Northern Appliances Ltd. has five undertakings. The Deputy General Manager (Operations) has proposed to the Managing Director that one of the undertakings—MU303 be leased out for tactical reasons. It has been ascertained

Provision: As per rule 22 of the Companies (Management and Administration) Rules, 2014, pursuant to clause (a) of sub-section (1) of section 110, the following item of business, inter alia, shall be transacted only by means of voting through a postal ballot – Sale of the whole or substantially the whole of an undertaking of a company as specified under section 180(1)(a). Section 180(1)(a) of the Companies Act 2013 provides that the Board of directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely, to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the undertaking owns more than one undertaking of the whole or substantially the whole of any of such undertakings. For the purpose of this clause, undertaking shall mean an undertaking in which the investment of the company exceeds twenty percent of its net worth or an undertaking which generates twenty percent of total income of the company during the previous financial year. Analysis and Answer In the given situation, an undertaking MU303 generated 23% of the total income of the company in the previous year which is more than twenty percent threshold limit. Therefore, Board can sell, lease or otherwise dispose of the undertaking only with the consent of the company by special resolution. Interestingly, 'lease' of undertaking does not fall within the purview of rule 22 of Companies (Management and Administration) Rules, 2014. Only 'sale' is covered there. Thus, there is no requirement of passing of resolution by postal ballot and contention of shareholder challenging the action of the Board of directors is not valid. However, an ordinary resolution is not sufficient, a special resolution needs to be passed by the company for this purpose.