TRANSMISSION OF CONVERSION POWER FROM NCLT TO REGIONAL DIRECTOR (RD):

Transmission of Conversion Power and Process from NCLT to Regional Director by Rule 41 and The Companies (Incorporation) Fourth Amendment, Rules 2018.

Before coming of the Companies (Incorporation) Amendment, Rules, the National Company Law Tribunal (NCLT) has the power for the Conversion of Public Company into Private Company, But after Companies (Incorporation) Fourth Amendment, Rules 2018, Conversion Procedures of Public Company into Private Company are now associated with Regional Director.

The Companies (Incorporation) Fourth Amendment, Rules 2018: MCA on 18th December, 2018 by amendment inserted Rule 41 under Companies (Incorporation) Rules, 2014 for conversion of public Companies into Private Companies

By Rule 41 MCA has assigned its power to Regional Director for approval of conversion of public companies into private companies.

LOGIC/REASON BEHIND CONVERSION

The Private Company has less compliance as compared to Public Company to be followed under the Companies Act, 2013. The need for less compliance leads to increase Conversion of Public Company into Private Company.  In this article, we will go through the provisions and procedure related to the Conversion of Public Company into Private Company.

By the Conversion of Public Company into Private Company,

it gets easier to meet the regulatory provisions and exercise greater control in the Company

WHAT ARE LEGAL PROVISIONS RELATED TO THE CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY

  • SECTION 13 OF COMPANIES ACT, 2013provides for the Alteration of Memorandum of Articles (MOA) of Company. The Conversion of Public Company into Private Company can be done if the Memorandum allows for the Conversion. Hence, to convert the Company into Private Company, the alteration of MOA is necessary. Also Include the Change in Name Clause.
  • SECTION 14 OF COMPANIES ACT, 2013provides for Alteration of Articles of Association (AOA) for Conversion of Public Company into Private Company. If New Article is not adopted then it also to be adopted as per Companies Act, 2013.
  • SECTION 18 OF COMPANIES ACT, 2013,provides for Conversion of Companies which is already registered. Section 18 provides for converting of any class of Company into another class by doing Alteration in MOA and AOA of the Company.  
  • THE COMPANIES INCORPORATION (FOURTH AMENDMENT) RULES, 2018,the Conversion of Public Company into Private Company is explained. The Central Government has wide powers to amend the said rules  This Power Delegated to the Regional Director.

E-FORMS INCLUDED:

Form MGT 14 : To file for Special Resolution Passed in General Meeting.

GNL-2 : Submission of Documents to ROC

Form RD-1 Application of Conversion made to Regional Director.

Form RD-GNL-5 To file re-submissions to RD (filing Addendum for Rectification of Defects or Incompleteness

Form INC-28 To file copy of Order of RD

THE STEPS AND PROCEDURE FOLLOWED FOR CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY ARE AS FOLLOWS:

Step-1

NOTICE OF BOARD MEETING

The Company should send notice to hold a Board Meeting to the directors at least 7 days before the date of Board Meeting.

Step -2

HOLD THE BOARD MEETING

The Company should hold the Board Meeting as per the Rules prescribed under Section-173 of Companies Act, 2013. The approval of the following items should be done:

  • To consider the proposal for Conversion of Public Company in to Private Company.
  • To Authorize and Give Authority to Director/Company Secretary for Conversion.
  • To approve amendments in MOA and AOA of the Company is subject to member’s approval through a special resolution.
  • To fix time, date and place for General Meeting and authorize a Director/Company Secretary to send notice of General Meeting to member.
  • To approve the draft notice along with Explanatory Statement of the general meeting

Step -3

ISSUE THE NOTICE OF GENERAL MEETING

The Company should send a notice at least 21 days before to convene General Meeting for approving items mentioned in Step 2 by passing a special resolution.

