Introduction and Background

Companies Act, 2013 (Act) provides for conversion of companies from one form to another. One such important conversion is conversion of public company to private company.

On December 18, 2018, the Ministry of Corporate Affairs (“MCA“) issued the Companies (Incorporation) Fourth Amendment Rules, 2018, which marked the commencement of Rule 41 (“New Rule/ Rule 41“), i.e. a complete new procedure relating to conversion of a public company into a private company. The major highlight of the whole new procedure was that the power to confirm or reject the application for conversion of public company into private company was taken away from National Company Law Tribunal (“NCLT”) and the same was granted to Central Government.

Therefore, as on date, the matter relating to hearing of application for conversion of a public company into private company no longer vests with the Hon’ble NCLT. It is being dealt now by the Regional Director. This has been done keeping in mind the increasing litigation before the benches of Hon’ble NCLT. Moreover, since the matter is more administrative in nature, it is apt that the Ministry came out with such a move.

Now, in view of the above, a step wise chart has been prepared in accordance with the provisions of the newly inserted Rue 41, containing therein the detailed procedure along with applicable section/ rule and form no.

After going through the given step chart, one can understand the procedure for conversion along with applicable secretarial practices, which we hope might assist the professionals and students in the professional/ academic endeavors.

Legal Framework

For the sake of ready reference, please take a note of below mentioned and applicable Sections/ Rules

  • Chapter II comprising of Section 13, 14 and 15 read with Rule 41 of Companies (Incorporation) Rules, 2014;
  • Chapter VII comprising of Section 100-109, 114 and 117 read with Rule 18, 19, 20, 21, 22, 23, 24 and 31 of Companies (Management and Administration) Rules 2014 and further read with SS-2 as issued and amended by ICSI form time to time; and
  • Chapter XII comprising of Section 173, 174, 189, 196, 203 read with rules made thereunder and further read with applicable SS-1 as issued by ICSI and as amended from time to time.
Step No. Particulars Detailed Procedure Time Frame Reference
1. Convene Board Meeting of Directors Call, hold and convene meeting of the board of directors and obtain their approval for conversion of a public company into a private company, which shall be subject to approval of shareholders by way of Special Resolution and further subject to approval of Central Government.

Note: Powers have been delegated to Regional Directors at Mumbai, Kolkata, Chennai, New Delhi, Ahmedabad, Hyderabad and Shillong vide notification dated 18.12.2018, published in the Official Gazette on 20.12.2018.

X Section 173, 174 read with rules made thereunder and further read with SS-1 as issued and amended by ICSI from time to time.
2. Agenda for the Board Meeting Following agenda items must be placed before the board of director on the date of meeting:

  • To consider and grant approval for conversion of Public Company into Private Company;
  • To consider and approve necessary alteration(s) in Article of Association;
  • To execute power of attorney in favour of practicing professional/ legal practitioner to file an application for conversion with the concerned authority and to do necessary work related thereto;
  • To fix the day, date, time and venue of the General Meeting;
  • To approve Notice of General Meeting along with explanatory statement to be annexed with notice; and
  • To grant authorization to any Director or Company Secretary, wherever appointed, to send the notice of General Meeting to the members.
  • To grant authorization to any Director or Company Secretary, wherever appointed, to file necessary forms with relevant authorities to give effect to the proposed conversion.

Note: Documentation with respect to calling, convening and conducting the board meeting such as drafting of Notice, Agenda, and Notes to Agenda, Minutes, and maintenance of Attendance Register shall be carried out strictly in accordance with the relevant provisions of the Act and S.S-1.

X
3. Issue of Notice of General Meeting Issue notice of General Meeting at least 21 clear days prior to date of meeting to:

  • Every Director;
  • Every Member;
  • Auditor

Note 1: The notice shall specify the place, date, day, and time of the meeting and contain a statement on the business to be transacted at the EGM.

Note 2: Documentation with respect to calling, convening and conducting the general meeting such as drafting of Notice, Explanatory Statement, Minutes, and maintenance of Attendance Sheets etc shall be carried out strictly in accordance with the relevant provisions of the Act and S.S-2.

X (Assuming notice is issued to members on the date of Board Meeting) Chapter VII – Management and Administration read with rules made thereunder and further read with SS-2 as issued and amended by ICSI from time to time.
4. Convene General Meeting Conduct and Convene the meeting in accordance with the provisions of the Act, Rules made thereunder, and SS-2.

