Identify the undertaking first, then measure the disposal
For an ordinary public company subject to section 180, the board needs consent by special resolution to sell, lease or otherwise dispose of the whole or substantially the whole of an undertaking. First identify an undertaking under the investment/net-worth or income test. Then assess whether the transaction disposes of the whole or at least 20% of that undertaking’s value under the statutory basis. Comparing sale proceeds only to the company’s total assets is not the stated test.
Use the distinct denominators and exact threshold language
Companies Act section 180(1)(a) defines the investment limb by reference to investment exceeding 20% of company net worth as per the audited balance sheet of the preceding financial year. Its alternative income limb refers to an undertaking generating 20% of the company’s total income during the previous financial year. The substantial-disposal definition is 20% or more of the undertaking’s value as per the audited balance sheet of the preceding financial year, in any financial year. The investment limb’s “exceeds” and the disposal limb’s inclusive threshold are not interchangeable.
This article addresses the core approval test for ordinary public companies within section 180 and was checked on 22 October 2026. Notified class exemptions or modifications, including private-company and IFSC situations, need their own applicability review; no example assumes such relief. Listed-company obligations, related-party approvals, financing covenants, sector restrictions and transaction-specific consents remain separate. The Companies Act clause is not the only approval a major disposal may require.
Define the business unit before manipulating the ratios
Support the identification of the undertaking from its operations, investments, assets, income and audited information. An arbitrary ledger grouping or management label does not settle what constitutes the undertaking in the transaction. If several units are involved, document them separately. Where assets, shared services or income are not directly assigned, use a supported allocation and legal analysis rather than splitting the business into convenient fragments to avoid the test.
The investment limb and income limb are alternatives. A capital-light operating unit may satisfy the income test even if its investment is below the investment threshold. Conversely, a substantial capital investment can identify an undertaking despite a lower income contribution. Do not require both limbs to be met. Retain the statutory company-net-worth basis and the relevant income measure; EBITDA, profit after tax and gross asset value are not automatically substitute denominators.
The value disposed of needs an audited-value bridge
After identifying the undertaking, map the proposed sale, lease or disposal to its audited value. The commercial consideration, a valuation report and the relevant audited-balance-sheet amount may be different. A high sale premium does not justify silently substituting sale proceeds for the statute’s value basis, and a low consideration does not by itself remove a disposal from scope. Document the value attributed to the part being disposed of and the matching undertaking denominator.
Review transactions in the financial year together for the stated “in any financial year” test. A staged disposal should not be assessed as though every tranche creates a new untouched annual denominator. Equally, do not add unrelated assets from different undertakings without first establishing the statutory unit and transaction substance. The examples assume the stated values have been validly mapped to the same relevant undertaking and audited period.
Read the ordinary-business exception and safeguards
Section 180(3)(b) addresses sale or lease of property where the company’s ordinary business consists of, or comprises, such selling or leasing. This needs a factual business analysis; it is not an automatic exclusion for every land sale or sale of machinery merely because a company can sell assets. Section 180(3)(a) separately protects the stated good-faith buyer or lessee’s title. Neither provision is a general substitute for a board’s proper internal approval assessment.
A special resolution consenting to the disposal may set conditions about use, disposal or investment of proceeds under section 180(4). It does not authorise a capital reduction contrary to the Act. Give members a clear transaction description, scope, limits and conditions. Review whether later changes remain within what was approved rather than treating the resolution as unlimited permission to dispose of any business asset.
Document approval before exercising the restricted power
The board paper should show applicability, audited sources, undertaking identification, each calculation, ordinary-business analysis and the proposed member approval. If a contract is signed subject to conditions, examine its legal effect rather than assuming that the words “subject to approval” cure any commitment. Complete the required meeting, explanatory statement, resolution, filing and other transaction steps in the applicable form and period.
The government-hosted Companies Act text also contains the section 117 filing framework for specified resolutions, including special resolutions. Retain the filing acknowledgement with the approval and implementation records. A below-threshold conclusion under this particular clause does not exempt the company from its articles, board duties or another law. Borderline or unusual transactions should have a documented conclusion rather than a spreadsheet-only sign-off.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: investment qualifies and disposal reaches exactly 20%
All amounts are ₹ lakh. Preceding audited net worth is 1,000 and investment in the identified unit 210, or 21%, exceeding the 200 threshold. The unit therefore satisfies the investment limb. Its relevant audited value is 200; proposed disposal value is 40, exactly 20%. Assuming section 180 applies and no exception operates, the substantial-disposal test is met and special-resolution consent is needed.
Illustrative example 2: exactly 20% investment does not satisfy “exceeds”
₹ lakh: company net worth 1,000, unit investment 200, unit income 80 and total company income 500. Investment is exactly 20%, not above it; income contribution is 16%. On these stated figures neither identification limb qualifies the unit. Do not state that the investment limb is met merely because it equals 20%. Other legal and factual approval requirements still need examination.