Step-4

HOLD GENERAL MEETING AND PASS THE SPECIAL RESOLUTIONS UNDER SECTION 13 & 14 TO:

  • The Company should duly hold a General meeting for the approval of Conversion of Public Company into Private Company.
  • The consent for the Alteration in MoA and AoA should also be given through a special resolution. Approve the Alteration of Memorandum of Company to comply with the provisions of Section 2 (68).
  • Approve the Alteration of Articles of the Company to comply with the provisions of Section 2 (68) and for Adoption of new Article as per the Companies Act, 2013 (If Required).

In General Meeting, the quorum should also be checked. As per Section 146 of Companies Act, 2013, the presence of Auditor in the General Meeting is necessary, if not present, then check whether Leave of Absence is granted or not.

Step-5

FILE FORM MGT-14 TO ROC

The form MGT-14 should be filed within 30 days of passing of the special resolution. The Form MGT-14 should be attached with the following documents:

  • certified copy of Altered MOA
  • certified copy of Altered AOA
  • Copy of Notice of General Meeting with an explanatory statement
  • certified copy of passed Special Resolution
  • Certified copy of Board Resolution

Step-6

21 DAYS BEFORE COMPLIANCES

The Company Shall, At Least Twenty One Days before the Date of Filing of the Application to Rd:

a) advertise in the Form No.INC.25A, in a vernacular newspaper in the principal vernacular language in the district and in English language in an English newspaper, widely circulated in the State in which the registered office of the company is situated;

b) serve, by registered post with acknowledgement due, individual noticeon each debenture holder and creditor of the company; and

c) serve, by registered post with acknowledgement due, a notice to the Regional Directorand Registrar and to the regulatory body, if the company is regulated under any law for the time being in force.

Step-7

DRAFT AN APPLICATION

Meanwhile Draft the Application/Petition and it shall set out the following particulars, namely:-

  • the date of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;
  • the date of the general meeting at which the proposed alteration was approved;
  • reason for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders, deposit holders and other related parties;
  • details of any conversion made within last five years and outcome thereof along with copy of order;
  • details as to whether the company is registered under section 8.

And also draft and prepared all related Annexure, Declarations, Affidavits etc. for the filling of form RD-1. Arrange and prepared all the docs required for the Filling of the same.

Step-8

FILLING OF E-FORM RD-1

An application should be filed in E-Form RD-1 within 60 days of passing of Resolution with Regional Director along with the fee as provided in the Companies (Registration Offices and Fees) Rules, 2014 with following attachments:

The following documents should accompany the application (Attachment of RD-1):

a) Signed Copy of Application/Petition

b) Draft copy of Altered MOA and AOApursuant to sub-section (68) of section 2;

c) Copy of the MINUTES of the general meeting with details of votes cast in favour and or against with names of dissenters.

d) Copy of Board resolution dated not earlier than THIRTY DAYS authorizing to file application for such conversion

e) Scanned & Signed Copy of ADVERTISEMENTS as advertised in the Form No.INC.25A.

f) DECLARATION by KMP (If no KMP in the Company by any of the Directors) that:

i. The company limits the number of its members to TWO HUNDRED.

ii. NO DEPOSIT has been accepted by the Company in violation of the Act and rules made thereunder.

iii. There has been NO NON-COMPLIANCE of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder.

iv. NO RESOLUTION is pending to be filed in terms of sub-section (3) of section 179 and

v. The Company was never listed in any of the Regional Stock Exchanges and if was so listed, all necessary procedures were complied with in full for complete delisting of the shares in accordance with the applicable rules and regulations laid down by Securities Exchange Board of India.

