Potential of a Government Company Under Companies Act 2013 : 5 Important Roles It Plays
Introduction
In the vast landscape of economic entities, a government company stand out as pivotal players, contributing significantly to a nation’s development and stability. These government-backed companies, often referred to as Public Sector Undertakings (PSUs), play a crucial role in various sectors, ranging from energy and infrastructure to finance and healthcare.
Definition
A government company means a company in which not less than 51% 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 it also includes a company which is a subsidiary company of such a government company. A government company is also often called a Public Sector Enterprises/Public Sector Undertaking.
In a government company, when shares with differential voting rights have been issued, “paid up share capital” is interpreted as “total voting power.” A government company may be incorporated as a public company or a private company. All the provision of the Companies Act, 2013 are applicable on a government company unless something is specifically exempted by the government. The Ministry of Corporate Affairs notified total/partial exemptions to government companies from compliance with certain sections of the Companies Act, 2013 vide notification No. G.S.R. 463(E) dated 5th June, 2015.
Features and Reliefs available to a Government Company
- Name: All government companies, whether public or private, must have the word “Limited” at the end of their names. The term “STATE” is permitted in the name. [Ref: Chapter II, section 4(1)(a) of the Companies Act, 2013]
- Transfer of Shares and Bonds: Subsection 1 of Section 56 (Transfer of Shares) does not apply to Government Company in respect of Securities held by nominees of the Government. The requirement of signing and providing a transfer instrument (SH-4) to the government company has also been eliminated in the case of transfers of securities held by Government nominees. According to the second proviso of Section 56(1), in the case of a transfer of Bonds issued by a government company, an instrument of transfer is not required to be executed and delivered to the government company if an intimation regarding the transfer is supported by the details of the transferee and the relevant bond certificate, or the letter of allotment is delivered to the Company. [Ref: Chapter IV, section 56(1) of the Companies Act, 2013]
- Beneficial interest: Section 89 and 90 of the Companies Act, 2013 are not applicable to a government company. Nominees of the government company are not required to file declaration in respect of beneficial interest in any share and investigation of beneficial ownership of shares in some cases is exempted. [Ref: Chapter VII, section 89 of the Companies Act, 2013 and Chapter VII, section 90 of the Companies Act, 2013]
- Provisions with respect to Declaration of dividends: Conditions provided in Companies (Declaration of Dividend) Rules, 2014 regarding declaration of dividend out of free reserves in case of absence or inadequacy of profits in any financial year and deposit of amount of dividend declared including Interim dividend within 5 days in a separate bank account opened with a scheduled bank does not apply to a Wholly owned Government Company. [Ref: Chapter VIII, second proviso to section 123(1) of the Companies Act, 2013 and Chapter VIII, section 123(4) of the Companies Act, 2013]
- Exemption from Accounting Standard 17: Section 129 shall not apply to the extent of application of Accounting Standard 17 (Segment Reporting) to the companies engaged in defence production. [Ref: Chapter IX, section 129of the Companies Act, 2013]
- Exemption from certain disclosure requirements in Board’s Report: The disclosure requirement contained in Section 134(3)(e) and Section 134(3)(p) of the Companies Act, 2013 does not apply to a government company. A government Company has been given a relaxation with respect to the necessity to disclose the Company’s nomination and remuneration policies, among other things, in the Board’s Report. [Ref: Chapter IX, section 134(3)(e) of the Companies Act, 2013 and Chapter IX, section 134(3)(p) of the Companies Act, 2013]
- Appointing more than 15 directors: More than 15 directors may serve on the board of a government company. A government company is not required to pass a special resolution to appoint more than 15 directors. [Ref: section 149(1)(b) and first proviso to sub-section (1) of section 149 of the Companies Act, 2013]
- Place of Holding Annual General Meeting: The Annual General Meeting of a government company may be held at the registered office or at any other location within the city, town, or village in which the company is located as the Central Government may approve in this behalf. [Ref: Chapter VII, section 96(2) of the Companies Act, 2013]
- Retirement by Rotation of Directors: Provisions with respect to the retirement of directors by rotation at Annual General Meeting and their appointment shall not apply to wholly owned government company and a wholly-owned subsidiary of such company. [Ref: Chapter XI, section 152 of the Companies Act, 2013 and section 160 of the Companies Act, 2013]
- Requirement of Independent Director: The term “Board” shall be replaced by “Department of Central Government which is administratively in charge of the company or as the case may be the State Government” in Section 149(6)(a) of the Act, and Section 149(6)(c) for requirement of appointment of independent director shall not apply to Government Companies.
Importance of Government Companies in an Economy
- Economic Development: Government companies make major contributions to the country’s economic growth by operating in a variety of industries such as energy, infrastructure, manufacturing, finance, and others. Sectors requiring large sums of money, which private sector corporations often do not manage, are handled by public sector companies. Companies in the public sector regulate power plants, oil and gas, energy, finance, petroleum industries etc. They make investments in initiatives that encourage manufacturing and create job possibilities.
- Employment Generation: Government companies make investments in initiatives that encourage manufacturing and create job possibilities. Government companies or Public Sector Undertakings are large employers, directly employing millions of people at varying skill levels. By producing jobs, these businesses help to reduce unemployment and raise the standard of living for many individuals and their families.
- Strategic Development: The government frequently keeps control over critical industries such as defence, railways, oil and gas, telecommunications, and so on. The presence of government companies in these critical industries ensures the country’s security is not compromised. Further, the government companies invest and develop the underdeveloped areas strategically to ensure that the entire nation grows together in a balanced way.
- Infrastructure Development: Infrastructure development is critical to the nation’s overall economic prosperity. Government companies or Public Sector Undertakings play an important role in the development and maintenance of the country’s infrastructure, such as building roads, bridges, airports, ports, and power plants.
- Regulate Monopolies: Government companies or Public Sector Undertakings aid in the prevention of monopolies, regulation of prices and promotion of fair competition. In certain circumstances, they enter industries where private firms may be hesitant to participate due to perceived dangers or low profitability. They can operate as a check on the private sector so that they adhere to Monopolistic and Restrictive Trade Practices guidelines.
Conclusion
In conclusion, the role of Government Companies and Public Sector Enterprises is far-reaching and dynamic. By effectively communicating their contributions, these entities can amplify their impact, garner support, and continue to be pillars of national progress.
