Government Companies

Section 617 of the Companies Act, 1956 defines the Government Companies. If a minimum 51% of the paid up share capital of a Company is held by Central or State Government/s or jointly by them, then the Company is a Government Company. Subsidiary Company of a Government Company is also considered as a Government Company. The Government has to face many difficulties in managing the affairs of the Company in strict compliance with the Companies Act, 1956. So, many exceptions are granted to the Government Companies from complying with the provisions of the Companies Act, 1956.

Section 620 of the Act empowers the Central Government to exempt any provisions of the Companies Act, 1956 from being applicable to Government Companies by gazette notification except Section 619.

Under the power of Section 620, Central Government has exempted the applicability of the following Sections of the Companies Act, 1956 to Government Companies.

Section 255,256 and 257

Appointment or retirement of Director in Companies wholly owned by the Government.

Sections 198, 259,268, 269, 309, 310, 311, 387 and 388

Appointment of Managing Director/Whole-Time Director and Managers and their remuneration.

The Government Company will not have to seek the approval for the appointment of Appointment of Managing Director/Whole-Time Director and payment of remuneration to them

Proviso to Section 297(1)

Obtaining prior approval of Central Government in respect of contracts entered into by it with other Government Company.

Section 187C

Disclosure of beneficial interest in shares of a Company.

During incorporation of the Company, for the sake of minimum number of members, Government officials besides President of India or the Concerned Governer of State will subscribe certain shares. In such case, the individuals need not disclose the beneficial interests in the shares they subscribed.

Section 205A

Transfer of unpaid dividend  to a special dividend account, if the entire shares are held by the Government.

Section 295

Loan to directors. In such case the Company has obtain approval of the concerned department of the Government.

Sections 149(2A), 205B, 263 to 266, 307, 308, 316, 317 and 386

Only if the entire capital is held by Government.

Sections 165, 294, 294AA(2), (3)

Section 108

Sections  100 to 103 (reduction of capital) and Sections 391, 392 and 394 (amalgamation).

These Sections are modified and thereby instead of Court, the application will be made to the Central Government.

Proposals for reduction of capital and amalgamation of Government Companies will be sanctioned by the Central Government(MCA), instead of, by the High Court.

Important points:

Since the Companies (amendment) Act, 2000, the auditors of Government Companies are appointed or reappointed by the Comptroller and Auditor General of India. (Section 619)

Comptroller and Auditor General of India have the power to conduct supplementary audit in Government Companies.

The auditor of the Government Company must submit a copy of his audit report to the Comptroller and Auditor General of India.

Comments of Comptroller and Auditor General of India and supplementary report, if any, should be placed in the Annual General Meeting of the Government  Company along with the Auditors’ report.

An annual report on the working and affairs of each Government Company should be placed before the Parliament or the concerned State Legislature as the case may be.

The employees of Government Companies are not the employees of the Government (Central/State).

A Government Company is not a department of the Government. Government Companies are not exempted from obtaining Certificate of Commencement of Business