Other Mandatory Attachments:

a) There shall be attached to the application, a LIST OF CREDITORS, DEBENTURE HOLDERS, of a date NOT MORE THAN 30 DAYS before the filing of Application with Regional Director, WITH FOLLOWING DETAILS:

i. Name and Address of every creditor and debenture holder.

ii. Nature and amounts due to them in respect of debts, claims or liabilities.

iii. In respect of any contingent or unascertained debt, the value, so far as can be justly estimated of such debt or claim.

b) The Company shall file AN AFFIDAVIT, signed by the Company Secretary of the Company, if any, and not less than two directors of the company, one of whom shall be managing director, where there is one, to the effect that they have made a full enquiry into affairs of the company and, having done so, have formed an opinion that the list of creditors and debenture holders is correct, and that the estimated value as given in the list of the debts or claims payable on contingency or not ascertained are proper estimates of the values of such debts and claims that there are no other debts, or claims against, the company to their knowledge

c) Proof of Serving the Notice to all Creditors, Debenture holders, Registrar and other Regulatory Bodies.

STEP 9

IF OBJECTION RECEIVED AGAINST ADVERTISEMENT

a) If any objection is received from any person in response to the advertisement or notices mentioned above, the Company shall submit the copy of Objection with the Regional Director.

b) Where objection is received the regional director will call the person who raised objection and to the Company (any Representative on behalf of the Both) for hearing and after giving proper opportunity to being heard, the regional director will take the decision.

STEP 10

ANY FURTHER DOCS REQUIRED TO RD/RESUBMISSION

After the submission of details to the Regional Director (RD), some more information can be asked by RD. These resubmissions should be submitted in 15 days. 

Where the Regional Director on examining the application finds it necessary to call for further information or finds such application to be defective or incomplete in any respect, he shall within thirty days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, directing the person or the company to furnish such information, to rectify defects or incompleteness and to re-submit such application within a period of FIFTEEN DAYS in e-Form No. RD-GNL-5.

The application can be rejected by RD within 30 days period from the date RD asked for resubmission of application if the resubmissions are not made. A maximum of 2 resubmissions is allowed.

STEP 10

HEARING OR ORDER BY RD

Hearing if Objection is there:- The RD can hold a hearing in case of objection received. The RD should give reasons in writing of the hearing and hearing should be held within 30 days.

If no consensus is received for Conversion within 60 days from the date of filing of the application, the RD can reject the application within the stipulated period of 60 days.

Direct Order if no any objection: If the application is complete, the same can be put up for orders without hearing. The application submitted should be passed by RD within 30 days from the date of filing of an application.

If no order of approval, rejection or resubmission is made by RD within 30 days, the application filed is deemed to be allowed by the RD, and approval order shall be automatically issued to the applicant.

The RD when approves the Conversion process, an order for such Conversion will be issued to the applicant.

Step-11

FILLING OF COPY OF ORDER IN FORM INC-28

The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No. lNC-28 within fifteen days from the date of receipt of approval along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014.]

Conclusion

Conversion of Public Company into Private Company is time taking and involves the various formalities prescribed in Companies Act, 2013 and rules made hereunder. The Private Company has a benefit of less compliance over Public Company and lots of exemptions of Companies Act Provision. Sometimes, there are controversies regarding the Conversion, but if the consensus of all the shareholders is obtained the process of Conversion would go smoothly and efficiently. The process of Conversion is long-lasting and lengthy. But this process/checklist an help to do smoothly.

IMPORTANT NOTE

VALIDITY OF INC-27 IN RESPECT OF CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY:

Rule 33 of the Companies (Incorporation) Rules, 2014 (Alteration of Articles)

1. For effecting the conversion of a private company into a public company or vice versa, the application shall be filed in Form No.INC.27with fee.

2. Subject to the provision of sub-rule (1), for effecting the conversion of a public company into a private company, a copy of order of the Tribunal approving the alteration, shall be filled with the Registrar in Form No. INC -27with fee together with the printed copy of altered articles within fifteen days from the date of receipt of the order from the Tribunal.]

Explanation – For the purposes of this sub-rule, the term “competent authority” means, the Central Government.

