In the NCLT order, C.P. (CAA) No. 52/BB/2022, in respect of petition filed for conversion of Azim Premji Trust Services Private Limited (“the Petitioner Company”), a company limited by shares into a company limited by guarantee, a key discussion in relation to the provisions of the Companies Act 2013 were discussed. The tribunal examined the implications of this conversion, noting that it aligned with the objectives of the Companies Act. The section 18 of the companies Act 2013 provides for conversion of company from one class to any other class.
Considering that there is no specific rules and forms provided for conversion of a company limited by shares to a company limited by guarantee without capital, a scheme of arrangement can be a navigating tool for achieving the object of company for such conversion.
The Scheme approved by the stakeholders envisage converting the company limited by shares to a company limited by guarantee without capital. Hence the requirement of holding minimum one share as provided in Section 4(1)(e) of the Companies Act, 2013 (Act) is not applicable after such conversion. Company limited by guarantee without capital is permitted under the Act and as per Section 4(1)(d) of the Act, and the members are only required to state the amount upto which each member agreed to contribute to the assets of the company in the event of its being wound up and to the cost, expense and charges of winding up.
As per the scheme of arrangement between the Petitioner Company and its shareholders, the Petitioner Company is proposed to be converted into a company limited by guarantee without capital and to facilitate this result, clause (b) of Section 230(2) of the Act gets invoked, which clause states “reduction of share capital of the company, if any, included in the compromise or arrangement”. The purpose of the Scheme is only to sub- serve the object of discharging fiduciary responsibility as a trustee, being the primary and overarching objective, and which purpose can be better achieved through conversion of a company limited by shares to a company limited by guarantee, which conversion involves the company not having any shares. The purpose of the Scheme is not to confined to merely making Members with shares as Members without shares but extensively covers several other facets germane to the objective sought to be achieved. The requirement of maintaining minimum one shares is nowhere prescribed for a company limited by guarantee without capital and it is such character with which the Petitioner Company is conferred upon conversion as per the Scheme. Moreover, under sub section 68 of Section 2 of the Act, a Private Company need not have share capital at all vide amendment of 29th May 2015 to the said sub section. Table B to Schedule 1 of the Companies Act also permits Memorandum of Association of a Company Limited by Guarantee not to have any share capital at all. The Scheme does not result in the Petitioner Company being without Members, which alone is not permitted under the provisions of the Act.
The order emphasized that such a transformation would not adversely affect the rights of existing shareholders or creditors. The tribunal highlighted the benefits, including enhanced flexibility in management and potential tax advantages.
Moreover, the decision ensured that all procedural requirements for the conversion were met, including approvals from shareholders and compliance with regulatory mandates. This aspect of the order reinforced the NCLT’s support for corporate restructuring that serves the broader interests of the company and its stakeholders while adhering to legal frameworks.
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