Summary: The article examines the competent authority for approving the proposed demerger of the electricity transmission undertaking of ABC Limited into its wholly owned subsidiary, PQR Limited. ABC Limited is wholly owned by the Government of Uttar Pradesh and qualifies as a Government company under Section 2(45) of the Companies Act, 2013. While Sections 230 to 232 ordinarily require schemes of demerger to be sanctioned by the National Company Law Tribunal (NCLT), the article explains that MCA Notification G.S.R. 582(E) dated 13 June 2017, issued under Section 462, substitutes the expression “Tribunal” with “Central Government” for eligible Government companies. This substitution applies only if the company has not defaulted in filing financial statements under Section 137 or annual returns under Section 92. Consequently, subject to compliance with these filing requirements, the Central Government, acting in practice through the jurisdictional Regional Director under delegated powers, is identified as the competent authority to approve the demerger scheme.
Competent Authority to Approve Scheme of Demerger of ABC Limited
Re: Demerger of Transmission Undertaking of ABC Limited into PQR Limited
A. Brief Facts
| Transferor Company | ABC Limited — engaged in electricity generation; 100% of its share capital is held by the Government of Uttar Pradesh. |
| Transferee Company | PQR Limited — a wholly owned subsidiary of ABC Limited. |
| Proposed Transaction | Demerger of the electricity transmission undertaking of ABC Limited into PQR Limited. |
| Question Referred | Identification of the competent authority to approve the scheme of demerger. |
B. Issue for Consideration
Whether the scheme of demerger of the electricity transmission undertaking of ABC Limited into PQR Limited requires sanction of the National Company Law Tribunal (“NCLT”) under Sections 230 to 232 of the Companies Act, 2013, or whether — by reason of ABC Limited’s status as a Government Company — the competent authority is instead the Central Government.
C. Legal Framework
C.1 Statutory Provisions — Companies Act, 2013
1. Section 232 read with Section 230 — governs schemes of compromise, arrangement, merger, amalgamation and demerger. A demerger of an undertaking (such as the transmission business) into a subsidiary fall squarely within this framework.
2. Section 230 / 232, in their unmodified form, vest the power to sanction such a scheme in the “Tribunal”, i.e., the NCLT.
3. Section 2(45) — defines a “Government company” as one in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government(s), or partly by the Central Government and partly by one or more State Governments.
4. Section 462 — empowers the Central Government, by notification, to direct that any provision of the Act shall apply to a class of companies (including Government companies) with such exceptions, modifications and adaptations as may be specified.
C.2 Relevant MCA Notifications
5. Principal Notification — G.S.R. 463(E) dated 5 June 2015, issued under Section 462, granting a table of exceptions/modifications to Government companies.
6. Amending Notification — G.S.R. 582(E) dated 13 June 2017, which inserted a new entry (Serial No. 29A) into the Table of the principal notification, reading:
“Chapter XV, sections 230 to 232 — For the word ‘Tribunal’, wherever it occurs, the words ‘Central Government’ shall be substituted.”
7. Conditionality (Paragraph 2A, inserted by the same 2017 notification) — the above exceptions/modifications apply only to a Government company that has not defaulted in filing its financial statements under Section 137, or its annual return under Section 92, with the Registrar.
D. Analysis
D.1 ABC Limited is a Government Company
ABC Limited is wholly (100%) owned by the Government of Uttar Pradesh. This comfortably satisfies the 51% threshold under Section 2(45), and ABC Limited is therefore a Government company within the meaning of the Companies Act, 2013.
D.2 Effect of the 2017 Notification is Substantive, Not Merely Procedural
The 2017 notification does not merely streamline procedure before the NCLT — it textually substitutes the words “Central Government” for “Tribunal” wherever the latter occurs in Sections 230 to 232. This is a substitution of the decision-making authority itself, not a relaxation of the steps to be followed before that authority. Once the statutory text is read with this substitution incorporated, Sections 230–232 must be read as conferring the sanctioning power on the Central Government, not the NCLT, for an eligible Government company.
This reading is consistent with the broader scheme of Section 462, which exists precisely to allow the Central Government to recalibrate which authority exercises a power under the Act for specified classes of companies. Treating the substitution as cosmetic would render the notification largely meaningless.
D.3 The Only Limiting Condition is Compliance, Not Subject-Matter
The sole qualifying condition attached to this substitution is that the Government company must not be in default of filing financial statements (Section 137) or annual returns (Section 92) with the Registrar. There is no separate carve-out in the notification suggesting that the substitution applies only to ancillary or procedural aspects of Sections 230–232 while leaving the core sanctioning power with the NCLT. Accordingly, subject to ABC Limited not being in default on these filings — a fact to be independently verified — the Central Government, and not the NCLT, is the competent sanctioning authority.
D.4 Practical Route of Application — Delegation to Regional Director
In practice, the Ministry of Corporate Affairs has delegated several of its powers, including those relevant to Sections 230–232 in respect of Government companies, to the Regional Directors (“RDs”) under Section 458 of the Act, read with the applicable delegation notification. Accordingly, while the statutory authority is the “Central Government”, the application for sanction of the scheme would, as a practical matter, be filed before the jurisdictional Regional Director, subject to verification of the delegation notification in force at the time of filing.
E. Conclusion
| On the facts as stated, the competent authority to approve the scheme of demerger of ABC Limited’s transmission undertaking into PQR Limited is the Central Government (Ministry of Corporate Affairs, acting in practice through the jurisdictional Regional Director) under Sections 230–232 of the Companies Act, 2013, as modified by MCA Notification G.S.R. 582(E) dated 13 June 2017 — and not the NCLT — provided ABC Limited has not defaulted in filing its financial statements under Section 137 or its annual return under Section 92. |
F. Caveats and Points for Verification
- Confirm that ABC Limited has not committed any default in filing financial statements (Section 137) or annual returns (Section 92) with the Registrar, as this is the sole condition for the notification to apply.
- Verify the delegation notification in force at the time of filing, to confirm the Regional Director (or any other delegate) currently exercising this power on behalf of the Central Government.
- This note addresses only the question of the competent sanctioning authority. Other compliances under Sections 230–232 (creditor/member meetings, auditor certificate, registrar and official liquidator reports, sectoral approvals from the State Electricity Regulatory Commission / CERC where applicable, etc.) continue to apply and are outside the scope of this note.
- This note is based on the facts as presented and, on the law, as currently understood; it does not constitute formal legal advice and should be confirmed with a qualified practitioner before being relied upon for any filing or transaction.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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