But since Companies (Incorporation) Fourth Amendment Rules, 2018 has been effective i.e. since 18th December, 2018, the Tribunal i.e. NCLT has no power regarding approval of conversion of Public Company into private company and it is delegated to Regional Director, so there is no question of filing of order of Tribunal. HENCE E-FORM INC-27 is not required to be filed in respect of Conversion of Public Company into Private Company but the same is required to be filed in vice versa case. But In some cases it is required to file for change the status at MCA master data from public to private. MCA has to give clarification in this regard.

POST CONVERSION STEPS:

1. Intimate the changes to Banks, Income Tax Department, PF Department, ESI Department and all other departments.

2. Make all requisite changes in the signboards, Letter heads, Books Rubber Stamps, Bill Books, Common Seal, visiting cards and other documents and items.

3. Use word “Formerly” for at least 2 years on every documents of the company with present name.

4. Use the copy of altered Memorandum and Articles of the Company.

5. Make the changes in PAN, TAN, GST Portal.

6. Request to Bank for the change in name of Bank Accounts.

7. Intimate other regulatory authority in this regard.

Note:-

Some Affidavits are required to submit to RD in RD-1 Form but those are not mentioned in Rules 41 and Section, kindly consider following affidavits to be the part of RD Form:-

Affidavits verifying the correctness of list of creditors – by two Directors of the Company

√ Affidavit proving publication, dispatch and service of notice

√ Affidavit proving no objection(s) received in respect of advertisement in newspapers by two directors of the Company

√ Affidavit from director in term of section 14 of the Companies Act, 2013 & Rule 41 of the Companies (Incorporation) Rules, 2014

√ Affidavit for company to limit the number of members to two hundred and no deposits accepted by the company in violation of the act and rules as per Rule 41 (1) (d) of the Companies (Incorporation) Rules, 2014

√ Affidavit for no non-compliance of various sections of the act and rules made thereunder as per Rule 41 (1) (e) of Companies (Incorporation) Rules, 2014.

√ Affidavit from Two directors regarding no litigation(s) pending before any court or judicial authority

√ Affidavit regarding no resolutions is pending to be filed U/S 179(3) and the company was never listed in any of the regional stock exchanges as per rule 41 (1) (f) of the Companies (Incorporation) Rules, 2014

√ Affidavit from director(s) regarding no future liabilities, dues pending before any government, statutory body

FORMAT OF SPECIAL RESOLUTION

SPECIAL BUSINESS:

1. CONVERSION OF COMPANY INTO PRIVATE LIMITED COMPANY:

To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of section 13, 14 and any other applicable provisions of the Companies Act, 2013, if any and subject to the approval of the Regional Director__________ Region, (powers delegated to the Regional Director by Central Government vide Companies (Incorporation) Fourth Amendment Rules, 2018) the consent of the shareholders of the Company be and is hereby given to convert the Company from ‘Public Limited’ to ‘Private Limited’ and consequently the name of the company be changed from “____________ LIMITED” to “_____________- PRIVATE LIMITED” by inserting the word ‘Private’ before the word ‘Limited’.

RESOLVED FURTHER THAT for the purpose of giving effect to this resolution, the Board of Directors of the Company be and is hereby authorized to execute all such documents, instruments and writings as may be required and to take all such steps and actions and give such directions as may in its absolute discretion deem necessary and to settle any question that may arise in this regard.

RESOLVED FURTHER THAT any of the Directors be and are hereby severally authorized to do all such acts, deeds and things as may be necessary or expedient to give effect to this resolution.

2. ALTERATION OF NAME CLAUSE CONTAINED IN THE MEMORANDUM OF ASSOCIATION:

To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 13 and any other applicable provisions of the Companies Act, 2013 (including any amendment thereto or re-enactment thereof) and the rules framed thereunder the consent of the Members be and is hereby accorded for substituting Clause I of the Memorandum of Association of the Company with the following clause:

“The Name of the Company is __________ PRIVATE LIMITED.”

