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Section 180(1)(a)

zankhana Trivedi (Company Secretary) (462 Points)

10 February 2014

Dear All,

Cay you please guide me for below given query.

Suppose X Limited sold its plant and machinery to Y Limited in excess of 20% of the net worth of the Company, can we say it as sale of undertaking. Please note managment of both the compaies are run by the same director/Directo's relatives.

can anyone provide me the draft of resoluton for sale of plant and machniery in persuance of Section 180(1)(a) of the Companies Act, 2013. please suggest me.

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13 Replies

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 12 February 2014

Section 180(1(a) of Companies Act 2013, which has come into force, reads as under:

"(1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:—

(a)		to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking25 of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.
		Explanation.—For the purposes of this clause,—

(i) "undertaking" shall mean an undertaking in which the investment of the company exceeds twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent of the total income of the company during the previous financial year;

(ii) the expression "substantially the whole of the undertaking" in any financial year shall mean twenty per cent or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;"

Hence you have to analyse the situation in your case and decide accordingly. The answer will depend upon two questions:

a) Whether the company is having only one undertaking or more than one undertaking within the meaning of Explanation (i) above?

b) Whether the company is disposing of the whole or substantially the whole of any such undertaking within the meaning of Explanation (ii) above?

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zankhana Trivedi (Company Secretary) (462 Points)
Replied 14 February 2014

Thanks Mr. Agrawal,

Company X is falling under Explanation ii.. i.e. Company X is selling substantially the whole of the undertaking.. Company X has sold its Plant & machinery to Company Y which is more than the 20% of its undertaking.

Can you please provide me draft of shareholder resolution.

Vaiyapuri kannan (V.P.FINANCE & COMPANY SECRETARY) (274 Points)
Replied 27 May 2014

The banker is asking about the below certificate under section 180 (1)(a) of the Companies Act 2013 before granting loan to the borrower in addition to a certificate issued under section 180(1)(c) . Most of us are a little bit confused about the content of the below certificate and also about the reason for obtaining this certificate. While going thru the explanation given under section 180(1)(a) about the meaning of the undertaking , it may be inferred that undertaking means that an undertaking in which the investment made by the company exceeds 20% of the net worth of the company or an undertaking which generates at least 20% of the total income of the company during the previous financial year . If the company has separate undertaking ( special vehicle undertaking ) which is named differently but which is part and parcel of the company / body corporate and the company has also owned assets in its own name in addition to the assets owned by the special purpose vehicle undertaking , the banker would ask about a separate special resolution passed by the undertaking under section 180(1)(a) to create a charge over the assets owned by it in addition to the special resolution passed by the company under section 180(1)(a) . Now the reason for asking the below certificate is very obvious that both the company and undertaking are same and there is no separate undertaking ( as defined under section 180(1)(a) of the Act ) owned by the company and all the assets over which the charge to be created are fully owned by the company
Certificate The assets of the Borrower (as detailed in Annexure I hereto) over which the proposed security is to be created to secure the Facility do not comprise an “undertaking” of the Borrower as defined under Section 180 (1) (a) of the Companies Act 2013, and accordingly, creation of security over such assets does not fall under the purview of section 180 (1)(a) of the Companies Act, 2013, and does not require the consent of shareholders of the Borrower by way of a special resolution.

C.S. CHANDANI SARUPARIA (COMPANY SECRETARY) (556 Points)
Replied 28 May 2014

Resolution under sec 180 (1)(a) -

“RESOLVED THAT pursuant to the provisions of section 180(1)(a) and other applicable provisions, if any, of The Companies Act, 2013 and The Companies Act,1956,read with article... of Article of Association of the company, Consent of the company be and is hereby accorded to the Board of Directors to sell, lease or otherwise dispose of the immovable property(ies) or undertaking(s) of the company including creation of charge or mortgage on the properties of the company as may be required to the company for the purpose of borrowing from time to time.”

Regards

Chandani Sarupparia

Ketan Ranade (Company Secretary) (64 Points)
Replied 13 November 2014

Dear All, Can you please help me with the question, if companies producing two products and out of which production of one product is stopped by company and now they are selling all the machinery related to that product. will it amounts to sell of substatially whole undertaking? and will they need to paas special resolution before selling such machinery?

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Anthony (Proprietor) (21 Points)
Replied 18 November 2014

A Public Limited company has various businesses, would like to sell any two of them. The buyer is same. Individually none of the two businesses has more than 20 percent Investment of the total networth. However, the combined investment in these two businesses is more than 20% of the networth of the Company, thus becomes an undertaking (jointly) as per Section 180 (1) (a). Can I treat them seperately? if not, Shareholders' approval is necessary? Can board approve such item by video conference?

C S Neelam Suthar (CS) (50 Points)
Replied 23 February 2016

Are we have to file MGT-14 for transactions under section 180(1) a

prakash (Company Secretary) (1352 Points)
Replied 24 February 2016

Neelam,

Yes Company has to file MGT-14 as Section 117 (3) (e) of the CA, 2013.

prakash (Company Secretary) (1352 Points)
Replied 24 February 2016

Ketan,

Whether your Company is private company or public Company? Section 180 is not applicable to private company, hence if your company is private limited company, no need to take approval by way of Special Resolution.

If your company is public company, go through following test.

Special resolution is required, when your company selling whole or substantially whole of undertaking.

What is undertaking:

An undertaking in which the investment of company exceeds twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or undertaking which generates twenty per cent. of the total income of the company during the previous financial year.

For example; if net worth of the company is 10 lacs and total income is 5 lacs as per previous financial year. if your company is investing more than 2 lac (more than 20%) in any property that is called as undertaking or from any property generating 1 lac income (20%) such property is called as undertaking.

when your company has undertaking as per above test, than, if company is selling 20% or more of value of undertaking as per the audited balance sheet of the preceding financial year, your company need to take consent of shareholders by way of special resolution.

For Example: value of undertaking is Rs. 3 lacs, when your company is selling 60 thousand value of property (20% or more of undertaking), your company needs to pass special resolution.

I hope you understand issue.

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