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Shareholders Approval

Mamta Batra (CS) (376 Points)

14 June 2009

One of my client company which is public company in the sector of insurance broking has sold one of its property where no business activities are carried on i just want to know whether the shareholders approval is required u/s 293?

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7 Replies

CS Asmita Mehta (CS) (308 Points)
Replied 14 June 2009

As far as my knowledge is concerned shareholders approval is not required in your case because for the purpose of sec 293 undertaking means undertaking without which i business cannot be carried on or can be carried with difficulties........

So if your property is IDLE you need not to take approval.......

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Sanjay Singhal (Individual) (49 Points)
Replied 15 June 2009

Sale of Property, if it is not in the ordinary course of business attracts Section 293 of the companies Act. The Section is amply clear that the Board of Directors of public company or subsidiary of public company shall take approval of members in general meeting before disposing, selling or leasing whole or substantially the whole of the undertaking of the company (Sec 293(1)(a). In your case, the asset being sold is property and generally the value of the property would be material in nature and it is not in the ordinary course of the business, i,e.. the insurance broking business carried out by the company.

In addition to above, the business to be conducted in pursuance of Sec 293(1) shall be special business. Therefore, explanatory statement must be furnished to the shareholders with the Notice of General Meeting under section 173 and 293(1).

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 15 June 2009

Dear Mamta,

Under Section 293(1)(a) any public company selling, leasing or otherwise disposing whole or substantially whole of the undertaking of the company is required to obtain the approval of shareholders by way of an Ordinary resolution and form 23 is also to be filed within 30 days of resolution.

Pavan Jain S (Chartered Accountant) (1575 Points)
Replied 15 June 2009

I agree with nikita provided that the building been sold did not constitute business activity as such. If the value of building is not so material so as to fall within the term 'Substantial' as referred to in section 293, no approval of members is required. the activity of selling property is an exceptional item but is in the ordinary course of business. So long as the disposal of property do not raise going concern issue, I dont think there is necessity to arrange for general meeting.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 15 June 2009

Dear Pawan,

The term "Substantial" as referred in Section 293 does not mean the value which is substantial. What is means that the whole and substantially whole of the undertaking also requires approval. In orther words in case of whole of the undertaking or substantial part of the undertaking is to be sell, lease or dispose the approval is required udner section 293(1)(a) as it comes under the ambit of this section. The value is immaterial for this section as it clearly relates with the property and not its value.

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srilakshmi (ca final) (369 Points)
Replied 15 June 2009

if the whole or substantially whole part of the undertaking is sold , leased the approval of the shareholders is requried

Ajay Mishra (Company Secretary) (74337 Points)
Replied 15 June 2009

Dear Ms. Mamta

By an ‘undertaking’ is meant a business unit or enterprise in which a company may be engaged as a gainful occupation. It does not consist of mere assets or property. It is a productive organism.

A unit of the company which has been closed for five year can not be held to be “an undertaking” with in the meaning of section 293(1) (a) and the provisions do not apply to proposed sale of the unit. {Promod Kumar Mittal v.Andhra Steel Corporation Ltd. (1985)}.

If the question arises as to whether major capital assets of the company constitute the undertaking of the company while examining the authority of the Board to dispose of the same without the authority of the general body, the test to be applied would be to see whether the business of company could be carried out effectively even after disposal of the assets.(P.S. Offshore Inter Land Services Ltd).

Regards