The purpose of writing this article is to get you familiar with the practical and procedural aspects of conversion of public limited company into private limited company as per the new regulations framed by the Government.
Ministry of Corporate Affairs by its notification dated 18th December 2018 has amended the Companies (Incorporation) Rules, 2014 by making Companies (Incorporation) Fourth Amendment Rules, 2018. Rule 41 has been inserted in the said rules which provides for the regulations for making application for conversion of public limited company into private limited company. Earlier the application for conversion was made with NCLT Benches having jurisdiction over companies and the same is very time consuming process. Thereby to free the tribunals with the cases of conversion, power of approval of conversion has been transferred to Central Government. Thereafter the Central Government has delegated his powers to Regional Director vide notification S.O. 6225 (E) dated 18th December 2018 for approval of conversion of public limited company into private limited company.
REASONS FOR CONVERSION:
The main and foremost reason for conversion from public limited company to a private limited company is to avail the relaxation or exemptions provided to private companies by MCA vide notification dated 05th June 2015 and 13th June 2017.
The legal provisions related to conversion are given in section 14 of the Companies Act, 2013 read with rule 41 of Companies (Incorporation) Rules, 2014, as amended. As per section 14 of the Companies Act, 2013 a public company may convert itself into a private company by taking approval of members by way of passing special resolution in the General Meeting and by taking the approval of Central Government on an application made in such form and manner as may be prescribed.
STEP WISE PROCEDURE FOR CONVERSION OF PUBLIC LIMITED COMPANY INTO PRIVATE LIMITED COMPANY:
STEP-1: Company to send notice to directors for convening Board meeting for approving items listed in step 2.
STEP-2: Company to duly convene and held Board meeting as per section 173 and SS-1 for the approval of below mentioned items:
1. To consider the proposal of conversion of public company into private company;
2. To approve amendment of articles of association of the company subject to approval of members by way of SR in General Meeting and Regional Director;
3. To authorize director or any other eligible person on behalf of the company to do all acts as deem necessary for the purpose of giving effect to the proposal of conversion of public company into private company;
4. To authorize any practicing professional to enter appearance before Regional Director for the aforesaid conversion;
5. To fix the date, time and venue of the General Meeting and authorise a director or company secretary to send the notice of the General Meeting to the members;
6. To consider and authorise any officer of the company to prepare the list of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of application by maximum 30 days comprising of following details:
STEP-3: Company to send notice to members as per section 101 and SS-2 for convening General Meeting for approving items by way of special resolution for items listed in step 4.
STEP-4: Company to duly convene and conduct General meeting for approving conversion of public company into private company and thereby approving alteration in memorandum and articles of association of the Company under the provisions of Companies Act, 2013.
STEP-5: Company to file e-form MGT-14 pursuant to section 117 of the Companies Act, 2013 within thirty (30) days of passing the special resolution along with following documents as attachment:
STEP-6: Drafting of Application for conversion of public limited company into private limited company by setting out the following particulars as required under rule 41(2) of Companies (Incorporation) Rules, 2014, as amended:
1. the date of the Board meeting at which the proposal for alteration of Memorandum and Articles was approved;
2. the date of the general meeting at which the proposed alteration was approved;
3. reason* for conversion into a private company, effect of such conversion on shareholders, creditors, debenture holders, deposit holders and other related parties;
*Author’s Comment: The reasons for conversion should not be general and it should be more specific and relates to the company.
1. details of any conversion made within last five years and outcome thereof along with copy of order;
2. details as to whether the company is registered under section 8.
STEP-7: Preparation of List of Creditors:
As per rule 41(3) of the Companies (Incorporation) Rules, 2014, as amended, there shall be attached to the application, a 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, setting forth the following details, namely:-
Affidavit verifying List of Creditors:
As per the proviso to rule 41(3), the applicant company shall file an affidavit along with the application, signed by the company secretary of the company, if any, and not less than two directors of the company, one of whom shall be a managing director, where there is one, to the effect that they have made a full enquiry into the 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 a contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other debts of, or claims against, the company to their knowledge.
STEP-8: Advertisement of application in the Form INC. 25A at least 21 days before the date of filing of the application in:
1. Vernacular Newspaper in the principal vernacular language of the district in which the registered office of the company is situated; and
2. English language in an English Newspaper
(Widely circulated in the state in which the registered office of the company is situated)
STEP-9: Notice to Creditors:
The company shall at least 21 days before the date of filing of the application serve, by registered post with acknowledgment due, individual notice on every creditor and debenture holders of the Company.
STEP-10: Notice to Regional Director, Registrar of Companies and other regulatory Body:
The company shall at least 21 days before the date of filing of the application serve, by registered post with acknowledgment 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.
Author’s Comment: In the case of shifting of registered office from one state to another, we serve a notice along with a copy of application to the ROC and other authorities, but here only we have to send a notice stating that the company is going to make an application for conversion of public limited company to private limited company.
STEP-11: Filling of Application with Registrar of Companies in e-form GNL-1: It is advisable to submit a copy of application for conversion to concerned ROC.
STEP-12: Filling of Application for conversion with Regional Director in e-form RD-1:
As per rule 41(1) of the Companies (Incorporation) Rules, 2014, as amended, an application for conversion of public company into private company shall be filed with Regional Director in e-form RD-1 within 60 days from the date of passing special resolution and shall be accompanied with following documents:
Author’s Comment: While making application in e-form RD-1 one should keep in its mind the following three events:
Application for conversion should be filed latest by only after expiry of 21 days from the date of advertisement and filed maximum upto 30 days from the date of list of creditors and 60 days from the date of passing special resolution. So while filing e-form RD-1 one should keep in its mind all of the dates so there won’t be any non-compliance.
Other relevant provisions:
APPROVAL WITHOUT HEARING:
Where no objection has been received from any person in response to the advertisement or notice sent and the application is complete in all respects, the same may be put up for orders without hearing and the concerned Regional Director shall pass an order approving the application within thirty days from the date of receipt of the application.
RE-SUBMISSION ON OBJECTIONS:
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 30 days from the date of receipt of the application, give intimation of such information called for or defects or incompleteness, on the last intimated e-mail address of the person or the company, which has filed such application, 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 15 days in e-Form No. RD-GNL-5. Provided that maximum of two re-submissions shall be allowed.
In cases where such further information called for, has not been provided or the defects or incompleteness has not been rectified to the satisfaction of the Regional Director within the period allowed, the Regional Director shall reject the application with reasons within 30 days from the date of filing application or within 30 days from the date of last re-submission made as the case may be.
Where an objection has been received or Regional Director on examining the application has specific objection under the provisions of Act, the same shall be recorded in writing and the Regional Director shall hold a hearing or hearings within a period 30 days and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Regional Director shall pass an order either approving or rejecting the application along with reasons within 30 days from the date of hearing, failing which it shall be deemed that application has been approved and approval order shall be automatically issued to the applicant.
In case where no consensus is received for conversion within 60 days of filing the application while hearing or otherwise, the Regional Director shall reject the application within stipulated period of 60 days.
Important: The conversion shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act. On completion of such inquiry inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, conversion shall be allowed.
STEP-13: The Regional Director will make an order approving the conversion on such terms and conditions, if any, as it thinks fit.
STEP-14: Obtain certified copy of order approving conversion of public company into private company and file e-form INC-28 with the Registrar of Companies within 15 days from the date of receipt of approval.
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