Few items for consideration:

  • Appointment of Chairman;
  • Ascertainment of Quorum;
  • Ascertainment of presence of auditor;
  • Passing of Special Resolution by members;
  • Grant of approval for alteration in AOA for conversion of Public Company into Private Limited Company; and

Grant of approval for alteration in Memorandum of Association.

Say (X+30) days

(Assuming date of EGM to be held within 30 days)

5. Post General Meeting compliances File e-Form MGT-14 with the Registrar along with the requisite filing within 30 days of passing the special resolution, along with following documents:-

  • Certified True Copies of the Special Resolutions along with explanatory statement;
  • Copy of the Notice of meeting send to members along with the annexure;
  • A printed copy of the Altered Article of Associations and Memorandum of Association.
Within (X+30+30) days Section 117(3)
6. Publication of Newspaper Advertisement The company shall atleast 21 days before the date of filing application with 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 notice on each debenture holder and creditor of the company; and

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

Requisite time

 

Rule 41(5)
7. Drafting and filing of application with Regional Director Application in Regional Director shall be file at within 60 days from passing of Special Resolution in e-form RD-1, mentioning therein the following particulars:

  • Date of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;
  • 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.

List of documents to filed along with the application:

  • Copy of the Memorandum and Articles of Association with proposed alterations including the alterations pursuant to sub-section (68) of section 2;
  • Copy of Minutes of General Meeting (mentioning therein the details of votes cast in favour or against with names of dissenters);
  • Copy of Attendance Sheet of General Meeting;
  • Board Resolution of authorizing to file application for conversion (dated not earlier than 30 days);
  • Declaration by a key managerial personnel that pursuant to the provisions of section 2(68), stating therein: (a) that the company limits the number of its members to two hundred; and (b) that no deposit has been accepted by the company in violation of the Act and rules made there under;
  • Declaration by a key managerial personnel that there has been no non-compliance of sections 73 to 76A, 177 , 178, 185, 186 and 188 of the Act and rules made there under;
  • Declaration by a key managerial personnel stating that: (a) no resolution is pending to be filed in terms of section 179 (3); that 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
  • List of creditors and Debenture Holders, drawn up to the latest practicable date preceding the date of filing of petition by not more than 30 days;
  • Affidavit verifying list of creditors; and
  • Copy of Newspaper Advertisement.

Note 1: The aforesaid declarations shall be signed by any Director of the company, in case such a company is not required to appoint key managerial personnel.

Note 2: The affidavit verifying list of creditors and debenture holders shall be 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.

Note 3: An authenticated copy of list of creditors and debenture holders shall be kept at the registered office for the purposes of inspection and taking of extracts thereof.

Within (X+30+60) days Rule 41(1), (2) & (3)
8. Order of Regional Director either confirming or rejecting the application In case no objection has been received from any person in response to the advertisement or notice and the application is complete in all respects, Regional Director shall pass an order approving the application within 30 days from the date of receipt of the application. Requisite time Rule 41(6)(a)
9. Post conversion compliance File e-Form INC-28 with the Registrar within 15 days from receipt of RD order.  

Requisite time

 

Rule 41(11)
10. Issuance of fresh certificate of Incorporation by Registrar On being satisfied that all the information and documents are submitted and all requirements under the Act are complied with, Registrar shall issue a new certificate of incorporation of the Company.  

Requisite time

 

Disclaimer: This write-up is only for academic purposes. Please do not consider this as a professional advice and the same shall not be relied upon for real life facts. We hope that our readers will find this write-up useful in having a better understanding of the revised procedure of conversion of public company to private company. Although great care has been taken while preparing this Step chart, still the possibility of errors, omissions, and/ or discrepancies cannot be rules out. The content is hereby released with an understanding that we shall not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf. Happy Reading!

Author Bio

Qualification: CS
Company: DEEPANSHU GAWDI & ASSOCIATES
Location: FARIDABAD, Haryana, IN
Member Since: 21 Jun 2019 | Total Posts: 5
Deepanshu Gawdi heads the firm's Corporate Laws Practice at Faridabad. He is an Associate Member of the Institute of Companies Secretaries of India (ICSI). He carries with himself the practical exposure of various corporate matters while working in a reputed Law Firm. He is young and energetic Pract View Full Profile

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