PROVISIONS APPLICABLE ON GOVERNMENT COMPANY AS PER COMPANIES ACT 2013
GOVERNMENT COMPANY
CONTENT OF ARTICLES
A. Background
B. Provisions Applicable to
Government Company.
No need to use word Private Limited, Name, Transfer of
Share, Transfer of Bond, Deposit, Annual General Meeting, Director Report,
Appointment of Director, Independent Director.
C. Advantage of Government
Company.
D. Auditors Relating
Provisions.
E. Provisions not
applicable to Government Company.
Table form of List of provisions, Registers, Impact of
Section, Loan to Director, Loan and Investment by Company, Related Party
Transaction, Appointment of Managerial personnel
BACKGROUNGD:
Government
Company:Means
any company in which not less than 51% (fiftyone per cent). Ofthe paid-up share
capital is held by:-
§ The Central Government, or Any State Government or
Governments, orPartly by the Central Government and partly by one or more State
Governments, or includes a company which is a subsidiary company of such a
Government company;
A subsidiary of Government Company shall also be treated as a
Government Company. These Companies are registered as private limited companies
through their management and their control vest with the government. This is a
type of organization where both the government and private individuals are
shareholders. Sometimes these companies are called as Mixed Ownership
Company.
Government company subject to all provisions of the Act unless
specified otherwise:
§ All the provisions of the Act are applicable to
Government Companies unless otherwise specified.
§ A Government Company may be formed as a Private
Limited Company or Public Limited Company.
No Need to use word Limited or Private Limited:
The name of all Government Companies shall end
with the word “Limited”, be it Public or a Private Company.”
Name:
In case
of Government Company the word “STATE” is allowed in name.
Transfer of Shares:
Provisions
of Sub Section 1 of Section 56 (Transfer of Shares) are not applicable on
Government Companyinrespect of Securities held by nominees of theGovernment.
The requirement of
execution of an instrument of transfer (SH-4) and delivering the same to the
company has also been done away with in case of transfer of securities held
between nominees of the Government.
Transfer of Bonds:
As per Second
proviso of Section 56(1) [this proviso came from exemption notification dated
05.06.2015)
In case of transfer
of Bonds issued by a Government Company, Instrument of transfer is not
required to be executed and delivered to the company provided an intimation
regarding the transfer supported by the details of the transferee and the
relevant bond certificate is delivered to the Company.
Deposits:
A Government company
eligible to accept deposits under section 76 upto 35% (thirty five per cent) of
the aggregate of its paid up share capital and free reserves of the company.
The limit of 35% will inclusive of deposits outstanding as on the date of acceptance
or renewal.
Annual General
Meeting:
Every annual general
meeting shall be called during business hours, that is, between 9 a.m. and 6
p.m. on any day that is not a National Holiday and shall be held either at
the registered office of the company or at some other place as the Central Government may
approve in this behalf:
Director Report:
Clause
(e) Sub Section 3 of Section – 134L (Not Apply)
Board of director
Report of Government Company Should Not Include the below given
clause, which shall include—
in case of a company
covered under sub-section (1) of section 178, company‘s policy on
directors‘ appointment and remuneration including criteria for
determining qualifications, positive attributes, independence of a director and
other matters provided under sub-section (3) of section 178;
“The
requirement of disclosing the Company’s nomination and remuneration policy etc in
the Board’s report has been relaxed for Government companies.”
Clause (p) Sub
Section 3 of Section – 134L(Not Apply)
Provision:
In
case of a listed company and every other public company having such paid-up
share capital as may be prescribed, a statement indicating the manner in which
formal annual evaluation has been made by the Board of its own performance and
that of its committees and individual directors.
This
disclosure Requirement Shall Not Apply in case the directors
are evaluated by the Ministry or
Department
of the Central Government which is administratively in charge of the company, or,
as the case may be, the State Government,as per its own evaluation methodology.
Appointment of more than 15 Directors:
As
per Section 149(1) (b) and first proviso to Section 149(1), a government
company can have more than 15 directors. Such a company is now no longer
required to pass a special resolution for appointing more than 15 directors.
Independent Director:
The following requirement for selecting
a person as in dependent director will not apply to a
Government Company:
149(6)(c)
– who has or had no pecuniary relationship with the company, its holding,
subsidiary or associate company, or their promoters, or directors, during the two
immediately preceding financial years or during the current financial year.
Appointment of Director:
The requirement of seeking consent
from a Director and filing the same within 30 days of appointment to ROC
is relaxed where appointment of such director is done by the Centra lGovernment or
State Government.
Below given list of provisions not applicable on following Companies
relating to Directors:
(a)
A Government Company in which the entire paid up share capital is held by the
Central Government, or by any State Government or Governments or by the
Central Government and one or more State Governments;
(b)
A subsidiary of a Government Company, referred in on (a) above,in which entire
paid up share capital is held by that Government Company.
