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

companies with regard to Sections 379, 382, and 383, dealing with the operations of a foreign company in India, which have been notified. These provisions require foreign companies in India to furnish incorporation papers among others to the Registrar of Companies, display their names indicating country of origin, etc. But the definition of a foreign company as per the new Act is yet to be notified, leaving problems of interpretation between the old and new law. Similarly, the Section on fraud is notified, but several provisions where fraud is mentioned are yet to be notified.

Besides, a number of exemptions granted to private companies under the Companies Act, 1956 have been removed overnight, experts said. For example, the old Companies Act allows for loans/advances to directors or directors of holding companies. However, Section 185 of new law not only prohibits that, but violations attract penalty of R5-25 lakh and imprisonment up to six months.

In order to dispel some of this confusion, the corporate affairs ministry has said the Registrar of Companies will register memorandum and articles of association of companies under the Companies Act, 1956 that were received till September 11. Thereafter, the new law will come into effect. Similarly, all notices for general meetings happening after September 12 will have to comply with the new provisions.

When contacted, a senior official in the corporate affairs ministry said the government will cooperate with the legitimate transition problems of companies. "But companies need to realise that the new Act is now in place and they should try and align themselves with the new laws at the earliest," the official said. The corporate affairs ministry has already initiated the feedback process on the rules pertaining to over 340 Sections in the new Act. Once incorporated, the Companies Act, 2013 will be enforced replacing the old law.

Orderly mayhem

* As per the new norm, it is mandatory for every company 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 — an ordinary resolution sufficed

* 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

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