The Relationship Between a Holding & Subsidiary Company | animesost.info
Section 4 of the Companies Act, prescribes dual test and conceptually defines the Holding-Subsidiary company relationship. India. Holding and Subsidiary Companies – Provisions under the Companies Act a South Asia Holding company which has a parent India subsidiary, and not get influenced merely by the relationship between the parties and is. Introduction The law governing Companies globally and in India A “holding company”, in relation to one or more other companies, means a.
Renusagarits subsidiary, should be treated as one concern and the power plant of Renusagar must be treated as source of generation of Hindalco. Even the day-to-day affairs of Renusagar are controlled by Hindalco.
Renusagar has at no point of time indicated any independent volition. Whenever felt necessary, the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco.
In the impugned order the profits of Renusagar have been treated as the profits of Hindalco…. We think that the appellant was in error in not treating Renusagar's power plant as the power plant of Hindalco and not treating it as the own source of energy.
The Relationship Between a Holding & Subsidiary Company
The persons generating and consuming energy were the same and the corporate veil should be lifted. In the facts of this case Hindalco and Renusagar were inextricably linked up together. Renusagar had in reality no separate and independent existence apart from and independent of Hindalco.
Such approach is based on the plain logic that, stipulation as to experience while inviting bids for a commercial transaction are required to be considered from the standpoint of prudent businessman whose intent is to be assured about the credentials of the bidder; and such credentials need to be examined from commercial perspective.
Applying the doctrine of piercing the veil, the court held: Both the groups have contributed towards the resources of the joint venture in the form of machines, equipment and expertise in the field. The Company is in the nature of a partnership between the Indian group of companies and the Singapore-based company who have jointly undertaken this commercial enterprise wherein they will contribute to the assets and share the risks.
In respect of such a joint venture company the experience of the company can only mean the experience of the constituents of the joint venture, i. Section 4 2 is an express provision for the appointment of the directors on the Board of Subsidiary. This provision is not hit by Section because it is expressly excluded.
- SUBSIDIARY COMPANY UNDER COMPANIES ACT 2013
But this restriction inheres in the definition of the Holding Company. It is firmly embedded in section 4 of the Act. The ability to control the conduct of the Subsidiary is the hall-mark of the Holding Company. The Holding Company is the controlling company. The controlled company is called a Subsidiary.
On a combined reading of the provisions of sectionsand and because section is a mandatory provision, this view does not seem to be well founded. The appointments made pursuant to an arrangement whether by the Articles or by an agreement is not invalid merely because any shareholder may seek election at an annual general meeting.
Section only deals with the right of a person other than a retiring director to stand for election at the annual general meeting.
The agreement or Article of a company, in so far as it or they invest a company with the status of holding company in relation to the company of which the board is controlled cannot be said to be inconsistent with section which comes into operation only when elections are to be held at the annual general meeting. It follows from the above that a public company is not required to comply with the requirements of sections toif it is a Holding Company having the right to appoint majority of directors on the Board of the Subsidiary company pursuant to section 4 of the Act.
This is possible if one company holds more than half in nominal value of equity capital of another company as per section 4 1 b ii of the Act. This is a case of direct investment and indicates the financial interest and stake of the Holding Company in its Subsidiary. This is however subject to sub-section 4 3 of the Act which seeks to exclude certain shareholdings for the purpose of reckoning half the nominal value of equity shares aforesaid.
They are;- any shares held or power exercisable by that other company in fiduciary capacity is considered as having not been held or exercisable by it. What is referred to is the equity shares carrying voting rights. Fiduciary capacity creates a relationship under which one owes to another the duties of good faith, trust and confidence. It is a company to company relationship; any shares held by a nominee of that company, except as a fiduciary is considered as having been held by that company; any shares held by a nominee for a Subsidiary of that company, not being a Subsidiary connected as a fiduciary is considered as having been held by that company; any shares held or power exercisable by any person as security for the debentures of the first mentioned company or of a trust deed for securing any issue of debentures is to be disregarded; any shares held or power exercisable by or by a nominee for that other or its Subsidiary shall be treated as not being held or exercisable by that other ,if such holding or power is by way of security only for the transaction of lending in the ordinary course of business.
Holding and Subsidiary Companies – Provisions under the Companies Act
Indirect Control This is envisaged in section 4 1 c of the Act as third type of relationship applicable mainly in the case of group companies. This may be second or third generation Subsidiary by virtue of management or shareholding control and the linkage is endless. Another distinctive feature can be seen in sub-section 5 of the Act. For the purpose of section 4, the expression "company" is defined to include any body corporate, whereas for other provisions of the Act, "body corporate or corporation" includes a company incorporated outside India as defined in section 2 7 of the Act.
Extension of the Principle of Control.
Sub-section 6 seeks to extend the principle of control in the case of a body corporate incorporated in a country outside India, a Subsidiary or Holding Company of such a company shall be deemed as Subsidiary or Holding Company of the body corporate within the meaning and for the purposes of Indian law, whether the requirements of section 4 are fulfilled or not.
In this case, the same status is accorded under the Indian law to a body corporate as in the country of its incorporation in relation to its Holding or Subsidiary relationship. Here the shareholding control or management control discussed above are not relevant. An Indian Private Company as Subsidiary of foreign body corporate Sub-section 7 of section 4 provides for a deeming provision.
holding subsidiary relationship
The intention is to place a Private Company registered in India which is a Subsidiary of a foreign company on par with a Private Company which is a Subsidiary of Public Company registered in India. To achieve this purpose, sub-section 7 provides that a Private Company which is a Subsidiary of the company incorporated outside India, which if incorporated in India would be a Public Company within the meaning of the Act shall be deemed as Subsidiary of a Public company, provided that the entire share capital in that Private Company is not held by the body corporate, whether alone or together with one or more bodies corporate incorporated outside India.
This provision is based on the recommendation o f the Joint Company Law Committee as it considered unnecessary to treat an Indian Private Company, the entire share capital of which is held by one or more bodies corporate incorporated outside India as a Private Company which is a Subsidiary of a Public Company for the purposes of the Act.
Even if all these companies are public companies, the private company continues to be a private company, particularly in the context of deletion section 43A of the Act from the statute book.
corporate veil, holding, subsidiary | India Judgments | Law | CaseMine
Needless to say that a private company whose entire capital is held by one or more bodies corporate, whether incorporated in India or outside stands on a different footing, as such holding amounts to indirect public holding.
Such companies have to have greater degree of accountability and transparency in their operations for the benefit of their shareholders. It is therefore necessary that legal framework to address this requirement should be in place.
Conclusion A look at the path we have traversed indicates that what started as direct or indirect control, be it shareholding or otherwise has inevitably resulted in having to rope in Subsidiary Companies being increasingly set up by foreign companies.
That these companies should, no doubt, be brought within the regulatory provisions as applicable to Indian companies but the matrix of Holding-Subsidiary Company relationship has become more complex and complicated. This appears to be inevitable in the context of globalisation of Indian economy and increasing flow of foreign exchange into our country through Foreign Direct Investment FDI in joint ventures or Subsidiary companies.