LIST OF PROVISIONS:
S .NO.
|
Section
|
Provision
|
(a)
|
152
(6) (7)
Re-Appointment
of Retiring Directors In AGM
|
The
provisions relating to retirement of directors by rotation in AGM
|
(b)
|
Section
160
Rights
of Person other than Retiring Director to stand for Directorship
|
Seeking
deposit of Rs. 1 Lakh, notice of candidature etc. will not apply in case of
appointment of a director in a general meeting to those Government Companies
specified in above.
|
(c)
|
Section 162
Appointment
Of Director To Be Voted Individually
|
can pass
a single resolution for appointment o f2 or more persons as directors
|
(d)
|
Section 163
principle
of Proportional Representation for Appointment of Directors
|
The
provisions relating to appointment of directors on proportional representation
basis, by means of relevant clauses in the AOA, will not apply in case of
specified
Government
Companies.
|
Register of
Directors, KMP and their shareholding & its inspection:
Section 170
and 171 shall not apply to a Government Company in which the entire paid up share
capital is held by the Central Government, or by the State Government or
Governments or by the Central Government and one or more State Governments.
IMPACT OF SECTION:
The requirement relating to
maintenance of register of Directors, KMP and their shareholding and the right
of members to inspect it has been relaxed for a government company as specified in
the left hand column.
Author View: As per Section 170 no need to file e-form DIR-12 also for Government Companies.
Loan to Director (185):
The
restrictions contained in Section 185 regarding giving of loans / guarantees/
securities etc. by a company to its directors and other entities in which a
director is interested has been relaxed for government companies
“Provided
It Seeks Prior Approval of Their Administrative Ministry or Department for the
Proposed Transactions.”
Loan and Investment by Company
(186):
The requirement of seeking
member’s approval by means of a special resolution for making loan/investments or
giving guarantee/security in excess of the threshold limits specified in
Section 186 has been relaxed for following
government companies:
§
Engaged
in Defense production and
§
Other
unlisted government companies which seek prior approval of their
administrative Ministry or Department for the proposed transactions.
Related Party Transaction (188):
PROVISIONS:
First and Second proviso to sub-section (1)of Section 188 shall not apply to following-
First and Second proviso to sub-section (1)of Section 188 shall not apply to following-
(a)
A government Company in respect of contracts or arrangements entered into by it
with any other government company;
(b)
a Government Company other than a listed company in respect of contracts or
arrangements other than those referred to in clause (a), in case such Company
obtains approval of the Ministry or Department of the Central Government which
is administratively in charge of the Company, or, as the case may be, the state
Government before entering into such contract or arrangement.
IMPACT:
The requirement of seeking
member’s approval by means of a special resolution for related party
transactions as contained in Section 188(1) and the restriction on a member,
being a related party, to vote thereon has been relaxed for transactions
entered between two government companies and for transactions entered into by
an unlisted government company with a company other than a government company,
provided the unlisted government company seeks prior approval of its
administrative Ministry or Department for the proposed transactions.
Appointment of Managerial Personnel
(196):
Sub-sections (2), (4) and (5) of Section 196 shall not apply
The
following provisions of Section 196 shall not apply to government companies:
v
Requirement
of Appointment/Re-appointment of MD/WTD /Manager for a term not exceeding 5
years at a time.
v
Requirement
of seeking approval of Board and Members at a meeting for appointment of
managerial personnel and also of Central Government where such appointment/remuneration
of managerial personnel is not in accordance with provisions of Schedule V.
v
Requirement
that notice convening the Board or GeneralMeeting for considering such
appointment shall includethe terms and conditions of such
appointment,remuneration payable and such other matters including,interest, of
a director or directors, in such appointment, if any
v
Requirement
of filling return of appointment of managerial personnel within 60 days with the
ROC
v
Provision
that where an appointment of a managing director, whole time director or manager
is not approved by the company at a general meeting, any act done by him before
such approval shall not be deemed to be invalid.
Appointment of Key Managerial Personnel (203):
v (4A) the provisions of sub-sections (1),
(2), (3) and (4) of this section shall not be applied to a managing director of
chief executive officer or manager and in their absence, a whole-time director
of the Government Company.
v All the provisions of Section 203, barring
the penal provision contained in subsection (5) will not apply to a managing
director or chief executive officer or manager and in their
v Absence, a whole-time director of the
Government Company.
v All the provisions of S 203 will continue
to apply to CFO and CS of Government Companies as only these persons will be
mandatory required to be appointed as whole time KMP in case of select class of
companies prescribed in the Act.
