The government’s move to clarify the applicability of company resolutions passed as per the old Companies Act of 1956 raises many questions, said company law experts.
Following India Inc’s demand, the corporate affairs ministry, in a recent circular, has clarified that resolutions approved/passed by companies under the old company laws of 1956 in the six-month period September 1, 2013, till March 31, 2014, can be implemented as per the old Act, subject to two conditions. First, the implementation of resolution actually commenced before April 1, 2014, and second, this transitional arrangement would be available up to expiry of one year (from the passing of the resolution) or 6 months from the commencement of the corresponding provision in the new Companies Act of 2013, whichever is later.
This gesture by the ministry is despite the fact that 60% of the new Companies Act, 2013, has been implemented since April 1, 2014.
The circular also said even though the Section 6 of the General Clauses Act, 1897, protects the validity of such resolutions, the leniency has been accorded in view of the the representations made by companies. But experts question the legal tenability of the move.
“The ministry has completely deviated from the principle of Section 6 of the General Clauses Act, 1897. Section 6 doesn’t provide for any time frame for the validity of the resolutions passed under the repealed enactment but this circular puts time limits,” said Lalit Kumar, partner in law firm J Sagar Associates. He said the circular can be challenged in the courts as it goes against the intention of Section 465 of the Companies Act of 2013. “Section 465 is not yet notified. This section protects the resolutions passed under the old Act. Therefore, this circular is in conflict with the spirit of Section 465 and the ministry’s power go against the Act passed by Parliament,” Kumar said.
According to another expert, the circular is “full of ambiguities” and instead of clarifying, it has raised more questions. The opening part of the circular mentions resolutions passed in FY14 but the operative part of the circular only covers half the fiscal, i.e, between September 1, 2013 to March 31, 2014. “What will happen to the validity of the resolutions passed before September 1, 2013? What about resolutions passed for appointment of MD/directors prior to September 1, 2013 – Will they not be valid anymore,” asked another expert.