Confusion over new Companies Act may stymie corporate asset sales

Sep 18 2013, 11:19 IST
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Summary* Company secys, lawyers at sea on applicability of provisions; have to refer to two sets of laws now

The notification of 98 Sections of the new Companies Act, 2013 on September 12 has left India Inc worried as in case of many past activities, such as sale of certain assets, it is unclear whether the new provisions would apply. As per the new norm, it is mandatory for every company — including the private ones — to pass a special resolution (get approval from 75% shareholders) if it wants to sell, lease or dispose of any undertakings in which its investments exceed 20% of its net worth.

Under the corresponding provision in the Companies Act, 1956, private companies were exempt from the requirement of a special resolution in such cases and an ordinary resolution sufficed.

Company secretaries and corporate lawyers who have already been working on sale/lease cases are at sea as to whether to redo the whole process. Worse, there is also confusion over whether the old provisions have indeed ceased to apply because Section 465 of the new Act, which deals with repeal and saving, has not been notified.

Basically, an expert now has to refer to two sets of laws, Companies Act, 1956 and Companies Act, 2013, simultaneously. Experts have called for further clarifications from the government and leniency as companies move from Companies Act, 1956 to the new Companies Act, 2013.

Section 180 of the Companies Act, 2013 (restriction on the powers of the board) is now applicable to every company whereas the corresponding Section 293 of the Companies Act, 1956 was not applicable to private companies.

"One of our clients, a private company, had taken the board’s approval as per the 1956 Act for selling an undertaking before September 12. But the deal is yet to be executed. Now, the confusion is whether to go back and get a new approval via special resolution or will the boards approval will do. There is confusion for sure," said a senior corporate lawyer.

As a result, the entire 1956 Act continues to remain in full force and effect along with the 98 Sections of the new Act. "Hence, the notification of a few sections has created confusion, which could have been avoided," said Lalit Kumar, partner in law firm J Sagar Associates.

"The hurried manner in which the Sections were notified recently has posed some transitory challenges and practical problems. An official clarification in a gazette clarifying this would have been helpful," Kumar said.

There is also confusion among

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