AND & ‘OR’ a Mess in Companies Act, 2013

‘AND’ & ‘OR’ a Mess in Companies Act, 2013

‘AND’ & ‘OR’ statements behave very differently. ‘AND’  signifies that both conditions are required to be satisfied while ‘OR’ signifies that only one condition must be met.

Let us analyse how it has created big Confusion in Companies Act, 2013

I.               In section 2, clause (85) of Companies Act, 2013 , Small company is defined as:

‘‘small company’’ means a company, other than a public company,

(i)              paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees;

OR

(ii)          turnover of which as per its last profit and loss account does not exceed two crore rupees

or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

The Interpretation of the above definition is that, if any one of the conditions is satisfied, the company shall be classified in the category of Small Company and can avail many benefits/exemptions provided in the Companies Act, 2013 for Small companies.

For example: Company “X Pvt Ltd” having paid up capital of 40 lakhs and Turnover of 200 crore, then also Company “X Pvt Ltd” shall be treated as Small company as it fulfills One criteria of Paid up capital of less than 50 lakh i.e, 40 Lakhs as per the definition given in section 2, clause (85) of Companies Act, 2013.

This must not be the Intention of the Law maker that company having Turnover of 200 crore is placed in the category of Small Company.

Definition Modified: Realising the Error, Ministry of Corporate Affairs in Companies (Removal of Difficulties) Order, 2015 published on 13th February, 2015 clarified that in section 2, clause (85), word “OR” occurring at the end, the word “AND” shall be substituted.

    II.            In Chapter II  of “The Companies (Incorporation) Rules, 2014”, Rule 7 , sub-rule (1),  provides

the condition for Conversion of private company into One Person Company, which is reproduced as under:

1)      A private company other than a company registered under section 8 of the Act having paid up share capital of fifty lakhs rupees or less OR average annual turnover during the relevant period is two crore rupees or less may convert itself into one person company by passing a special resolution in the general meeting.

The Interpretation of the above definition is that, if any one of the conditions is satisfied, then private company other than a company registered under section 8 of the Act less may convert itself into one Person Company by passing a special resolution in the general meeting

For Example: Company “X  Pvt Ltd” having paid up capital of 40 lakhs and Turnover of 200 crore, then also Company “X  Pvt Ltd”   may convert itself into one Person Company by passing a special resolution in the general meeting,  as it fulfills One criteria of Paid up capital of less than 50 lakh i.e, 40 Lakhs, as per Rule 7 , sub-rule (1),  The Companies (Incorporation) Rules, 2014.

Again, this must not be the Intention of the Law maker giving the option to private company having Turnover of 200 crore to convert itself into one Person Company because :

As per rule 6 of The Companies (Incorporation) Rules, 2014, OPC needs to convert itself into a public company or a private company in certain cases.-

Where the paid up share capital of an One Person Company exceeds fifty lakh rupees or its average annual turnover during the relevant period* exceeds two crore rupees, it shall cease to be entitled to continue as a OPC.

We can extract condition which needs to be fulfilled for a Company to get the privilege of One Person Company. i.e,

a)      The paid up share capital of an OPC does not exceeds fifty lakh rupees or its average annual turnover during the relevant period* does not exceeds two crore rupees.

*"relevant period" means the period of immediately preceding three consecutive financial years.

Rules Modified: Realising the Error, Ministry of Corporate Affairs , on 01^st May , 2015 notified The Companies (Incorporation) Amendment Rules, 2015, which is reproduced below :

In rule 7, in sub-rule (1), for the words “ having paid up share capital of fifty lakhs rupees or less OR average annual turnover” during the relevant period is , the words “ having paid up share capital of fifty lakhs rupees or less AND average annual turnover during the relevant period shall be substituted;

III.                  In Chapter II  of “The Companies (Incorporation) Rules, 2014”, Rule 6 , sub-rule (1), 

  Provides that One Person Company to convert itself into a public company or a private    

  company in certain cases , which is reproduced as under:

1)      Where the paid up share capital of an One Person Company exceeds fifty lakh rupees OR its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company.

Ministry of Corporate Affairs, on 01^st May, 2015 notified The Companies (Incorporation) Amendment Rules, 2015, which is reproduced below:

“In rule 6, for sub-rule (11), for the words “having paid up share capital of fifty lakhs rupees or less or average annual turnover”, the words “having paid up share capital of fifty lakhs rupees or less AND average annual turnover shall be substituted.

Observations: I could not find any sub-rule (11), in rule 6 of “The Companies (Incorporation) Rules, 2014.”

If the amendment is assumed as sub-rule (1) instead of sub-rule (11), Then the rule will be read as One Person Company to convert itself into a public company or a private company in certain cases:

Where the paid up share capital of an One Person Company exceeds fifty lakh rupees AND its average annual turnover during the relevant period exceeds two crore rupees, it shall cease to be entitled to continue as a One Person Company.

The Interpretation of the above definition is that, if Both of the conditions are fulfilled the One Person Company shall cease to be entitled to continue as a One Person Company.

For example: Company “X Pvt Ltd”  having paid up capital of 40 lakhs and Turnover of 200 crores, then also Company “X Pvt Ltd”  may not convert itself into a public company or a private company as it doesn’t fulfills both criteria of Paid up capital of fifty lakh rupees AND its average annual turnover during the relevant period.

Though the Rule 6, sub-rule (1) free from error, Ministry of Corporate Affairs had inadvertently changed the rule and made another delusion.

Conclusion: Ministry of Corporate Affairs while correcting two error/omission, discussed in point no   I and II above, had made another error discussed in point no III. We can expect another amendment in near future for correction of rule 6, for sub-rule (1) of The Companies (Incorporation) Rules, 2014.

Disclaimer:     Statements and opinions expressed in articles are those of the author’s personal views. While every care has been taken in the compilation of this information and every attempt made to present up-to-date and accurate information, we cannot guarantee that inaccuracies will not occur. Readers are advised to refer relevant provision of law before applying or accepting any of the point mentioned above. Author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the contents of this write up

The Author is an Associate Member of the Institute of Company Secretaries of India.

KUNDAN KUMAR MISHRA

Practicing Company Secretary

New Delhi

Email : cskundanmishra@gmail.com

Mob : +91-9899208090

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