Provisions of the Act DO NOT APPLICABLE to a Government Company OR Apply with
some Modifications
S. No.
|
Section No.
|
Provisions Section
|
Remarks
|
1.
|
89
|
Declaration in respect of beneficial
Interest in any Shares
|
From 5th June,
2015
|
2.
|
90
|
Investigation of beneficial ownership of
shares in certain cases
|
From 5th June, 2015
|
3.
|
123(1)
Second Proviso
|
Dividend:
Provided further that where, owing to
inadequacy or absence of profits in any financial year, any company proposes
to declare dividend out of the accumulated profits earned by it in previous
years and transferred by the company to the reserves, such declaration of
dividend shall not be made except in accordance with such rules as may be
prescribed in this behalf:
|
Shall not apply to a Government Company
in which entire paid up share capital (100% paid up share capital) is held by
Central Govt, or by any State Govt. or Govts. Or by Central Govt. and one or
more State Govt.
|
4.
|
123(4)
|
The
amount of the dividend, including interim dividend, shall be deposited in a
scheduled bank in a separate account within five days from the date of
declaration of such dividend.
|
No need to deposit amount in Separate
Bank Account
|
5.
|
129
|
In
preparation of financial statements,the requirement of Segment Reporting as
per AS 17 has been relaxed in case of Government Companies engaged in
defense production.
|
From 5th June, 2015
|
6.
|
152
|
The requirement
of seeking consent from a Director and filing the same within 30 days of
appointment to ROC is relaxed where appointment of such director is done by
the Central Government or State Government.
|
From 5th June, 2015
|
7.
|
164(2)
|
The
restriction that, a person being a director in any other Company which has not
filed financial statements or annual returns for any continuous period of three
financial years; or has failed to repay the deposits accepted by it or pay
interest thereon or to redeem any debentures on the due date or pay interest
due thereon or pay any dividend declared and such failure to pay or redeem
continues for one year or more shall not be eligible to be reappointed as a
director of that company for a period of five years from the date on which the
said company fails to do so, will not apply in case of appointment of a person
as director in a Government Company.
|
From 5th June, 2015
Disqualification of 164(2) not applies on
Government Companies.
|
8.
|
197
|
All the
provisions of Section 197 and
related provisions
of Schedule V not applicable on Private Limited Company
|
From 5th June, 2015
|
9.
|
439(2)
|
The court
will not take cognizance of any offence committed by a Government Company under
the Act unless complaint in writing is made by a person authorized by the
Central Government in this behalf. Earlier, a complaint by the Registrar or
a shareholder of the company was also cognizable.
|
|
ADVANTAGES:
Features of Government Company:
Ø
State
ownership:
The
entire capital or 51% or more of the capital is owned by the Government or
Governments.
Ø Nomination of directors:
As
in case of Public Corporations, even in a Government company the directors are
nominated by the Government (State or Central).
Ø Government auditors:
The
auditors are always appointed by the Government to inspect the books of
accounts of the Government Companies.
Ø Management and control:
Management
of Government Company is vested in the hands of Board of Directors. The
Directors may be nominated by government or even the shareholders can appoint
the Board of Directors.
Ø Separate Legal Status:
A
Government company, like a joint stock company is an incorporated association
& artificial person having a common seal & perpetual succession. It has
a separate legal entity from its owners.
Ø Capital Collection:
A
government company requires huge capital for its business operations. The
company is free to collect capital through its own sources & it can even
borrow the money depending upon its requirements.
Ø Regulation:
It is created by the provisions of the
Companies Act. However, the Central Government may, by notification in the
Official Gazette; direct that any of the Provisions of the Act.
Ø Operational autonomy and flexibility:
Being
a separate legal entity, a government company enjoys operational autonomy an
can be run in a business-like manner., It enjoys flexibility of operations due
to freedom from bureaucratic control an red-tapism.
Ø Discipline:
The
management of a government company is governed by the companies Act. The
healthy discipline of the Act helps to keep the management active and
efficient. It puts the enterprise at par with a private enterprise.
Ø Private participation.
Company
form of organization permits foreign collaboration and private participation.
The Hindustan Steel Limited has obtained technical and financial assistance
from the U.S. S.R., West Germany and the U.K. For its steel plants located at
Bhilai, Rourkela and Durgapur. Similarly, capital and technical knowledge of
the private sector can be obtained through a mixed ownership company.
Ø Easy to establish and alter.
It
is very easy to establish Government Company as no law needs to be passed by
the Parliament and State legislature. Similarly, it objectives and powers can
be changed simply by altering its Memorandum of Association without seeking the
approval of the Parliament.
Demerits of Government Company:
Ø Avoids Constitutional
Responsibility:
Parliament's
approval is not required for the creation and alternation of a government
company. Therefore, it may evade its constitutional responsibility to the
elected representatives of the public.
