OBJECTIVE Slump sale is a method of corporate restructuring. Slump sale is generally undertaken to hive off a part of the business division, to weed out a loss making division and to focus on the core business activities and improve its performance. The webinar covers the provisions under Companies Act, 2013, secretarial compliance aspects and judicial precedents.

1. Slump Sale under
Companies Act, 2013
CS Meenakshi Jayaraman

2. Credits and Acknowledgments
Sundar Rajan S
2

3. 3
Legends used in the Presentation
Act Companies Act, 2013
AOA Articles of Association
FTM Fast Track Merger
IFSC International Financial Services Centre
MOA Memorandum of Association
NW Net Worth
Rule Companies (Management and Administration) Rules, 2014
WOS Wholly Owned Subsidiary

4. Presentation Schema
4
Overview
Meaning of
relevant terms
Provisions under
Companies Act,
2013
Caveats
Non-applicability
of the provisions
Secretarial
Compliance
Illustrations
Judicial
Precedents

5. Overview
5
Slump sale is one of the forms of Corporate Restructuring
It is the process of transferring whole or part of the undertaking of the business as a going concern for a
lump sum consideration
It is generally carried out by any Company that intends to hive off its loss making division so that it shall
focus on the core value adding businesses
Slump sale can be regarded as a scheme of arrangement under Companies Act, 2013
Also, specific provisions are applicable for slump sale vide Sec 180 of the Act

6. Meaning of relevant terms
6
1. Undertaking It shall mean an undertaking in which the investment of the Company exceeds 20% of its net worth as per the
audited balance sheet of the preceding financial year
(or)
an undertaking which generates 20% of the total income of the Company during the previous financial year
2. Net worth
[Sec 2(57)]
It means the aggregate value of the following items* as per the audited balance sheet:
Paid up share capital
All reserves created out of profits
Securities Premium account
Credit balance of P&L account
Accumulated losses
Deferred and miscellaneous expenditure not written off
Add Less
* It excludes revaluation reserves, write back of depreciation and amalgamation
Debit balance of P&L account

7. 7
Contd.
3. Substantially the whole of the undertaking
It shall mean –
20% or more of the value of the undertaking as per the
audited balance sheet of the preceding financial year

8. Provisions under Companies Act, 2013
8
Sections Provision
180 Restrictions on Powers of Board
232 Merger and amalgamation of Companies
233 Merger or amalgamation of Certain Companies (Fast Track Merger)
Sections primarily dealing with Slump sale
The above mentioned sections are directly related to slump sale
There are also various other sections that are linked to the above sections

9. 9
Sec 180 (1) (a) of the Companies Act, 2013
The Board of Directors of a Company shall not sell, lease or otherwise dispose of
whole or substantially the whole of the undertaking of the Company or where
the Company owns more than one undertaking, of the whole or substantially
the whole of any of such undertakings
unless consent from the members is obtained by way of passing special
resolution in the general meeting
Contd.

10. 10
Contd.
Sec 180 (4) of the Companies Act, 2013
Any special resolution passed by the Company consenting to the slump sale transaction specified in Sec
180(1)(a) may stipulate the following conditions:
conditions regarding the use, disposal or investment of the sale proceeds which may result from the
slump sale transaction or such conditions as may be specified in such resolution
In case Company wants to reduce its share capital after transfer of undertaking, it has to follow provision prescribed under Sec 66
of the Act. This subsection shall not be deemed to authorise the Company for the same

11. 11
Contd.
Special Resolution to be passed through postal ballot
Provision for slump sale specified under Sec 180(1)(a) of the Act shall be approved by the members by means of
voting through postal ballot* - Sec 110 read with Rule 22(16)(i)
*Voting through
postal ballot
It means voting by post or through any electronic mode
One Person Companies and other companies having members upto 200 are not required
to transact any business through postal ballot

12. 12
Contd.
Sec 232 and 233 of the Act
Slump sale transaction can also be carried out by a Company through a scheme of merger or
amalgamation under Sec 232 of the Act
While carrying out the scheme of merger or amalgamation under Sec 232 of the Act,
provisions of Sec 230 of the Act (compromise or arrangement) shall also be complied with
Provisions of Fast Track Merger under Sec 233 of the Act can also be opted by eligible
Companies specified under that Section for the slump sale transaction