3. ADOPTION OF NEW SET OF ARTICLES OF ASSOCIATION OF THE COMPANY PURSUANT TO THE COMPANIES ACT, 2013 AND CONVERSION TO A PRIVATE LIMITED COMPANY:

To consider and, if thought fit, to pass, with or without modification(s), the following resolution as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 14 and other applicable provisions, if any, of the Companies Act, 2013 (“the Act”) read with Companies (Incorporation) Rules, 2014, including any statutory modifications or re-enactment thereof from time to time, the Articles of Association of the Company be and is hereby altered to be in conformity with the provisions of the Act relating to a private limited company and thereby inserting the restrictive clause as per Section 2(68) of the Act.

RESOLVED FURTHER THAT the new set of Articles of Association pursuant to the Act primarily based on the Form of Table F of Schedule I under the Act, be and is hereby approved and adopted as new set of Articles of Association in the place of existing Articles of Association of the Company.

RESOLVED FURTHER THAT any of the Directors be and are hereby severally authorised to do all such acts, deeds and things as may be necessary or expedient to give effect to this resolution.”

For and on behalf of the Board

_______________ Limited

_________________

Director

DIN:_________

Place:___________

Date: __________, 2021

FORMAT OF EXPLANATORY STATEMENT U/S 102 OF THE COMPANIES ACT, 2013

ITEM 1:

As the members are aware that the Company was originally incorporated on _________ as a public limited company. The Board of directors considered that since there is no involvement of public in the shareholding or management of the Company, it would be appropriate to convert the Company into the Private Limited Company to avoid unnecessary formalities and to obtain privileges which are available to the Private Limited Companies under the Companies Act, 2013 which would help the management to carry out its affairs efficiently & economically.

As per the provisions of the Companies Act, 2013, the consent of the members by way of special resolution is required for conversion of the Company to a private limited company.

The Members are requested to note that the amendment is subject to the approval granted by the Registrar of Companies, ___________, Ministry of Corporate Affairs and such other regulatory authorities, as may be required.

Directors and their relatives are concerned or interested in the said resolution only in their capacity as a member of the Company.

ITEM 2:

The conversion of the Company to a private limited company will result in amending the name clause of the Memorandum of the Company since the name of the Company will change from “_________ LIMITED” to “___________ PRIVATE LIMITED”.

In terms of Section 13 of the Companies Act, 2013, the consent of the members by way of special resolution is required for amendment of the Memorandum of Association of the Company. The Board has approved the amendment at its meeting held on ________, 201__.

The Members are requested to note that the amendment is subject to the approval granted by the Registrar of Companies, __________, Ministry of Corporate Affairs and such other regulatory authorities, as may be required.

Directors and their relatives are concerned or interested in the said resolution only in their capacity as a member of the Company.

ITEM 3:

The Company was incorporated under the provisions of The Companies Act, 1956 and deemed to exist within the purview of The Companies Act, 2013. Hence the existing Articles of Association (AOA) were based on the Companies Act, 1956 and several clauses/regulations in the existing AOA contain references to specific sections of The Companies Act, 1956 which are no longer in force.

With the coming into force of The Companies Act, 2013, several regulations of the existing AOA of the Company require alteration or deletions at several places. Also, as it is proposed to convert the Company into a Private Limited Company, it is considered expedient to adopt new set of Articles of Association (primarily based on Table F set out under the Companies Act, 2013), in place of existing Articles of Association of the Company instead of amending the Articles of Association by alteration/incorporation of provisions of the Companies Act, 2013 applicable to a private limited company.

In terms of section 5 and 14 of the Companies Act, 2013, the consent of the members by way of special resolution is required for adoption of new set of Articles of Association of the Company.

The Members are requested to note that the amendment is subject to the approval granted by the Registrar of Companies, __________, Ministry of Corporate Affairs and such other regulatory authorities, as may be required.

Directors and their relatives are concerned or interested in the said resolution only in their capacity as a member of the Company.

For and on behalf of the Board

___________ Limited

_________________

Director

DIN: ______

Place: _____

Date: -_______, 2021

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