PART - III - Udyog Bandhu

is suitable in highly profit–making, low asset based companies with small and highly motivatedmanpower.2.8 Cross SaleCross sale is not an option for privatisation. However, Governments seeking to sell enterprisesvia Trade Sales should decide at the outset what their policy would be with regard to bids fromGovernment owned enterprises and spell out such policies in their initial request forqualifications from potential bidders.2.9 Sale Through Demerger/Spinning offSections 391-394 of the Companies Act 1956 govern demerger. The basic concept ofdemerger requires transfer of an undertaking from an existing company ("TransferorCompany") to another existing company (Transferee Company"). The demerged companieshave a shadow shareholding as that of the Transferor Company. For a government Company,the scheme of demerger has to be approved by Department of Company Affairs. To minimizetime, new transferee companies can be incorporated as shell companies in which the propertiesof transferor company can be hived off i.e. demerged. Such new companies remain as "shell"companies until the properties are transferred to them as per the order of DCA. Under the Demergermethod, for transferring of whole/100% assets & liabilities of Shell Company to PrivateInvestor, equity is sold through Strategic sale 4 . These new companies continue as GovernmentCompanies under Section 617 of the Companies Act and are formed for the limited purpose offacilitating the demerger on transfer of shares to successful bidders, whereupon they cease tobe Government Companies. Successful sale of a few hotels of ITDC and HCI (a subsidiary ofIndian Airlines) has taken place through this method.Spinning off Method 5 is also used for transfer of assets and liabilities. Under this Method, theassets and liabilities are transferred to the concerned unit, on 'as is where is' basis in the form ofgoing business without constituting the Shell Company. The process of strategic sale shall beadopted, even though complete business and equity can not be transferred. After the spinningoff, equity and remaining business may separately be wound-up voluntarily at a later stage. Asper Income Tax Act, the Spinning is also called as Slump Sale.This De-merger/Spinning off method shall be applicable on all types of organizations includingCompanies, non-Government organizations etc. All relevant approvals shall be required to beobtained from time-to-time under the Companies Act for companies and other requiredconsents for non-companies organizations as per admissible rules and regulations.4 It has been clarified vide G.O. No1318 dated 10.05.2008 that under the De-merger method,for transferring of whole/100% assets & liabilities of Shell Company to Private Investor, ashell Company is constituted and its equity is sold through Strategic sale.5 Incorporated vide G.O. No1318 dated 10.05.2008.85