Analysis of Notification No. G.S.R. 463(E).  dated 5-6-2015 issued by the Ministry of Corporate Affairs proving certain exemption to Government Companies

PROVISIONS OF THE ACT WHICH DO NOT APPLY TO GOVERNMENT COMPANY OR APPLY WITH MODIFICATIONS

Serial No.

Chapter Number/Section Number/ Sub-section(s) in the Companies Act,2013

Exceptions, Modifications and Adaptations
(1)                              (2)                              (3)
1.       Chapter II, section 4(1)—No need to include “Private” before “limited” in its name

In section 4, in sub-section (1), in clause (a), the words ‘in the case of a public limited company, or the last words “Private Limited’ in the case of a private limited company’ shall be omitted.

2.       Chapter IV, section 56—No need to use instrument for transfer of Bonds or securities held by nominees. In sub-section (1), after the proviso, the following provisos shall be inserted, namely:—

PROVIDED FURTHER that the provisions of this sub-section, in so far as it requires a proper instrument of transfer, to be duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferee, shall not apply with respect to bonds issued by a Government company, provided that an intimation by the transferee specifying his name, address and occupation , if any, has been delivered to the company along with the certificate relating to the bond; and if no such certificate is in existence, along with the letter of allotment of the bond:

PROVIDED ALSO that the provisions of this sub-section shall not apply to a Government Company in respect of securities held by nominees of the Government.

3.       Chapter VII, section 89-Declaration of beneficial interest. This Section Shall not apply to Government Company.
4.       Chapter VII, section 90- Investigation of ownership of shares. This Section Shall not apply to Government Company.
5.       Chapter VII, sub-section (2) of section 96—Decision of other place for holding annual general meeting. In sub-section (2), for the words “some other place within the city, town or village in which the registered office of the company is situate”, the words “such other place as the Central Government may approve in this behalf” shall be substituted.Note:

Annual General Meeting of Company shall be held at registered office of the Company or such other place as the Central Government may approve in this behalf.

6.       Chapter VIII, second proviso to sub-section (.1) of section 123 —Declaration of dividend from reserves. Shall not apply to a Government Company in which entire paid up share capital (100% paid up share capital) is held by Central Govt, or by any State Govt. or Govts. Or by Central Govt. and one or more State Govt.
7.       Chapter VIII, sub-section (4) of section 123—Deposit of dividend in a scheduled bank. No need to deposit amount in Separate Bank Account in Company in which the entire paid up share capital (100% paid up share capital) is held by Central Govt, or by any State Govt. or Govts. Or by Central Govt. and one or more State Govt.
8.       Chapter IX, section 129-Financial Statement In preparation of financial statements, the requirement of Segment Reporting as per AS 17 has been relaxed in case of Government Companies engaged in defense production.
9.       Chapter IX, clause (e) of sub-section (3) of section 134-Inclusion of Director’s remuneration etc., in Board’s report.

Board of director Report of Government Company Should Not Include the below given clause, which shall include—

in case of a company covered under sub-section (1) of section 178, company‘s policy on directors‘ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178;

 

“The requirement of disclosing the Company’s nomination and remuneration policy etc in the Board’s report has been relaxed for Government companies.”

10.  Chapter IX, clause (p) of sub-section (3) of section 134—Method of annual evaluation of Board’s performance etc. Provision:

In case of a listed company and every other public company having such paid-up share capital as may be prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.

This disclosure Requirement Shall Not Apply in case the directors are evaluated by the Ministry or

Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government, as per its own evaluation methodology.

 

11.  Chapter XJ, section 149(1)(b) and first proviso to sub-section (1) of section 149.

As per Section 149(1) (b) and first proviso to Section 149(1), a government company can have more than 15 directors. Such a company is now no longer required to pass a special resolution for appointing more than 15 directors.

12.  Chapter XI, clause (a) of sub-section (6) of section 149—Power of Board to judge the competence of Directors.

In section 149, in sub-section (6), in clause (a), for the word “Board”, the words “Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government” shall be substituted.

