Companies Authorised to Register under this Act

That last clause is worth a sentence. A body may incorporate itself in order to be wound up under this Act, and the registration is good.

The seven provisos

• (i) a company registered under the Indian Companies Act, 1882, the Indian Companies Act, 1913 or the Companies Act, 1956 shall not register under this section, because it is already a company;
• (ii) a company whose members' liability is already limited by another Act or law shall not register as an unlimited company or as a company limited by guarantee;
• (iii) a company may register as limited by shares only if it has a permanent paid-up or nominal share capital of fixed amount divided into shares of fixed amount, or held and transferable as stock, or partly each, and is formed on the principle of having as its members the holders of those shares or that stock and no other persons;
• (iv) registration requires the assent of a majority of the members present in person or, where proxies are allowed, by proxy, at a general meeting summoned for the purpose;
• (v) where a body not already limited is registering as a limited company, that majority must be not less than three-fourths of those present in person or by proxy;
• (vi) where it is registering as a company limited by guarantee, the assent must be accompanied by a resolution declaring that each member undertakes to contribute to the assets, in the event of winding up while he is a member or within one year after he ceases to be one, for the debts and liabilities contracted before he ceased to be a member, the costs, charges and expenses of winding up, and the adjustment of the rights of the contributories among themselves, such amount as may be required not exceeding a specified amount; and
• (vii) a company with less than seven members shall register as a private company.

Section 366(3). In computing a majority, where a poll is demanded, regard shall be had to the number of votes to which each member is entitled under the body's own regulations.

The certificate: section 367

On compliance with the requirements and payment of the fees under section 403, the Registrar shall certify under his hand that the company applying for registration is incorporated as a company under this Act, and, in the case of a limited company, that it is limited; and thereupon the company shall be so incorporated.

What registration does: sections 368, 369 and 370

Section 368: property. All property, movable and immovable, including actionable claims, belonging to or vested in the company at the date of its registration shall, on such registration, pass to and vest in the company as incorporated under this Act, for all the estate and interest of the company in it.

No conveyance is needed, exactly as under section 232(4) for a merger.

Section 369: liabilities. Registration shall not affect the company's rights or liabilities in respect of any debt or obligation incurred, or any contract entered into, by, to, with or on behalf of the company before registration.

Section 370: pending proceedings. All suits and other legal proceedings by or against the company, or any public officer or member of it, pending at the time of registration, may be continued as if the registration had not taken place.

The proviso, which is the creditor's practical difficulty: execution shall not issue against the property or persons of any individual member on a decree in such a suit; but if the company's property is insufficient to satisfy the decree, an order may be obtained for winding up the company under this Act or under the Insolvency and Bankruptcy Code, 2016.

So a creditor who was suing the partners personally loses the personal execution but keeps a route: he may have the company wound up, and in the winding up the members are contributories for the old debts under section 371(3)(c).

The effect on the constitution: section 371

Section 371(2): the instrument becomes the constitution. All provisions in any Act of Parliament or other law, or other instrument constituting or regulating the company, including, for a company limited by guarantee, the resolution declaring the amount of the guarantee, are deemed to be conditions and regulations of the company, as if what would have had to be in the memorandum were in a registered memorandum, and the residue in registered articles.

Section 371(3): the Act applies, with four qualifications.

• (a) Table F in Schedule I does not apply unless and so far as it is adopted by special resolution;
• (b) the provisions about the numbering of shares do not apply to a company whose shares are not numbered;
• (c) on a winding up, every person is a contributory in respect of the debts and liabilities contracted before registration who is liable to pay or contribute to them, or to any sum for the adjustment of the rights of members among themselves in respect of them, or to the costs, charges and expenses of winding up so far as they relate to those debts; and
• (d) on a winding up, every contributory is liable to contribute all sums due from him in respect of such liability, and on his death or insolvency the Act's provisions about legal representatives of deceased contributories and assignees of insolvent contributories apply.

Section 371(4). The Act's provisions about the registration of an unlimited company as a limited company, the power of such a company on registration to increase the nominal amount of its share capital and to provide that part of it shall not be callable except in winding up, and the power of a limited company to make the like provision, apply notwithstanding anything in any other law or in the constituting instrument.

Section 371(5) and (6). Nothing in the section authorises the company to alter provisions of its constituting instrument which, had it been formed under this Act, would have had to be in the memorandum and are not authorised to be altered by this Act; and none of the provisions of this Act, apart from section 242, derogates from any power of altering its constitution vested in the company by any other Act or law.

Note the exception of section 242. The Tribunal's power, on an oppression petition, to alter the memorandum or articles does override the body's own power.

