4. Meaning of “holding
company” and “subsidiary”.—(1)
For the purposes of this Act, a company shall, subject to
the provisions of subsection (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 company
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. If 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 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 held 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—
(1) 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 any body 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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