13.  Chapter Xi, clause (C) of sub-section (6) of section 149. The following requirement for selecting a person as independent director will not apply to a Government Company:149(6)(c) – who has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.
14.  Chapter XI, sub-section (5) of section 152—Consent of Director Shall not apply where appointment of such director is done by the Central Government or State Government, as the case may be.
15.  Chapter XI, sub-section (2) of section 164. Disqualification of Director due to default by a company as specified shall not apply.
16.  Chapter XII, sub-sections (2),(3) and (4) of section 178-Functions of Nomination and Remuneration Committee. Shall not apply to Government Company except with regard to appointment of ‘senior management’ and other employees.
17.  Chapter XII, section 185-Loan to Directors. Shall not apply to Government company in case It Seeks Prior Approval of Their Administrative Ministry or Department for the Proposed Transactions.
18.  Chapter XII, section 186-Loan and investment by a company. The requirement of seeking member’s approval by means of a special resolution for making loan/investments or giving guarantee/security in excess of the threshold limits specified in Section 186 has been relaxed for following government companies:§  Engaged in Defense production and§  Other unlisted government companies which seek prior approval of their administrative Ministry or Department for the proposed transactions.
19.  Chapter XII, first and second proviso to sub-section (1) of section 188-Related party transactions.-Passing of resolution by general meeting and voting by a member who is related period. First and Second proviso to sub-section (1) of Section 188 shall not apply to following(a)  a Government company in respect of contract or arrangements entered into by it with any other Government company;(b)  a Government company, other than a listed company, in respect of contracts or arrangements other than those referred to in clause (a), in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government before entering into such contract or arrangement.
20.  Chapter XIII, sub-sections (2),(4) and (5) of section 196. Provisions regarding duration of appointment of managerial personnel, appointment by Board etc. shall not apply.
21.  Chapter XIII, section 197. Provisions regarding remuneration of managerial personnel and commission to directors shall not apply.
22.  Chapter XIII, sub-sections (1),(2),(3) and (4) of section 203-Appointment of Key managerial personnel. After sub-section (4), the following sub-section shall be inserted, namely:-“(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government Company.”
23.  Chapter XXIX, sub-section (2) of section 439-Offences to be cognizable. In sub-section (2), the words “the Registrar, a shareholder of the company, or of” shall be omitted.

 Below given list of provisions not applicable on following Companies relating to Directors:

(a) A Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;

(b) A subsidiary of a Government Company, referred in on (a) above, in which entire paid up share capital is held by that Government Company.

LIST OF PROVISIONS:

S .NO. Section Provision
(a)    152 (6) (7)Re-Appointment Of Retiring Directors In AGM The provisions relating to retirement of directors by rotation in AGM
(b)   Section 160Rights of Person other than Retiring Director to stand for Directorship Seeking deposit of Rs. 1 Lakh, notice of candidature etc. will not apply in case of appointment of a director in a general meeting to those Government Companies specified in above.
(c)    Section 162Appointment Of Director To Be Voted Individually can pass a single resolution for appointment of 2 or more persons as directors
(d)   Section 163principle of Proportional Representation for Appointment of Directors The provisions relating to appointment of directors on proportional representation basis, by means of relevant clauses in the AOA, will not apply in case of specifiedGovernment Companies.

Register of Directors, KMP and their shareholding & its inspection:

Section 170 and 171 shall not apply to a Government Company in which the entire paid up share capital is held by the Central Government, or by the State Government or Governments or by the Central Government and one or more State Governments.

IMPACT OF SECTION:

The requirement relating to maintenance of register of Directors, KMP and their shareholding and the right of members to inspect it has been relaxed for a government company as specified in the left hand column.

Author View: As per Section 170 no need to file e-form DIR-12 also for Government Companies.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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Tags : Companies Act (2349) Companies Act 2013 (2122) Divesh Goyal (320)

One response to “Analysis of recent Exemptions to Government Companies under Companies Act, 2013”

  1. Ashish Agrawal says:

    Hi Divesh, would you be able to help me interpret point 6. ie proviso to section 123(1) is not applicable to government companies. I have two possible interpret on this. 1. The Government companies are not allowed to declare dividend out of General reserves. or 2. Government companies are allowed to declare dividend but are not required to follow companies (Declaration and Payment of Dividend) Rules, 2014.

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