Staying suits: sections 372 and 373

Section 372. The provisions of this Act, or of the Insolvency and Bankruptcy Code, 2016, about staying and restraining suits after the presentation of a winding up petition and before the winding up order, extend, in the case of a company registered under this Part and where the application to stay is by a creditor, to suits and other legal proceedings against any contributory of the company.

Section 373. Where a winding up order has been made or a provisional liquidator appointed for such a company, no suit or other legal proceeding shall be proceeded with or commenced against the company or any contributory in respect of any debt of the company, except by leave of the Tribunal and on such terms as it may impose.

Both sections extend to contributories what section 279 does for the company, and they do so because the members of a body that was unlimited before registration remain personally exposed for the old debts.

What the body must do first: section 374

Every company seeking registration under this Part shall:

• (a) ensure that its secured creditors have either consented to, or given their no objection to, the registration;
• (b) publish an advertisement, one in English and one in the vernacular language, in the prescribed form, giving notice of the registration, seeking objections and addressing them suitably;
• (c) file a notarised affidavit from all the members or partners that, on registration, the necessary documents will be submitted to the authority with which the body was earlier registered, for its dissolution as a partnership firm, limited liability partnership, co-operative society, society or other business entity; and
• (d) comply with such other conditions as may be prescribed.

The proviso: on registration as a company under this Part, a limited liability partnership incorporated under the Limited Liability Partnership Act, 2008 shall be deemed to have been dissolved under that Act without any further act or deed.

Clause (c) prevents the obvious mischief. Without it the same business would exist twice, once as a firm and once as a company.

A worked example

Vasai Marine Exports, a partnership firm of nine partners with substantial machinery, godowns and export contracts, wishes to become a private company limited by shares.

May it? Yes. Section 366(1) includes a partnership firm, and the firm consists of two or more members. Being nine, it is not obliged by proviso (vii) to register as a private company, but it may choose to.

Which form. It is registering as limited by shares, so proviso (iii) requires a permanent paid-up or nominal share capital of fixed amount divided into shares of fixed amount, with the holders of those shares as its only members.

The majority. The firm is presently unlimited, so by proviso (v) the assent must be of not less than three-fourths of the members present in person or by proxy at a general meeting summoned for the purpose, not a bare majority. On a poll, each member's votes are counted according to the firm's own regulations: section 366(3).

Before it applies. Under section 374 it must obtain the consent or no objection of its secured creditors, the bank holding a charge over the godown; advertise in one English and one vernacular newspaper, seeking objections and addressing them; and file a notarised affidavit from all the partners that the papers for the firm's dissolution will be filed with the Registrar of Firms.

Registration. On compliance and payment of the fees the Registrar certifies that it is incorporated as a company under this Act and that it is limited, and thereupon it is so incorporated: section 367.

The assets. The machinery, godowns and actionable claims pass to and vest in the company by force of the registration, with no conveyance: section 368.

The old debts. A supplier owed eleven lakh rupees from before registration is unaffected: section 369 preserves the liability. His pending suit against the firm and its partners continues as if the registration had not taken place: section 370. But execution may not issue against the property or person of an individual partner; if the company's property is insufficient, he may obtain an order for winding up under this Act or the Insolvency and Bankruptcy Code, 2016.

In that winding up. Every person liable for the debts contracted before registration is a contributory for them, and must contribute all sums due from him; and on a contributory's death or insolvency the provisions about legal representatives and assignees apply: section 371(3)(c) and (d).

And meanwhile. After the winding up petition is presented and before the order, a creditor may have suits against any contributory stayed or restrained: section 372. Once the order is made or a provisional liquidator appointed, no suit may be commenced or continued against the company or any contributory for any debt of the company without the Tribunal's leave: section 373.

The constitution. The partnership deed and any other instrument regulating the firm become the company's memorandum and articles, split according to what the Act would have required in each: section 371(2). Table F does not apply unless adopted by special resolution: clause (a). The company may not alter provisions which, had it been formed under this Act, would have had to be in the memorandum and which the Act does not permit to be altered; but the Tribunal's power under section 242 to alter the memorandum or articles on an oppression petition is preserved.

A different applicant. Had the applicant been a limited liability partnership, registration would carry the added consequence that it is deemed dissolved under the Limited Liability Partnership Act, 2008 without any further act or deed: proviso to section 374. Had it been a society already limited by another law, proviso (ii) would have barred it from registering as an unlimited company or as one limited by guarantee. And had it been a company registered under the Companies Act, 1956, proviso (i) would have barred it altogether.

A body of five. A firm of five partners registering under this Part shall register as a private company: proviso (vii).

