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CONVERSION OF PUBLIC COMPANY INTO PRIVATE COMPANY

Introduction


Ministry of Corporate Affairs (MCA) by way of its Gazette notification dated 18th December, 2018 amended Companies (Incorporation) Rules, 2014. Rule 41 of the said rules provides for conversion of Public Company into Private Company. Earlier, for conversion, application was require to be made before NCLT bench and it is quite time consuming process. Now, the said power of approval of conversion has been transferred to Regional Director with a view to de-clog the tribunals thereby to focus more on insolvency cases and speedy resolution of the distress companies.  


Process of Conversion – Legal Provisions


An application for the conversion of a Public Company into a Private Company shall be filed with Regional Director (RD) in e-Form No. RD-1, within 60 days from the date of passing of special resolution along with the following documents:


  • A draft copy of Memorandum of Association and Articles of Association, with proposed alterations; 


  • A copy of the minutes of the General Meeting at which the special resolution authorising such alteration was passed together with details of votes cast in favour and or against with names of dissenters; 


  • A copy of Board resolution or Power of Attorney dated not earlier than 30 days, authorising to file application for such conversion;


  • A Declaration by a KMP/Directors that pursuant to the provisions of sub-section (68) of section 2, the company limits the number of its members to 200 and also stating that no deposit has been accepted by the. company in violation of the Act and rules made thereunder; 


  • A Declaration by a KMP/Directors that there has been no non-compliance of sections 73 to 76A, 177, 178, 185, 186 and 188 of the Act and rules made thereunder; 


  • A Declaration by a KMP/Directors that no resolution is pending to be filed in terms of Section 179(3); 


  • A Declaration by KMP/Directors 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.


The following information must be filled in e-form RD-1, namely:- 


  • 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; 
  • Date of filing of e-form MGT-14 and SRN of it;
  • 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 Creditors


There shall be attached to the application, a list of creditors, debenture holders, drawn up to the latest date preceding the date of filing of application by not more than 30 days, setting forth the following details, namely:- 


  • the names and address of every creditors and debenture holder of the company; 
  • the nature and respective amounts due to them in respect of debts, claims or liabilities; 
  • In respect of any contingent or unascertained debt, the value, so far as can be justly estimated of such debt: 


Provided that 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.


Newspaper Advertisement (Format Given)


The company shall, at least 21 days before the date of filing of the application;


  • Advertise, notice of conversion 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; 


  • Serve, by registered post with acknowledgement due, individual notice on each debenture holder and creditor of the company; and 


  • 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. 


Where no objection has been received from any person in response to the advertisement 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 30 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. 


Hearing


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. 


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. 


Time Bound Disposal


One of the important provision of new framework is time bound disposal of matter by RD. Rules provides 30 days time to raise query or else approve the conversion. Where no order for approval or re-submission or rejection has been explicitly made within 30 days, it shall be deemed that the application stands approved and an approval order shall be automatically issued to the applicant. 


Filing of Order with RoC


The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form No. lNC-28 within 15 days from the date of receipt of approval. 


FORMAT OF NEWSPAPER ADVERTISEMENT


Form No. INC-25A

Advertisement to be published in the newspaper for conversion of public company into a private company


Before the Regional Director

Ministry of Corporate Affairs

_____________Region


In the matter of the Companies Act, 2013, section 14 of Companies Act, 2013 and rule 41 of the Companies (Incorporation) Rules, 2014 


AND


ln the matter of M/s.................. (company name) having its registered office at_____________ Applicant 


Notice is hereby given to the general public that the company intending to make an application to the Central Government under section 14 of the Companies Act, 2013 read with aforesaid rules and is desirous of converting into a private limited company in terms of the special resolution passed at the Annual General Meeting/ Extra Ordinary General Meeting held on ____________to enable the company to give effect for such conversion. 


Any person whose interest is likely to be affected by the proposed change/status of the company may deliver or cause to be delivered or send by registered post of his objections supported by an affidavit stating the nature of his interest and grounds of opposition to the concerned Regional Director (complete address of the Regional Director to be given), within fourteen days from the date of publication of this notice with a copy to the applicant company at its registered office at the address mentioned below: 


For and on behalf of the Applicant 



_______________________

Name of Director 

DIN: 

Address of registered office 

Date: __________

Place: ___________