EGM.
- To authorize Company Secretary in practice/ practicing Chartered Accountant/practicing Cost Accountant, to enter an appearance.

2. HOLDING OF BOARD MEETING

Section 173 of the Act & SS-1 Pass all resolutions given in Agenda

3. ISSUE NOTICE OF (EGM) FOR PASSING (SR)

Sections 100,101, 102 of the Act & Secretarial Standard-2 (SS-2) Send notice along with Explanatory Statement to all Members, Directors and the Auditors of the company accordance with the provisions of Section 101 of the Act.

4. FILE E-FORM MGT-14 WITHIN 30 DAYS OF PASSING SR

Section 117 of the Act Attachment in E-form MGT-14

1. Certified True copy of Special Resolution along with a copy of explanatory statement
2. Altered memorandum of association
3. Altered Articles of Association
4. Notice of EGM
5. Any other information may be in optional attachment

5. FILING OF PETITION TO NCLT FOR ORDER

6. File E-Form INC-27 to the ROC within 30 days from the date of receiving of order of NCLT

7. Issue Fresh Certificate of Incorporation by Registrar -

8. POST CONVERSION STEPS

Intimate to all concerned authorities, arrangement of new PAN, update bank Accounts details, new stationery like new letterhead, new rubber stamps etc.

Hope my article helps you all for conceptual and procedural clarity. Any other suggestions /opinions are welcomed. Free to contact me for specific formats.

DISCLAIMER: The entire contents of this document have been developed on the basis of relevant information and are purely the views of the authors. Though the authors have made utmost efforts to provide authentic information however, the authors expressly disclaim all or any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document. READER SHOULD SEEK APPROPRIATE COUNSEL FOR YOUR OWN SITUATION. I SHALL NO BE HELD LIABLE FOR ANY OF THE CONSEQUENCES DIRECTLY OR INDIRECTLY.

The author is a Company Secretary in Practice from Nagpur (Maharashtra) and can also be reached at csanjali.gorsia@gmail.com