Distinctions that carry marks

What this does NOT mean

It does not mean seven members are needed. Section 366(2) now reads two or more members, and a body of fewer than seven must register as a private company.

It does not mean registration wipes the slate clean. Debts, obligations, contracts and pending suits all survive, and members remain contributories for the pre-registration debts.

It does not mean a creditor may execute against a member. Section 370's proviso forbids execution against the property or person of an individual member, leaving him a winding up remedy.

It does not mean Table F applies automatically. It applies only so far as adopted by special resolution.

It does not mean the company may rewrite its constitution. It may not alter what would have had to be in the memorandum and is not alterable under the Act; and the only provision of this Act that overrides its own power of alteration is section 242.

It does not mean registration is available to an existing company. A company under the 1882, 1913 or 1956 Acts may not register under this Part.

Quick revision

• 366: "company" here includes a partnership firm, limited liability partnership, cooperative society, society or any other business entity; a body of two or more members formed under any other law may register as an unlimited company, or limited by shares or by guarantee, and the registration is not invalid merely because it is with a view to winding up. Provisos: no company under the 1882, 1913 or 1956 Acts; a body already limited may not register as unlimited or by guarantee; limited by shares requires a fixed capital divided into fixed shares with only shareholders as members; a majority of members present must assent, three-fourths where an unlimited body becomes limited; a guarantee resolution is required for a company limited by guarantee; and fewer than seven members means a private company. On a poll, votes count by the body's own regulations.
• 367 and 368: the Registrar certifies incorporation, and thereupon the company is so incorporated; and all property, movable and immovable including actionable claims, passes to and vests in the company on registration.
• 369 and 370: registration does not affect rights or liabilities in respect of debts, obligations or contracts before it; pending suits continue as if it had not taken place, but no execution issues against an individual member, the creditor's remedy being a winding up under this Act or the Insolvency and Bankruptcy Code, 2016.
• 371: the constituting instrument becomes the memorandum and articles; the Act applies, save that Table F applies only if adopted by special resolution, the numbering provisions do not apply to unnumbered shares, and, on a winding up, every person liable for pre-registration debts is a contributory and must contribute all sums due, with the provisions on deceased and insolvent contributories applying; the provisions about registering an unlimited company as limited and about reserve capital apply notwithstanding any other law; the company may not alter memorandum matters the Act does not permit to be altered; and only section 242 derogates from its own power of alteration.
• 372 and 373: a creditor may extend a stay of suits, between petition and order, to suits against any contributory; and after a winding up order or the appointment of a provisional liquidator, no suit may be commenced or continued against the company or any contributory for a company debt without the Tribunal's leave.
• 374: before registering, the body must obtain the secured creditors' consent or no objection, advertise in one English and one vernacular newspaper inviting and addressing objections, file a notarised affidavit of all members or partners that the earlier registration will be dissolved, and comply with other prescribed conditions; and a limited liability partnership is deemed dissolved under its own Act on registration.

Test yourself

1. Which bodies may register under Part I of Chapter XXI, and with how many members? Any partnership firm, limited liability partnership, cooperative society, society or other business entity formed under any other law, and any company formed under any Act of Parliament other than this Act or otherwise duly constituted according to law, consisting of two or more members: section 366(1) and (2). A body with fewer than seven members shall register as a private company: proviso (vii).

2. What majority is required? The assent of a majority of the members present in person or, where proxies are allowed, by proxy, at a general meeting summoned for the purpose; and not less than three-fourths where a body whose members' liability is not already limited is registering as a limited company: provisos (iv) and (v) to section 366(2).

3. What happens to the body's property and liabilities on registration? All property, movable and immovable, including actionable claims, passes to and vests in the company by force of the registration (section 368); and the registration does not affect its rights or liabilities in respect of any debt or obligation incurred, or any contract entered into, before registration (section 369).

4. Can a creditor execute a decree against a member after registration? No. Execution shall not issue against the property or persons of any individual member on a decree in a suit pending at registration; but if the company's property is insufficient, the creditor may obtain an order for winding up the company under this Act or under the Insolvency and Bankruptcy Code, 2016: proviso to section 370.

5. What becomes of the body's constituting instrument? Its provisions, including the guarantee resolution in a company limited by guarantee, are deemed to be conditions and regulations of the company, as if what would have had to be in the memorandum were in a registered memorandum and the residue in registered articles: section 371(2).

6. What must a body do before applying? Obtain the consent or no objection of its secured creditors; publish an advertisement, one in English and one in the vernacular language, giving notice of the registration, seeking objections and addressing them suitably; file a notarised affidavit from all the members or partners that the documents for dissolution of the earlier registration will be submitted; and comply with such other conditions as may be prescribed: section 374.