Government Company : Government companies and their special provisions

A Government Company is defined in Section 617 as “any company in which not less than 51 per cent of 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 includes a company which is a subsidiary of a Governments Company as thus defined.”

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Special provisions

The special provisions of the Companies Act relating to Govern­ment Companies are as follows:

(1) As regards audit

(a) The auditor of a Government Company shall be appointed or reappointed by the Central Government on the advice of the Comptroller and Auditor General of India, provided that the auditor so appointed or reappointed does not hold appoint­ment as auditor in more than twenty companies, of which not more than ten could be companies, with paid-up share capital of Rs 25 lakhs or more. In the case of an audit firm so appointed the ceiling of twenty companies shall be per partner of the firm. The Auditor General will have the power to direct the company’s auditor relating to the manner of audit and the performance of his duties. He shall also have the power to conduct a supplementary test audit of the company’s account by persons appointed by him; and


(b) The auditor is required to submit a copy of his audit report to the Comptroller and Auditor General, who shall have the right to comment upon the report. Any such comments shall be placed before the annual general meeting of the company along with the audit report (Sec. 619 as amended by the Amendment Act, 1974). Thus, it may be seen that the general provisions contained in Sees. 224 to 233 of the Act relating to audit and appointment of auditors do not apply to a Government Company.

(2) As regards annual report

(a) Where the Central Government is a member of a Government Company, the Central Government shall prepare an annual report on the working and affairs of the company within three months of its annual general meeting before which the audit report is placed. The annual report is to be laid before both houses of Parliament together with a copy of the audit report and any comments thereupon, made by the Comptroller and Auditor General of India [Sec. 619A(1)].

(b) Where in addition to the Central Government, any State Government is also a member of a Government Company, that State Government shall place a copy of the annual report (prepared by Central Government) together with a copy of the audit report and the comments (referred to earlier) before the Houses or both Houses of the State Legislature [Sec. 619A (2)3].

(c) Where the Central Government is not a member of a Govern­ment Company, every State Government which is a member shall cause an annual report on the working and affairs of the company to be prepared within the same time (as referred to above), and then soon after lay it before the House or both Houses of the State Legis­lature with a copy of the audit report and comments thereupon [Sec. 61 9 A (3)].

(3) As regards the application of the Companies Act.


A Government Company is to be registered under the Companies Act. It may be incorporated as a ‘public’ or ‘private’ company. The Central Government may, however, by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply to any Government Company or shall apply only with such exceptions, modifications and adaptations, as may be specified in the notification.

The notification shall be effective to the extent to which it is approved by Parliament (Sec. 620). Subject to such notification, such companies are governed by the Companies Act like any other limited company without any discrimination. The Central Government has issued notifications (published in the Gazette of India, dated 11 February and 4 March, 1978) granting exemptions to Government Companies from the application of certain Sections of the Companies Act.

For example, they have been exempted from complying with the provisions of Sections 198,259,268, 269, 309, 310, 311, 387 and 388 relating to the appointment of Managing or Whole time directors and payment of remuneration to them. Similarly, Sections 255, 256 and 257 pertaining to appointment and retirement of directors, and Section 370 relating to making of loans, etc., to companies under the same management shall not apply to such Government Companies which are wholly owned by the Central or State Government. Examples of popular Government Companies are: Heavy Engineering Corporation Ltd., Hindustan Machine Tools Ltd., State Trading Corporation of India Ltd., and Indian Drugs and Pharmaceuticals Ltd.

A Government Company, no doubt, has certain special feature” but it should not be placed on the same footing as a State or Government. It basically remains a company in the ordinary sense, having a legal entity of its own, separate from that of its shareholders whoever they may be. It makes no difference whether the entirety of the capital is subscribed by the Government or Government holds only 51 per cent of the share capital. In no case a Government Company is identi­fied with the State and its employees do not become Government servants, holders of civil posts under the Union or State Governments (S. K. Debnath vs. Mining and Allied Machinery Corporation.

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