Ever since the draft notifications were placed before the Parliament, companies have been eagerly waiting for the approval and promulgation of the same. Finally the exemption notifications saw the light of day with MCA releasing 4 exemption notifications in bulk on June 05, 2015. Among the four notifications, one notification pertains to Government Companies (‘Govt. cos.’) wherein the Central Government (‘CG’) in the public interest has come out with some exemption/modification/exception/adaptation to certain provisions of Companies Act, 2013 (‘Act’) for Govt. cos.

We discuss herein below, the exemptions & modifications in brief:

Sl. No.
Section
Exception/Modification/ Adaptations
Impact
Remark
1
Chapter II Section 4 Clause (a)(Memorandum)
To be Omitted: In case of a public limited company, or the last words “Private Limited” in the case of a private limited company:
The Memorandum of all companies shall state the name of the company with last word “Limited”.
Private company will not have to write Private limited.
2
Chapter IV, Section 56 Subsection 1(Transfer and transmission of securities)
To Be inserted after proviso: The condition with respect to stamping and execution of Govt. bonds is no longer applicable to a Govt. co.Only an intimation by the transferee specifying his name, address and occupation, if any is made to the company along with the certificate relating to the bond shall suffice.
If no such certificate is in existence letter of allotment of bond shall be annexed.
Provided also that the provisions of this subsection shall not apply to a Govt co. in respect of securities held by nominees of the govt.
Compliance norms for Govt. bond have been relaxed.
3
Chapter VII, Section 89 & 90(Declaration in respect of beneficial interest in any share)
(Investigation of beneficial ownership of shares in certain cases.)
Exemption:1. No declaration form is required to be filed in respect of beneficial interest held in the shares of a Govt. co.
2. No need to appoint competent person to investigate beneficial ownership for Govt cos.
Unnecessary compliance procedure has been removed.
Since declaration of beneficial interest need not be disclosed, the investigation of the same shall also not apply.
5
Chapter VII, Section 96,subsection (2)
Modification: Govt. cos. can hold Annual General Meeting with CG approval outside the city, village where the registered office of the company is situated.
General Meeting norms have been relaxed.
6
Chapter VIII, Section 123,second proviso to sub section (1)(Declaration of dividend)
Exemption: Govt. co. in which entire share capital is held by the CG or any state government (‘SG’) or by the CG and one or more SG.
Government cannot declare dividend to itself.
7
Chapter VIII, Section 123,second proviso to sub section (4)(Declaration of dividend)
Exemption: Govt. co. in which entire share capital is held by CG or any SG by the CG and one or more SG shall need not deposit amount of dividend including interim dividend in a separate scheduled bank account within 5 days of declaration of such dividend.
Government companies with no shares being held by any outsider, shall not have to follow the perfunctory dividend distribution system.
8
Chapter IX, Section 129(Financial Statements)
Exemption: CG has exempted the requirement of section 129 i.e., financial statement to the extent of application of AS-17 (Segment Reporting) to the companies engaged in defence production.
Reporting under AS-17 shall not be required anymore.
Previously Section 129 was also not applicable to Insurance company, Electricity company, and Banking company
9
Chapter IX, Section 134,subsection(3),clause (e)(Financial Statements & Board’s Report etc.)
Exemption: Board of director of govt company shall not be required to submit a report on company’s policy on directors’ appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters at it’s AGM.
Self disclosure is no longer required as in Govt. cos. generally directors are identified and appointed by the Govt. itself.
Govt has been easing out unnecessary compliance provisions.
10
Chapter IX, Section 134,subsection(3),clause (p)(Financial Statements & Board’s Report etc.)
Exemption: If director are evaluated by Ministry or Department of Central Government which is administrative in charge of the company or by the SG as per it’s own evaluation methodology, the Board of Directors shall not be required to attach to the Board’s Report, the manner in which formal evaluation has been made by the board.
11
Chapter XI, Section 149 (1)(b) and 1st proviso of subsection (1)
Exempted: Requirement of special resolution for appointment of directors more than 15 is removed.
Now govt company can appoint more than 15 directors without passing special resolution.
Similar exemption has also been granted to Section 8 companies.
12
Chapter XI Sub-section (6) Clause (a) of Section 149(Company to have Board of Directors)
Modification: To be qualified as an Independent director he must be opined by the “Ministry or Department of Central Government/state government which is administratively in charge of the company “that he is a person of integrity and possess relevant expertise and experience.
Identification and appointment by the Board is not required.
13
