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Meaning of the ‘Undertaking’ (comment – which is not defined under the Act 2013)

For the purpose of interpreting the term ‘undertaking’, we shall look into the following case laws under the erstwhile section 293 (1)(a) of the Companies Act 1956 [Section 180 (1)(a) of the Companies Act 2013]:

1. Yallamma Cotton, Wollen & Silk Mills Co. Ltd., In re [1970] 40 Comp. Cas. 466 (Mys.)

The word ‘undertaking’ as occurring in section 293 (1)(a) of the Companies Act 1956 Act [Corresponding to Section 180(1)(a) of the 2013 Act] is not in its real meaning anything which may be described as a tangible piece of property like land, machinery or the equipment; it is in actual effect an activity of man which in commercial or business parlance means an activity engaged in with a view to earn profit. Property, movable or immovable, used in the course of or for the purpose of such business can more accurately be described as the tools of business or undertakings, i.e., things or articles which are necessarily to be used to keep the undertaking going or to assist the carrying on of the activities leading to the earning of profit.

Meaning of Undertaking  Section 180 of the Companies Act

2. International Cotton Corpn. (P.) Ltd. V. Bank of Maharashtra [1970] 40 Comp. Cas. 1154 (Mys.)

The word ‘Undertaking’ has been defined as ‘any business or any work or project which one engages in or attempts as an enterprise analogous to business or trade’. The business or undertaking of the Company must be distinguished from the properties belonging to the company.

Further digging more, the definition of ‘undertaking’, under section 2 of The Monopolies and Restrictive Trade Practice Act, 1956 is:

“undertaking” means an enterprise which is, or has been, or is proposed to be, engaged in the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, either directly or through one or more of its units or divisions, whether such unit or division is located at the same place where the undertaking is located or at a different place or at different places.

Explanation I: In this clause, –

(a) “article” includes a new article and “service” includes a new service;

(b) “unit” of “division”, in relation to an undertaking includes, –

(i) a plant or factory established for the production, storage, supply, distribution, acquisition or control of any article or goods;

(ii) any branch or office established for the provision of any service.

Explanation II: For the purposes of this clause, a body corporate, which is, or has been, engaged only in the business of acquiring holding, underwriting or dealing with shares, debentures or other securities of any other body corporate shall be deemed to be an undertaking

Explanation III: For the removal of doubts, it is hereby declared that an investment company shall be deemed, for the purposes of this Act, to be an undertaking;

Furthermore, the expression “otherwise dispose of” should be read in wider sense and cover all the modes of disposing of a property of the company.

 

Illustration

A company where only the properties belonging to the company have been dealt with by the board of directors under the deeds of hypothecation and mortgage in favour of the bank, no part of the undertaking of the company should be considered to be disposed of in favour of the bank.  Here, if the company mortgages the whole or substantially the whole of its undertaking for obtaining loans or financial assistance, it need not comply with the section 180(1)(a) of the Companies Act 2013, as the ‘business’ or ‘undertaking’ of the company must be distinguished from the ‘properties’ belonging to the company. (Ref. International Cotton Corpn. (P.) Ltd. V. Bank of Maharashtra [1970] 40 Comp. Cas. 1154 (Mys.)

 

Hence, we can conclude that the Companies Act 2013 provides the quantitative conditions for the undertaking, to understand the meaning of ‘undertaking’ one has to see the case laws and judgments passed and accordingly one can comply with the section 180 (1)(a) of the Act 2013.

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