Company law

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Mohit Sharma (Querist)
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16 May 2012 I understood the language but couldn't understand perfectly clause (b) of subsection(2) of Section 42 of companies act. I will be tankful to you if you can make me understand this section with example.

CS Mitesh Mehta

CS Mitesh Mehta (Expert)
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17 May 2012 Sub-section (2) excludes the operation of sub-section (1) as well as sub-sections (4) and (5) in the case specified in its two clauses notwithstanding that the subsidiary is a member of its holding company.

As regards clause (b), where the subsidiary is a member of its holding company in the capacity of a trustee, the prohibition contained in sub-section (1) shall not apply. But if under the trust the holding company or its subsidiary is beneficially interested in the shares, the prohibition would apply, but if it is interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of business (including the lending of money), the prohibition would not apply.

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