Chapter XI Section 149 Sub-section(6) Clause(c)(Company to have Board of Directors)
Exemption: To be an independent director of a Govt. co. any pecuniary relationship with company, it’s holding subsidiary or associate company, or their promoters or directors is not relevant.
He can be appointed as an independent director even if he has pecuniary relationship with such companies or person at any period of time.
14
Chapter XI Section 152 sub-section (5)(Appointment of Directors)
Exemption: If appointment of director is made by CG, consent of director can be filed beyond 30 days and no explanatory statement need to be attached for such appointment
Explanatory statement for such delay in filing shall not be required
Company can file the return of appointment even after 30 days.
15
Chapter XI Section 152 sub-section (6) & (7)(Appointment of Directors)
Exemption: The provision of period of office for rotational director and provision for retirement is no longer applicable to govt companies in which entire paid up share capital held by CG/ SG or CG and one or more SGc.Or a wholly owned subsidiary of a Govt. co.
Applicable to all other public companies.
16
Chapter XI Section 160(Right of persons other than retiring directors to stand for directorship)
Exemption: The provision of sending 14 days prior notice along with depositing money of Rs. 1 lac etc. are not required for application of fresh candidature as director to govt. co. in which entire paid up share capital held by CG/SG or CG and one or more SGs.Or a wholly owned subsidiary of a Govt. co.
The provision has been made inapplicable for private companies
Outsiders cannot propose for directorship in government owned companies anymore.
17
Chapter XI Section 162
(Appointment of directors to be voted individually)
Exemption: The requirement single resolution for appointment of each director or where more than one directors are appointed by a single resolution without a vote against such motion is not required for application of fresh candidature as director to govt companies in which entire paid up share capital held by CG /SG or CG and one or more SGs.Or a wholly owned subsidiary of a Govt. Co.
One or more directors can be appointed by a single resolution in such govt companies in which entire paid up share capital held by CG /state govt or CG and one or more state govts.Or a wholly owned subsidiary of a govt company
18
Chapter XI Section 163
(Option to adopt principle of proportional representation for appointment of directors)
Exemption: Govt Company in which entire paid up share capital held by CG /SG or CG and one or more SGs.Or a wholly owned subsidiary of a govt company shall not required to appoint directors through principle of proportional representation.
Govt cos. not required to appoint directors through principle of proportional representation Even if article of govt company states such.
19
Chapter XI Section 164 Sub-Section (2)
Exemption: Disqualification pertaining to a Company:a) which has not filed financial statements or annual returns for any continuous period of 3 financial years;
b) or which has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for 1 year or more.
The disqualification shall not render a director ineligible for appointment in a government owned company
20
Chapter XI Section 170& Section 171
(Register of directors and key managerial personnel and their shareholding)
(Members right to inspect)
Exemption: Govt. Cos. in which entire paid up share capital held by CG/State Government or CG and one or more State Governments need not keep at its registered office a register containing details of securities held by its directors and key managerial personnel in the company or its holding, subsidiary, fellow subsidiaries or associate companies.
Register of directors and key managerial personnel and their shareholding under Section 170 need not be maintained.
Since, the register will not be maintained, the question of inspecting the same u/s 171 also does not arise.Although the Section has been made inapplicable altogether. It is doubtful as to whether filing of DIR-12 is also not required. The intent of the law maker could not have been to exempt DIR-12.
22
Chapter XII Section 177 Sub-section (4) Clause(i)(Audit Committee)
Modification: The word “recommendation, for appointment, remuneration and terms of appointment replaced with words “recommendation for remuneration
Now Audit Committee of Government Companies will only recommend remuneration of auditors and not appointment of and terms of their appointment. remuneration only.
Scope of Audit Committee has been narrowed.
23
Chapter XII Section 178 Subsection (2) (3) & (4)Nomination and Remuneration Committee
Modification: Nomination and Remuneration Committee (‘NRC’) of a Govt. Co. will not formulate any criteria for determining qualification, positive attributes, independence of director and recommend to the board a policy relating to remuneration of directors and key managerial personnel other than for appointment of Senior Management Personnel and other employees.
Power of the NRC is now restricted only to appointment of Senior Management Personnel and other employee.
Since the identification and appointment of directors is to be done by the CG, the scope of NRC has been revised.
