4. Meaning of "holding company" and"
subsidiary".
(1) For the purposes of this Act, a company shall, subject
to the provisions of sub- section (3), be deemed to be a subsidiary of another
if, but only if,--
(a) that other controls the composition of its Board of
directors; or
(b) that other-
(i) where the first- mentioned company is an existing company in
respect of which the holders of preference shares issued before the
commencement of this Act have the same voting rights in all respects as the
holders of equity shares, exercises or controls more than half of the total
voting power of such company;
(ii) where the first- mentioned company is any other company, holds
more than half in nominal value of its equity share capital; or]
(c) the first- mentioned company is a subsidiary of any com-
pany which is that other' s subsidiary.
Illustration Company B is a subsidiary of Company A, and
Company C is a subsidiary of Company B. Company C is a subsidiary of Company A,
by virtue of clause (c) above. It Company D is a subsidiary of Company C,
Company D will be a subsidiary of Company B and consequently also of Company A,
by virtue of clause (c) above; and so on.
(2) For the purposes of sub- section (1), the composition of
a company' s Board of directors shall be deemed to be controlled by another
company if, but only if, that other company by the exercise of some power
exercisable by it at its discretion without the consent or concurrence of any
other person, can appoint or remove the holders of all or a majority of the
directorships; but for the purposes of this provision that other company shall
be deemed to have power to appoint to a directorship with respect to which any
of the following conditions is satisfied, that is to say-
(a) that a person cannot be appointed thereto without the exercise in
his favour by that other company of such a power as aforesaid;
(b) that a person' s appointment thereto follows necessarily from his
appointment as director, managing agent, secretaries and treasurers, or manager
of, or to any other office or employment in, that other company; or
(c) that the directorship is held by an individual nominated by that
other company or a subsidiary thereof;]
(3) In determining whether one company is a subsidiary of
another-
(a) any shares hold or power exercisable by that other
company in a fiduciary capacity shall be treated as not held or exercisable by
it;
(b) subject to the provisions of clauses (c) and (d), any
shares held or power exercisable-
(i) by any person as a nominee for that other company (except where
that other is concerned only in a fiduciary capacity); or
(ii) by, or by a nominee for, a subsidiary of that other company, not,
being a subsidiary which is concerned only in a fiduciary capacity; shall be
treated as held or exercisable by that other company;
(c) any shares held
or power exercisable by any person by virtue of the provisions of any
debentures of the first- mentioned company or of a trust deed for securing any
issue of such debentures shall be disregarded-,
(d) any shares held or power exercisable by, or by a nominee
for, that other or its subsidiary[ not being held or exercisable as mentioned
in clause (c); shall be treated as not held or exercisable by that other, if
the ordinary business of that other or its subsidiary, as the case may be,
includes the lending of money and the shares are held or the power is
exercisable as aforesaid by way of security only for the purposes of a
transaction entered into in the ordinary course of that business.
(4) For the purposes of this Act, a company shall be deemed
to be the holding company of another if, but only if, that other is its
subsidiary.
(5) In this section, the expression" company"
includes anybody corporate, and the expression" equity share capital"
has the same meaning as in sub- section (2) of section 85.
(6) In the case of a body corporate which is incorporated in
a country outside India, a subsidiary or holding company of the body corporate
under the law of such country shall be deemed to be a subsidiary or holding
company of the body corporate within the meaning and for the purposes of this
Act also, whether the requirements of this section are fulfilled or not.
(7) A private company, being a subsidiary of a body
corporate incorporated outside India, which, if incorporated in India, would be
a public company within the meaning of this Act, shall be deemed for the
purposes of this Act to be a subsidiary of a public company if the entire share
capital in that private company is not held by that body corporate whether
alone or together with one or more other bodies corporate incorporated outside
India.
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