Government Companies compliant in annual filings eligible to avail MCA exemptions, by Dipanjali Nagpal

At the time of its notification, Companies Act, 2013 (‘Act, 2013’) was applicable uniformly across all types of companies. Respite was brought about by the MCA notification dated June 5, 2016[1] (‘Principal Notification’) which provided that certain provisions of the Act, 2013 shall not apply or shall apply to government with such exemptions, modifications or adaptions as provided therein.

The MCA has vide its notification dated June 13, 2017[2] (‘Amendment Notification’) brought about certain amendments in the Principal Notification. The changes in the applicable provisions/exemptions for government companies are discussed in this update. The exceptions, modifications and adaptations provided shall be applicable to a Government company which has not committed a default in filing its financial statements under section 137 of Act, 2013 or annual return under section 92 of Act, 2013 with the Registrar. Therefore, compliance in filings is the key to availing exemptions.

Amendments made in the Principal Notification: A comparison

1)    Sub-section (2) of section 96

Existing exemption – “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 such other place as the Central Government may approve in this behalf.

Revised exemptionEvery 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 such other place within the city, town or village in which the registered office of the company is situated or such other place as the Central Government may approve in this behalf.”

Comments – Government Companies can now hold their Annual General Meetings not only at the registered office or such other place as approved by the Central Government in this regard but also at any other place within the city, town or village in which the registered office of the Government Company is situated.

In the Principal Notification, serial number 5 and entries relating thereto stand replaced by the revised provision.

2)    Sub-section (6) and (7) of section 152

Existing exemption –Shall not apply to –

  • a Government Company in which the entire paid-up share capital is held by the Central Government or the State Government or Governments or by the Central Government and one or more State Governments;
  • a subsidiary of a Government Company referred to in (a) above, in which the entire paid up share capital is held by that Government Company.

Revised exemption – Shall not apply to –

  • a Government Company, which is not a listed company, in which not less than fifty-one per cent. of 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;
  • a subsidiary of a Government company, referred to in (a) above.”

Comments – Sub-section (6) & (7) of section 152 of the Act, 2013 contain provisions relating to appointment of directors retiring by rotation in case of public companies. The amendment provides for a change in the criteria for non-applicability of the said provisions in case of Government Companies. With the said amendment, the exemption has been extended from a 100% owned government company or subsidiary of such company to such unlisted government companies and its subsidiaries, where atleast 51% is held by Central Government or State Government or both.

The requirement of holding atleast 51% does not serve any purpose as definition of Government Company provided under Section 2 (45) of Act, 2013 provides as under:

(45) ‘Government Company’ means any company in which not less than fifty one per cent. of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company;

The language seems to grant exemption to all unlisted government companies and its subsidiaries. There is lack of clarity on whether subsidiary of such government company covered in (a) can be listed and avail the benefit. The intent seems to provide exemption only to unlisted companies, be it the holding government company or subsidiary of such government company.

In the principal notification serial number 15 and entries relating thereto stand replaced by the revised provision.

3)    Section 230 to 232

New exemption – For the word “Tribunal” wherever it occurs, the words “Central Government” shall be substituted.

Comments – Section 230 to 232 of the Act, 2013 contains provisions relating to compromise, arrangements and amalgamations.

The amendment clarifies that schemes of compromise, arrangements and amalgamations relating to Government Companies shall be governed by the Central Government and not the Tribunals.

Even earlier schemes of compromise, arrangements and amalgamation relating to Government Companies were approved by the Central Government (vide Notification G.S.R. number 238 dated 2-2-1978, which provided that for the words ‘court’ wherever it occurs, the words ‘Central Government’ shall be substituted and sub-section (7) shall be omitted in Section 391-304 of the Companies Act, 1956). The confusion has been clarified by substituting the words ‘Tribunal’ with ‘Central Government’ in this regard under chapter XV of the Act, 2013.

In the principal notification after serial number 29, serial number 29A will be inserted containing the new exemptions.

4)    Applicability of the exemptions

New provision – “The exceptions, modifications and adaptations provided shall be applicable to a Government company which has not committed a default in filing its financial statements under section 137 of said Act or annual return under section 92 with the Registrar.”

Comments- The Principal Notification was silent on the applicability of the exemption notification relating to Government Companies. It merely stressed on ensuring that the interests of the stakeholders are protected.

The amendment notification provides that such exemptions will not be available to all Government Companies, but only those Government Companies which have not committed a default a filing its financial results or annual return with the Registrar within the period prescribed in section 403 of the Act, 2013.

In the principal notification after paragraph 2, paragraph 2A will be inserted containing the new provision.


[1] http://www.mca.gov.in/Ministry/pdf/Exemptions_to_govt_companies_05062015.pdf

[2] http://www.mca.gov.in/Ministry/pdf/ExemptionGovernmentCompanies_14062017.pdf

by – Dipanjali Nagpal (dipanjali@vinodkothari.com)

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