Exemptions to Government Companies

Provisions of specified sections which shall not apply or shall apply with exceptions to a Government Company under section 462 of Companies Act, 2013.

The provisions of section 462 are effective from 12th September, 2013. You may refer Notification No. S.O. 2754(E) dated 12-09-2013. In this article, you will learn detail of the provisions of section 462 the Companies Act 2013.

The Ministry of Corporate Affairs, Government of India issued the final notification vide G.S.R. 463(E) dated 5th June, 2015 (05.06.2015) under Section 462 of the Companies Act, 2013 which provide exemptions under various provisions of the CA 2013 to Government Companies.

Accordingly, certain provisions of the Companies Act, 2015 shall not apply to Government Company. Further, in the same notification it also clarified that some sections shall apply with such exceptions, modifications and adaptations as specified in that notification itself.

Therefore, Government Companies have been fully exempted from the provisions of sections 89, 90, 134(3)(e), 149(1)(b), 149(6)(c) , 164(2), 196(2), (4) & (5) and section 197 of CA 2013. In addition to those fully exempted sections, there are some specified sections which shall apply to a govt. company with some exceptions and modifications.

Table of Contents

Exemption for Govt Companies with Exceptions and Modifications

Memorandum [Section 4]:

The provisions of clause (a) of sub-section (1) of section 4 has been modified in respect of Government Company.

In section 4, in sub-section (1), in clause (a), the words ‘in the case of a public limited company, or the last words “Private Limited” in the case of a private limited company’ shall he omitted.

Therefore, you may read it as under:

section 4 of the Companies Act, 2013: (1) The memorandum of a company shall state—
(a) the name of the company with the last word “Limited”:

Thus, the memorandum of a Government company shall state the name of the company with the last word “Limited”.

Transfer and Transmission of Securities [Section 56]:

A new proviso has been inserted after the first proviso of sub-section (1) of section 56 of CA 2013 and shall be read as under:

Provided further that the provisions of this sub-section, in so far as it requires a proper instrument of transfer, to be duly stamped and executed by or on behalf of the transfer and by or on behalf of the transferee, shall not apply with respect to bonds issued by a Government company.

Provided that an intimation by the transferee specifying his name, address and occupation, if any, has been delivered to the company along with the certificate relating to the bond; and if no such certificate is in existence, along with the letter of allotment of the bond:

Provided also that the provisions of this sub-section shall not apply to a Government Company in respect of securities held by nominees of the Government.

Declaration in respect of beneficial interest in any share [Section 89]:

The entire provisions of section 89 shall not be applicable for a Government company.

Investigation of beneficial ownership of shares in certain cases [Section 90]:

The entire provisions of section 90 of CA 2013 shall not be applicable for a Government company.

Annual general meeting [Section 96]:

Annual General Meeting (AGM) of a Govt. company 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.

In case of a Government company, in sub-section (2) of section 96, for the words “some other place within the city, town or village in which the registered office of the company is situate”, the words “such other place as the Central Government may approve in this behalf ” shall be substituted.

Declaration of Dividend [Section 123]:

The provisions of second proviso of section 123(1) of CA 2013 shall not apply to a Government Company in which the entire 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.

Therefore, such Government company may declare dividend out of the accumulated profits earned by it in previous years and transferred by such Govt. company to the reserves in case of owing to inadequacy or absence of profits in any financial year.

Further, the provisions of sub-section (4) of section 123 of CA 2013 shall not be applicable to a Government Company in which the entire 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 or by one or more Government Company.

Thus, such Govt. company need not require to deposit the amount of the dividend, including interim dividend in a scheduled bank in a separate account within 5 days from the date of declaration of such dividend.

Financial Statement [Section 129]:

In accordance with the provisions of section 129, the financial statements shall comply with the accounting standards notified under section 133 and the items contained in such financial statements shall be in accordance with the accounting standards.

However, in case of a Government Company section 129 shall not apply to the extent of application of Accounting Standard 17 (Segment Reporting) to the companies engaged in defence production.

Note that the CG has also exempts Government companies producing Defence Equipments from disclosure requirements of additional info while preparing Statement of Profit and Loss vide MCA notification dated 4th September, 2015.

Financial Statement, Board’s report, etc. [Section 134]:

The provisions of section 134(3)(e) of CA 2013 shall not be applicable for a Government company. Therefore, a report by Board of Directors of a Government Company need not include company’s policy on director’s appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178.

The provisions of section 134(3)(p) of CA 2013 shall not be applicable for a Government company in case the directors are evaluated by the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be the State Government, as per its own evaluation methodology.

Company to have Board of Directors [Section 149]:

The limitation of maximum 15 directors shall not apply to a Government Company as provided in section 149(1)(b) of the Companies Act, 2013. Moreover, there is no need to pass special resolution for the appointment of more than fifteen directors by a Govt. Company in compliance with the first proviso of section 149(1) of CA 2013.

