M/S. Southern Mica Products Ltd. Versus. Mr. V. Nagarjan, Pcs (2017) Scc Online Nclt 11062.

This case deals with the process by which a company can change its status. This means that the company will now need to follow all the guidelines in its Memorandum of association and Article of Association that are applicable on the Private Limited companies. This will also mean that the company would now need to roll out its share or debenture applications, if it wishes to, as per the guidelines that are applicable to Private industries. It would have to maintain the capital and assets as required by a private limited company under the Companies act, 2013.
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Introduction

M/S. Southern Mica Products Ltd. v. Mr. V. Nagarjan dealt with the submission of a company to modify its status under the provisions of Companies Act, 2013 from a Public Limited company to a Private company.

Facts

  • Southern Mica Products Company Limited (unlisted) was incorporated and registered a Public Limited Company under the companies act, 1956. The share capital of the firm was 30 lakhs rupees which was divided into 30,000 shares bearing a rate of Rs.100/- each.
  • The frim filing the petition in this case issues subscribed and paid-up equity share capital of Rs. 18,83,000 which was divided into 18,830 equity share at a rate of Rs. 100/- each.
  • The period of inspecting the accounts of the petitioner came to an end on 31/03/2016.
  • The Board of directors passed a resolution in its meeting dated 01/12/2016.
  • In a general meeting held on 31/12/2016, a decision regarding the three issues of the shares was taken, by the majority.

Issues

The main issues in this case were whether to allow the company to:

  • Convert its status from a “Public Limited Company” to a “Private Company”
  • Insert the words “Private” in place of “Public limited” and modify its existing name to Southern Mica Products Private Limited” in the Memorandum as well as the Articles of the firm.
  • Accept all the sets of Articles on adaptation to a private company in accordance with the provisions of the Companies Act, 2013. 

Contentions

The representative of the petitioner stated in the court that that the petitioner did not receive any objection or interference in response to the advertisement dated 03.06.2017 which stated that the company was intending to change its status from a ‘public company’ to a ‘private limited company’. 

Summary of the Decision

The company appealed to:

  • Change its status from a ‘public company’ to a ‘private limited company’
  • Change its name from ‘southern mica products limited’ to ‘southern mica products private limited’
  • Adopt to a new set of Articles of association as per the changed status of the company

The Tribunal Court heard the facts and regarded on the facts and circumstances, the court approved the conversion of the status of South Mica Products Limited from Public Limited company to Private Limited Company as per the resolution passes in the General Meeting held on 31/12/2016. Hence, C.P. No. 39/2017 is according allowed and disposed of.

Analysis 

 In this case, the court decided the matter by considering three main rules i.e, Section 4(1)(b) to of the Companies Act, 2013, Section 18 of the Companies Act, 2013, and Rule number 34 of National Company Law Tribunal Rules, 2016. The Tribunal court read the Section 4(1)(b), “The memorandum of a company shall clearly mention the name of the state in which the registered office of the company will be located”. With Section 18 “Conversion of Company already registered”, Where the conversion is to be done under this Act by alteration of the memorandum, and following guidelines of registration of the company, without any change in the debts and liabilities status of the company. Section 18 of the Companies act, 2013 deals with the following:

  1. Any firm registered under the provisions of the companies act 2013 has the power to convert its status by making changes in the memorandum and articles of the company. While doing so, the firm should stick to the provisions of the companies act, 2013.
  2. Upon receiving an application for such a conversion, the registrar shall satisfy himself regarding the compliance of all the requirements of the companies act, 2013 for the same. Once he is satisfied, he can issue a certificate of registration in the exact manner as its very first incorporation and register the same as per the documents referred in sub-section (1). 
  3. The registration of a company under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done [1]

The court observed and discussed the relevance of these two sections closely and find it justified in the code of conduct by the company. Court also discussed the relevance of Rule no. 35 of NCLT Rules, 2016 and find that Southern Mica Products Company Limited followed all the guidelines laid down in this section to advertise its conversion of status from public limited company to private limited company. The guidelines under the rule 35 of NCLT rules are as follows:

  1. Where any application, petition or reference is required to be advertised, it shall, unless the Tribunal otherwise orders, or these rules otherwise provide, be advertised in Form No.NCLT 3A, within a period of fourteen days before the date of hearing for the appeal, at least once in a newspaper published in the principal local languages of that district in which the office of the company is registered and  situated, and at least once in English language in an English newspaper circulating in all the areas of that district..
  2. Every such advertisement shall specify : –
    1. the date on which the application, petition or reference was presented;
    2. the name and address of the applicant, petitioner and his authorized representative, if any;
    3. the nature and substance of application, petition or reference;
    4. the date fixed for hearing;
    5. a statement to the effect that any person whose interest is likely to be affected by the proposed petition or who intends either to oppose or support the petition or reference at the hearing shall send a notice of his intention to the concerned Bench and the petitioner or his authorized representative, if any, indicating the nature of interest and grounds of opposition so as to reach him not later than two days previous to the day fixed for hearing.
  3. Where an advertisement is published by the firm, the same can also be published on the official website of the firm, if any.
  4. An affidavit shall be filed to the Tribunal, within a period of three days before the date of hearing, mentioning whether the petition has been properly published and advertised to the public as per the provisions of the rule and whether the notices, if any, have been duly served to the required parties: upon the condition that the affidavit is attested with all such proofs of advertisement/ publication or of the service of the notice, as may be available..
  5. In case the mandates under this rule are not complied with or the directions of the Tribunal are not followed, regarding the advertisement and service of petition, the Tribunal may either dissolve such a petition or give such further directions as it thinks fit.
  6. If the tribunal deems it fit, and upon an application being made by the party, it may distribute an advertisement required to be published under this rule [2].

This case deals with the process by which a company can change its status. This means that the company will now need to follow all the guidelines in its Memorandum of association and article of association that are applicable on the private limited companies. This will also mean that the company would now need to roll out its share or debenture applications, if it wishes to, as per the guidelines that are applicable to Private industries. It would have to maintain the capital and assets as required by a private limited company under the Companies act, 2013.

The case would act as a guiding precedent for the current cases in which the similar type of requests are made.

Conclusion 

This case is a well decided case and involves the change in the status of a company registered under the companies act, 2013. The court has been very observant and insightful in its judgement in this case and the best decision is given as per the prevailing circumstances.


[1]  Section 18, The companies Act, 2013

[2] Rule 35 of the NCLT rules.

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