Pvt ltd company which is subsidiary of a foreign public co.

Co Act 2013 562 views 2 replies

Neeraj Lal

www.csneeraj.in

42 Points Joined July 2008

Q. The question is whether a private limited company which is subsidiary of a foreign public company is also a public company for the purpose of the Act?

A. The relevant sections of the CA Act 2013 are reproduced as under for the purpose of answering the query:

(20) “company” means a company incorporated under this Act or under any
previous company law;

(71) “public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital of five lakh rupees or such higher
paid-up capital, as may be prescribed:
Provided that a company which is a subsidiary of a company, not being a private
company, shall be deemed to be public company for the purposes of this Act even
where such subsidiary company continues to be a private company in its articles ;
ep
(87) “subsidiary company” or “subsidiary”, in relation to any other company
(that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capital
either at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed
shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation.—For the purposes of this clause,—
(a) a company shall be deemed to be a subsidiary company of the holding
company even if the control referred to in sub-clause (i) or sub-clause (ii) is of
another subsidiary company of the holding company;
(b) the composition of a company’s Board of Directors shall be deemed to
be controlled by another company if that other company by exercise of some
power exercisable by it at its discretion can appoint or remove all or a majority of
the directors;
(c) the expression “company” includes any body corporate;
(d) “layer” in relation to a holding company means its subsidiary or
subsidiaries;

My opinion on this is as under:

Proviso to sub-section 71 of section provides that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act. As the word used here is COMPANY and not corporate Body, the subsidiary of the foreign public company will not be public company for the purposes of the Act, though it may be the subsidiary of the foreign public company.

Replies (2)

SUNIL KUMAR JAIN

PRACTISING COMPANY SECRETARY

187 Points Joined August 2009

Dear Mr. Lal,

You are right.It will remain a Private Company.

S.K.Jain

Practising Company Secretary

Arjun G.

DEF

57 Points Joined November 2013

Dear MM. Lal and Jain,

Thanks for your insights on this question. However, considering the numerous discussions on this issue elsewhere, the question seems to remain unresolved. According to many indeed, sections 2(71) and 2(87) are to be read together, thus, the term "company", which is used both under s.2(87) and s.2(71), would include in both cases body corporates.

On the other hand, and I would relate to your valuable analysis in this regard, under the new Act, body corporates are defined as a generic term, which also includes companies incorporated under the Act. This is supported by the definition itself of "body corporate" under s.2(11), which is non-restrictive. Other sections under the Act make it also clear that body corporates include both companies incorporated in India and outside India (see for instance s. 113). Therefore, if the legislative intent was to include in s.2(71) foreign companies, it could have simply refer to body corporate as a whole, which is not the case. Even if it does so under s.2(87), the link seems too remote to support an adverse view.

Eventually, that new approach in comparison with the Companies Act, 1956, would follow a certain trend in India under which FDI and the incorporation of foreign funded companies in India are made easier and easier.

To conclude, nothing else to say but this is a quite tricky issue indeed. I hope it will be clarified soon by way of circular/rules. Have you and/or any of the other experts been able to obtain any kind of official clarification on this issue?

Thanks a lot for your kind replies