Additionally, the provision of clause (a) of sub-section (6) of section 149 shall be read as under:

An independent director in relation to a Government company means a director other than a managing director or a whole-time director or a nominee director who, in the opinion of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may he, the State Government is a person of integrity and possesses relevant expertise and experience.

The provisions of section 149(6)(c) shall not apply to a Govt. company and therefore, an Independent director may have or had pecuniary relationship with such Govt. company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year.

Appointment of Directors [Section 152]:

The provisions of section 152(5) shall not apply to a Government Company and therefore a director appointed in a Govt. company shall not require to give consent to hold the office as director and there is no requirement for filing such consent with the Registrar where appointment of such director is done by the Central Government or State Government, as the case may be.

The provisions of sub-section (6) and (7) of section 152, regarding retirement of directors and filling the vacancy of retiring directors respectively, shall not apply to –

  • (a) a Government Company in which the entire 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;
  • (b) 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.

Right of persons other than retiring directors to stand for directorship [Section 160]:

The provisions of section 160 of CA 2013 shall not apply to

  • (a) a Government company in which the entire 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;
  • (b) 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.

Appointment of directors to be voted individually [Section 162]:

The provisions of section 162 of CA 2013 shall not apply to

  • (a) a Government Company in which the entire 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;
  • (b) 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.

Option to adopt principle of proportional representation for appointment of directors [Section 163]:

The provisions of section 163 of CA 2013 shall not apply to

(a) a Government Company in which the entire 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;
(b) it subsidiary of a Government company, referred to in (a) above, in which the entire paid up share capital is held by that Government company.

Disqualifications for Appointment of Director [Section 164]:

The entire provisions of section 164 of CA 2013 shall not be applicable for a Government company.

Register of Directors and Key Managerial Personnel and their shareholding [Section 170]:

The provisions of section 170 shall not apply to a Government Company in which the entire share capital is held by the Central Government, or by any State Government or Governments or by the Central Government or by one or more State Governments.

Members’ right to inspect [Section 171]:

The provisions of section 171 of CA 2013 shall not apply to a Government Company in which the entire share capital is held by the Central Government, or by any State Government or Governments or by the Central Government or by one or more State Governments.

Audit Committee [Section 177]:

Every Audit Committee of a Government Company shall act in accordance with the terms of reference specified in writing by the Board which shall include the recommendation for remuneration of auditors of the company.

Thus, Audit Committee of a Govt. company shall not recommend for the appointment as well as the terms of appointment of auditors to the Board of Directors.

Nomination and Remuneration Committee and Stakeholders Relationship Committee [Section 178]:

The provisions of sub-section (2), (3) & (4) of section 178 of the Companies Act, 2013, shall not apply to Government Company except with regard to appointment of ‘senior management’ and other employees.

Loan to Directors, etc. [Section 185]:

The provisions of section 185 of CA 2013 shall not apply to Government company in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government before making any loan or giving any guarantee or providing any security under the section.

Loan and Investment by Company [Section 186]:

The provisions of section 186 of the Companies Act, 2013, shall not apply to –

(a) a Government company engaged in defence production;
(b) a Government company, other than a listed company in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or as the case may be, the State Government before making any loan or giving any guarantee or providing any security or making any investment under the section.

Related Party Transactions [Section 188]:

The provisions of first and second proviso to sub-section (l) of section 188 shall not apply to –

(a) a Government company in respect of contracts or arrangements entered into by it with any other Government Company;
(b) a Government company, other than a listed company, in respect of contracts or arrangements other than those referred to in clause (a), in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government before entering into such contract or arrangement.

Appointment of managing director, whole-time director or manager [Section 196]:

The provisions of sub-section (2) of section 196 shall not be applicable for a Government Company.

Therefore, a Govt. Company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding 5 years at a time.

An appointment of a managing director, whole-time director or manager need not require any approval at a general meeting and by the CG and such appointment shall not be deemed to be invalid as because the provisions of sub-sections (4) & (5) of section 196 of CA 2013 shall also not apply to a Government Company.

Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits [Section 197]:

The entire provisions of section 197 shall not apply to a Govt. Company and therefore, it shall pay any amount of managerial remuneration even in case of inadequate profits.

Appointment of key managerial personnel [Section 203]:

A new sub-section (4A) has been inserted in section 203 for a Government company and shall be read as under:

(4A) The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole-time director of the Government Company.

Offences to be non-cognizable [Section 439]:

The provisions of sub-section (2) of section 439 shall be applicable to a Government Company with some modifications.

In case of Govt. Company no court shall take cognizance of any offence under CA 2013 which is alleged to have been committed by any company or any officer thereof, except on the complaint in writing of a person authorised by the Central Government in that behalf.


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