13. Caveats
13
MOA of both transferor and transferee Company should contain the power to sell or acquire
undertaking respectively in their objects clause
Slump sale agreement / Business Transfer Agreement should be entered into between both the
parties to the slump sale
Income tax implications pertaining to slump sale to be considered

14. Non-applicability of the provisions
14
The provisions of Sec 180(1)(a) shall not apply in the following cases:
The title of a buyer or other person who buys or takes on lease any property, investment or undertaking as
specified in Sec 180(1)(a), in good faith, shall not be affected by that provision
2. In case of Specified IFSC Public Company, if the AOA of such Company provides otherwise
1. In case of Private Limited Company
3. Sale or lease of any property of the Company where the ordinary business of the Company
consists of, or comprises, such selling or leasing

15. Secretarial Compliance
15
•Notice convening Board Meeting should be issued atleast 7 days before the date of
the meeting
•Consent of the requisite majority of the Board to be obtained in the meeting for
approving the slump sale transaction
•File Form MGT-14 for passing Board resolution (not applicable in case of private
limited companies and Specified IFSC Public Companies)
Board Resolution
•21 clear days’ notice should be issued for convening Members’ Meeting or
alternatively shorter notice shall be issued
•Pass special resolution in members’ meeting approving the slump sale transaction
either at the meeting or by means of voting through postal ballot (as applicable)
•File Form MGT-14 within 30 days of passing special resolution (60 days in case of
Specified IFSC [Private and Public] Companies)
Members
Resolution
Other secretarial compliances pertaining to slump sale transaction
under Sections 230/232/233 shall also apply accordingly, if opted

16. Illustration
16
A Limited
(having 300
members)
B Limited
(WOS of A
Ltd.)
Sale of 20% of the value of
Retail Outlet division to,
Manufacturing
Division
Marketing
Division
Retail outlet
Division
Net worth (NW)
= Rs. 100 Crores
Invt. = Rs.
40 Crores
Invt. = Rs.
35 Crores
Invt. = Rs.
25 Crores
The transaction is covered under Sec 180(1)(a) of the Act
Exemption is not available since the seller is a Public Limited
Company
Special resolution to be obtained by means of voting through
postal ballot since number of members exceed 200
The scheme of FTM under Sec 233 can be opted for the slump sale
transaction since it is between holding and WOS Company, subject to
compliance of other provisions under the Act
Undertaking u/s 180(1)(a) since
investment exceeds 20% of NW
Substantially the whole of
undertaking u/s 180(1)(a) since
sale exceeds 20% of the value

17. Judicial Precedents
17
Sistema Shyam Teleservices Ltd., In re Alok Sharma J. – [2016] 74 taxmann.com 261 (Rajasthan)
Petitioner-Company, i.e., transferor Company, sought for approval of scheme of arrangement with transferee Company for
transfer of telecom business undertaking of transferor Company to transferee Company on an ongoing business basis concern
consisting of assets/liabilities set out in scheme
Scheme was approved by shareholders and creditors but Regional Director objected to proposed scheme stating that evasion of
tax of upto Rs. 690 crores would result by transferor Company if scheme was sanctioned
Since income-tax department had not raised any objection to scheme of arrangement, objection of Regional Director on grounds
of evasion of tax was rejected by Hon’ble High Court
Scheme of transfer of which sanction was sought could be lawfully done by transferor Company under Sec 180, yet that was not
done and instead scheme of arrangement was prepared and proceedings were taken
Since Company petition for sanctioning scheme of arrangement between transferor Company and transferee Company was just,
fair, reasonable, and fully compliant with prescribed statutory provisions for its approval, not opposed in any manner to law or
public policy, Hon’ble High Court allowed the same

18. 18
THANK YOU!
Scan the QR Code to Join our
Research Group on WhatsApp
Scan the QR Code to explore more
Research from our Website
DVS Advisors LLP
India-Singapore-London-Dubai-Malaysia-Africa
www.dvsca.com
Copyrights © 2020 DVS Advisors LLP