Illustrative example 3: the income limb operates independently
₹ lakh: net worth 1,000, unit investment 180, unit income 100 and company total income 500. Investment is 18%, but the income contribution is exactly 20%. The stated income limb identifies the undertaking. Its relevant audited value is 180 and a disposal mapped to 36 is exactly 20%, meeting the substantial-disposal threshold. Requiring investment above 200 as well would incorrectly combine the two alternative limbs.
Illustrative example 4: the disposal fraction remains below 20%
Assume the undertaking is already established under the identification tests and has relevant audited value ₹200 lakh. A single proposed disposal mapped to ₹39 lakh is 19.5%; the 20% amount is ₹40 lakh, a ₹1 lakh gap. Assume no other same-year relevant disposals and no whole-undertaking transaction. This particular numeric substantial-disposal threshold is not met, but the conclusion must retain those assumptions.
Illustrative example 5: do not use company-wide assets for the second test
A qualifying undertaking has relevant audited value ₹400 lakh; proposed disposal mapped to that unit is ₹80 lakh. Company-wide total assets happen to be ₹5,000 lakh. The relevant ratio is ₹80/₹400 = 20%, not ₹80/₹5,000 = 1.6%. Using total company assets would conceal the substantial disposal of this individual undertaking.
Illustrative example 6: successive tranches cross the annual threshold
Assume a qualifying undertaking with preceding audited value ₹500 lakh. Two disposals of parts of that same undertaking in the financial year are mapped to ₹60 lakh and ₹45 lakh. Aggregate is ₹105 lakh, or 21%. Individually they are 12% and 9%; testing each in isolation would miss the aggregate result. Review the approval before committing to the tranche that takes the relevant disposal beyond the threshold.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm company-class applicability. | Status and notified-relief analysis. |
| 2 | Identify the actual undertaking and transaction. | Operating description and asset/income map. |
| 3 | Obtain preceding audited financial figures. | Signed balance sheet and relevant income schedules. |
| 4 | Calculate the investment/net-worth limb. | Investment and statutory net-worth bridge. |
| 5 | Calculate the alternative income limb. | Undertaking and total-income reconciliation. |
| 6 | Map disposed assets or rights to audited value. | Part-to-undertaking value schedule. |
| 7 | Aggregate relevant financial-year disposals. | Completed and proposed tranche register. |
| 8 | Review exceptions and other approvals. | Ordinary-business, articles and transaction-law notes. |
| 9 | Obtain properly scoped member consent where required. | Board paper, notice and special resolution. |
| 10 | Complete filing and monitor implementation conditions. | Acknowledgements, agreements and proceeds-use records. |
Sixteen practitioner FAQs
1. Are the undertaking and substantial-disposal tests the same ratio?
No. They use different objects and denominators.
2. Must both identification limbs be met?
No. The investment and income limbs operate as alternatives.
3. Does investment equal to 20% satisfy “exceeds 20%”?
No. Equality does not satisfy that wording.
4. Does a disposal of exactly 20% meet the substantial-disposal definition?
Yes, subject to correct undertaking, value and period.
5. Can company total assets replace undertaking value?
No. Use the denominator specified for the disposal test.
6. Is sale consideration automatically the relevant audited value?
No. Prepare a supported bridge between commercial price and the statutory value basis.
7. Does the clause cover only a sale?
No. It expressly includes lease and other disposal of the whole or substantially the whole.
8. Can multiple undertakings be ignored because group totals are large?
No. The clause addresses the relevant undertaking where the company has more than one.
9. Should financial-year tranches be tested independently only?
No. Review relevant disposals together under the annual wording and transaction substance.
10. Is every routine property sale caught?
Section 180(3)(b) has the stated ordinary-business exception; establish its factual application.
11. Does buyer good faith automatically dispense with board compliance?
No. The title safeguard and the board’s internal approval duties are different questions.
12. Can the special resolution impose proceeds-use conditions?
Yes. Section 180(4) expressly contemplates such conditions.
13. Does that resolution alone permit a capital reduction?
No. The Act preserves the separate capital-reduction requirements.
14. Do the examples decide all private-company exemptions?
No. They assume an ordinary public company within section 180; notified class relief needs separate review.
15. Are listed-company and related-party approvals replaced?
No. Assess those applicable frameworks separately.
16. What should the board’s conclusion state?
The company scope, undertaking basis, audited denominators, proposed and aggregate disposals, exceptions, consent and implementation conditions.
Working-paper organisation
Keep the source documents, calculation and final conclusion together for the same entity and period. If using assurePractice or other assureOffice tools, use only confirmed available functions and retain this evidence with the output.
Conclusion
Keep the identification test and disposal test on separate lines. Use the audited statutory bases, consider the whole financial-year disposal and obtain properly scoped consent before the board exercises a restricted disposal power.