Ø
Ineffective Control:
Regulations
of the companies Act become meaningless because the controlling votes always
lie in Government hand. Moreover, the Government can exempt the enterprise form
most of the provisions of the Act. Therefore, government company organization
has been criticized as “a fraud on the companies Act and the Constitution.”
Ø
Doubtful Autonomy:
The
operational autonomy of a government company exists only on paper. In real
practice, there is ministerial and bureaucratic interference in its
functioning. Since the directors are appointed by the Government they often
fail to act independently.
Ø
Fear of Exposure:
The
annual reports of government companies are placed before the Parliament.
Therefore, their working is exposed to the glare of public and press criticism.
The strong phobia of public accountability often results in undue publicity and
unwarranted criticism of the companies. Therefore, the management is of then
demoralized and does not take initiative to enter new areas of activity. This
has an adverse effect on the efficiency and profitability of the
enterprise.
In spite of its drawbacks, the government company
organization is very useful under the following circumstances:
ü
When
the State wants regulate a company in the private sector without nationalizing
it. Due to an emergency created by a financial or employment crisis, the
Government may have to take over an existing company. Merely by acquiring majority
of shares the State can control such an enterprise. Eastern Shipping company,
Indian Iron and Steel Co., Swadeshi Cotton Mills, FACT, etc., are examples of
such companies in India.
ü
When
the government wishes to start an enterprise entirely as a public venture in
order to put it on sound footing and to transfer it as soon as possible to the
private sector.
ü
To
promote trade and commerce or to promote a particular field of economic
activity. State Trading Corporation and the Export Credit and Guarantee
Corporation have been for this purpose.
ü
To
enable private enterprise to set up subsidiary operating companies and to
acquire interest in them.
Auditor Relating Provision:
I.
Appointment of First
Auditor in a Government Company:
v In the case of Government Company, the
First Auditor shall be appointed by the Comptroller and Auditor General if
India (C & AG) within 60 (Sixty) days from the date of registration of the
Company.
v If CAG fails to appoint first Auditor
within 60 days then the Board of Directors of the Company shall appoint the
Auditor within the next 30 days.
v The First Auditor holds office till the
conclusion of the First Annual General Meeting.
II.
Appointment of for
Subsequent Financial year:’
v The appointment of Auditor in a Government Company
in every subsequent financial year shall be made by C & AG within period of
180 days from the commencement of the financial year who shall holds office
upto the conclusion of the Annual General Meeting.
III.
Appointment of for
Subsequent Financial year:
Where
a casual vacancy arise in the office of the Auditor in a Government Company
other than by resignation of Auditor, the causal vacancy will be filled by the
Comptroller and Auditor General of India within 30 days.
Auditor Report in a Government Company:
In
case of government Company the Controller and Auditor General of India shall
appoint the auditor under sub-section (5) or sub section (7) of Section 139 and
direct such Auditor the manner in which the account of the company are required
to be audited. Accordingly, the Auditor shall submit copy of the report to the
C and AG which shall include the directions, if any, issued by the C and AG,
the action taken thereon and its impact on the accounts and financial statement
of the Company.
Supplementary Audit Ordered by C & AG:
The
C & AG shall, with in 60 (Sixty) days of the receipt of the audit report,
have a right to----
a)
Conduct
a supplementary audit of the Company’s accounts by himself or by such person or
persons as he may authorize and for the purpose of such audit require
information or additional information to be furnished to any person or persons,
so authorized, on such matters, by such person or persons and in such form as
the C 7 AG may direct.
b)
Comment
upon the audit report or supplement such audit report.
The
company shall send copy of the C & AG reports to every member and other as
applicable as per Section 136(1) and also the same at the annual general
meeting of the Company.
Annual Report on Government Company:
In
terms of Section 394, where the Central Government is a member, the Central
Government shall, within 3 (three)
months after the Annual General Meeting is held cause an Annual Report
on the working and affairs of a Government Company prepared and have the same
laid before the Both House of Parliament together with a copy of the audit
report and comments upon or supplemental to the audit made by the C & AG
explained above.
Where
in addition to the CG, any State Govt. is also is a member of Govt. Co, the
state Govt. shall cause a copy of the Annual Report referred to above laid
before both House of the State Legislature together with copy of the said
enclosures.
(Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)
Disclaimer: This Document is a copyright of Divesh Goyal. The entire contents of this document have been developed on the basis of relevant statutory provisions. Thought the author has made utmost efforts to provide authentic information however, the author expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this documents. This is only a knowledge sharing initiative and author does not intend to solicit any business or profession…
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pls increase the size of front
ReplyDeleteits not readable and create problems to the eye sight
Dear Sir , what is to be done if we didnt get CAG comments till the last date available for holding AGM of government company?
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