Readers may recollect that under the prevailing law, before the amendments were made, private companies that are subsidiaries of public companies were treated similar to public companies as regards the applicability of certain provisions of the Act. However, otherwise, they were private companies (except where they were "deemed public companies").

Now, it is provided that private companies that are subsidiaries of public companies are public companies. Hence, from the day the Amendment Act has come into force (ie, December 14, 2000), all private companies that are subsidiaries of public companies have themselves become public companies.

The drafting of the new provision is ambiguous and creates scope for uncertainty. Earlier, public companies were simply defined as those companies that were not private companies. In other words, the definitions were mutually exclusive. A company that does not satisfy the definition of a private company was a public company.

The new definition, however, disturbs this rhythm and creates two separate definitions but at the same time attempts to keep the definitions mutually exclusive. Thus, a public company is one that is not a private company. In addition, it has to satisfy the condition of having the minimum prescribed share capital of Rs 5 lakhs.

What happens if a public company does not have such a capital. It is then neither a public company nor a private company. Of course, such a company may be liable to be struck off from the register after two years.

Despite the confusion that could arise out of poor drafting and placement, it is clear that public companies are all companies that are not private companies or are private companies that are subsidiaries of public companies.The next and very important amendment relates to the abolishing of the concept of "deemed public companies." Readers need not be refreshed of this concept - it is too ingrained to most concerned with unlisted companies. The intention of the earlier law was that companies that are large or otherwise have concern with public interest should find the benefits of private companies withdrawn and they should be converted into public companies so that they had to comply with the same laws that govern public companies.

Note that the concept of such deemed public companies was peculiar. As per Section 43A, the relevant provision, such companies become public companies and in fact had to even change their names. However, they could retain the three conditions that were included in the articles of association of a private company, i.e., those relating to number of members, restriction on transfer of shares, etc. Alternatively, they need not retain such clauses. Now, it is provided that this provision should be made ineffective.

What about the companies that had become public companies prior to this amendment?
The intention (though, unfortunately, not the drafting) of the new provision is quite clear. All companies that had become public companies on account of this provision can reconvert themselves into private companies by a simple procedure. This is to take into account representation of companies who have been converted into public companies but otherwise still operate more or less as private and closely held companies. It is intended that such companies can make a simple application for such conversion and the registrar will grant such conversion mandatorily within four weeks. Here again, there are some ambiguities.

Let us raise some issues and consider whether the new provision adequately answers them. Is conversion into private companies automatic on introduction of the new provision. The new sub-section uses the words "Where a public company...becomes a private company." Thus, it appears that the conversion is automatic and does not require further act or deed for conversion as such. If the first few words are taken at their face value, all companies which had become public companies on account of this provision have now become private companies without choice.

This is quite absurd since this will not only force companies that wish to continue to be public companies by choice but may even make listed companies private! Hence, it is submitted that despite the peculiar drafting, the provision should be read as giving a choice to the public company whether or not to become a private company. In other words, the second part that requires the company to approach the registrar should be taken as a choice to reconvert itself back into a private company.

Is the choice of converting into a private company available to all companies that became public companies under the existing section 43A or only to those companies that have retained the restrictive clauses in their articles regarding limit in number of members, etc.?
Here again, the peculiar wording creates confusion. As stated earlier, the new clause states that so called deemed public companies as are existing become private companies. However, obviously, private companies need to have the restrictive clauses in their articles. Thus, unless such companies already have such clauses in their articles, it would be difficult to state that they "become" private companies. Undoubtedly, those companies that have consciously dropped such restrictive clauses have taken a step further than that required by law towards becoming full fledged public companies. Hence, one could argue that there is a case for making a distinction.

Nevertheless, it is submitted that there being no specific requirement that the conversion be restricted only to those companies that have retained such clause, there is scope for arguing that this benefit of quick conversion should be available also to companies that have removed such clauses.The law makers need to clarify, preferably by amending the provision itself, their intention. Perhaps the intention really is only to permit companies that have such retained such clauses in their articles. However, these and many other aspects should be clarified by amendment.

Interestingly, the wording implies that all companies that were deemed public companies have to, without any exception, apply to the registrar for such conversion.

It is not clear whether this is really the intention. What would be the case of companies that do not apply for such conversion but have retained the restrictive clauses?
The wording provide for a peculiar answer. If the interpretation that the conversion back to private company is mandatory is taken, then there is no question of companies not applying for such conversion. But if one takes the interpretation that this is not the intention and should hence be interpreted differently, such companies will have to remove such restrictive clauses. What if they do not do? This question joins the list of the many others that have no clear answer.

It becomes more and more apparent (as will also be substantiated by the analysis of other provisions in the Amendment Act) that the amendments have not been well drafted and their implications not considered. The provisions of the Amendment Act have to be urgently complied within the deadlines specified. The way now to solve the problems is to issue an Ordinance. This will of course indeed be strange and ironic that a duly passed law needs urgent amendment by Ordinance before it even becomes effective. But poorly drafted laws which have serious and immediate implications will necessarily result in such corrective actions.

The author is a Mumbai-based chartered accountant. Responses at jmt@bom4.vsnl.net.in