24
Chapter XII Section 185(Loan to Directors ,Etc)
Exemption: Government Companies now can give loan to its directors and person in whom such director is interested and can give guarantee or provide security in respect of loan taken by such person with prior approval of Ministry or Department of CG which is administratively in charge of company or State Government as the case may be.
Government Companies now can give loan or give any guarantee or provide security with prior approval.
This is a major change. Even private companies are not completely out of the ambit of the Section.
25
Chapter XII Section 186(Loan and Investment Made By Company)
Exemption: Govt. Cos. engaged in defence production and Govt. Cos. other than listed companies can give any amount of loan or guarantee or security to any person or body corporate and can acquire securities of any other body corporate if such company obtains prior approval of Ministry or Department of CG which is administratively in charge of company or State Government as the case may be.
Any amount of loan or Investment can made if prior approval is undertaken before such loan or investment is being made.
Other provision contained in said section becomes ineffective for such eligible companies.
26
Chapter XII 1st and 2nd proviso to Section 188(Related Party Transaction)
Exemption: The section shall not apply to the following:
a. Where a Government Company has entered in to a contract or arrangement with another Govt. Co or;
b. a Govt. Co. other than a listed company entered in to a contract or arrangement with any other person with prior approval Ministry or Department of Central Government which is administratively in charge of company or State Government as the case may be.
Transaction between Government Companies is made easier by easing out compliance norms.
For such transactions, prior approval of member by special resolution is not required irrespective of amount involved there in.
27
Chapter XII Section 196 Section (2) (4) & (5)
(Appointment of Managing Director, Whole time Director or Manager)
Exemption: a. Govt. Co. can appoint or reappoint a whole time director or managing director or manager for a term exceeding 5 years at a time;
b. Also approval of Board and Share holders at next Annual General Meeting for terms and condition of appointment, remuneration is no longer required.
a. Whole time directors, managing directors and mangers of a Govt. Co. can be appointed or reappointed for a term exceeding 5 years at time.b. Government has done away with requirement of approval of board and its subsequent ratification by share holders.
Appointment of managerial personnel is no more subject to the compliances of Section 196.
28
Chapter XII Section 197(Overall maximum managerial remuneration and managerial remuneration in absence or in adequacy of profits)
Exemption: Government Companies are can give any amount of remuneration to its directors even if there is loss or inadequate profit.
Government has done away with ceiling limits of overall maximum managerial remuneration.
Govt. Co. Directors and KMPs shall now enjoy fulsome remuneration irrespective of the profit making capacity of the company.
29
Chapter XII Section 203 Sub-Section (1) (2) (3) & (4)(Appointment of Key Managerial Personnel)
Modification: The provision of Sub-section (1) (2) (3) & (4) of Section 203 will not apply to a Managing director or Chief Executive Officer or Manager and in their absence a Whole time Director of Government Company.
Appointment of KMPs shall not be subject to the minimum number of offices held and the time period of appointment subsequent to a vacation of office.
Govt. Co. KMPs can now be appointed as a KMP in more than one Govt. Co.
30
Chapter XXIX Section 439 Sub-Section (2)
(Offence to be non- cognizable
Modification: Court will take cognizance of offence which is alleged to have been committed by a company or any officer thereof if compliant is made in writing by a person authorised by CG.
Court will not take cognizance of offence if compliant is made by the Registrar or a shareholder of Company.
The power of SEBI to complain against the company or any of its officers relating to offence of issue and transfer of securities and non-payment of dividend has been retained intact in case of Govt. cos.

 Where at one side the private company exemption notification was utterly disappointing, the partial Government seems to have bestowed all its affection on its own entities. A balance of grace on either side would have been a more welcome step. On one hand administrators are unnecessarily burdening the private entities with senseless compliances, at the other hand Government entities are being relieved of major compliance requirements.

(Author Vijaya Agarwala & Soumya Ranjan Mohanta can be reached at vijayaagarwala@gmail.com and at srmmohanta@live.com respectively)

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0 responses to “Plethora of exemptions to government companies!!!!”

  1. Ashutosh says:

    Wha is meant by Govt. company. is it 100% owned by Govt or PSUs like NTPC, CIL, BHEL, ONGC will also be treated as Govt company where 51%or more shares are held by CG.

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