Section 4(7) of Companies Act, 1956

[Prakash Verma]

Dear All,

Could any body tell me the CRUX of Section 4(7) of Companies Act, 1956. I'm really getting confused with it ?

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With Best Regards,

Prakash Verma

Sigma Legal Services

(Practicing Companies Secretaries)
Contact No: +91-9990379137

[VKS]

If the entire share capital of the indian private company is not hled by the foriegn public company, then then Indian private limited shall be called as deemed public co for all practical purpose.

If entire share capital held, then it is private company for practical purpose,

 

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Thanks and Regards

VKS

COMPANY SECRETARY

BANGALORE

[Anantha Subramanian]

Dear Prakash,

I am trying out with mine but if learned members solicit their views, then it is much welcome:

Sec 4 clearly talks about the relationship of Holding and Subsidiary and Sub section 6 and 7 talks about involvement of Body corporate outside India.

The plain interpretation of Sub section (7) gives the below meaning:

"A private limited co in which all shares (except one share held by an individual) are held by a foreign company, such private limited company shall be treated as SUBSIDIARY of a PUBLIC company only if that shareholding foreign body corporate, if incorporated in India would be a public company within the meaning of the Companies Act 1956.

In such a case the private ltd company will be a deemed to be a subsidiary of a public company under section 4(7) and therefore will become a public company within the meaning of section 3(1)(iv)(c)

1.Such private co has to increase its share capital, if it does not satisfy the requirement of minimum capital for a public limited company.
2. Has to change its name from pvt to public co.
3. The total no. of directors of such a company shall be increased to minimum 3 (if only two directors are there on board).

The basic characteristics as stated under section 3(1)(iii)(a) to (d) can continue."

 
The corollary of the same is that if all the shares of the private company are held by one or more Body Corporate outside India, then by Virtue of Sec 4(7), it is not a deemed public company.

Other members please correct me if I am wrong.

Regards
Ananth

On Fri, Feb 17, 2012 at 3:37 PM, Prakash Verma <prkv...@gmail.com> wrote:

[Prakash Verma]

Dear All,

What if out of 25000 equity shares, the 24998 shares are hold by foreign Company(holding Company) and 2 shares are hold by Indian persons, than will my Company be a deemed public Company as per Section 4(7) ?

Thanks

[Anantha Subramanian]

Dear Prakash,

Yes in the below case, it is a deemed public company by virtue of Sec 4(7) under Companies Act.

Other member views solicited.

Regards
Ananth

[Abhishekh Kanoi]

Dear Prakash,

Please see herein below the legal interpretation of Section 4(7) of the Companies Act, 1956:

As per section 4(7) of Co Act, any private limited company incorporated in India would be deemed to be a public company in case the following conditions are satisfied:

 

1.          It is a subsidiary of a foreign company, which if incorporated in India would qualify as a public company under the Co Act; and

2.          The entire share capital of the Indian company is not held by that foreign company, whether alone or together with one or more foreign companies.

 

Please note that both the above conditions need to be satisfied in order to attract the provisions of Section 4(7).

In order to ascertain whether a foreign body corporate would be a public or private company within the meaning of the Co Act, if incorporated in India, it is essential to study the Charter, Statute or Memorandum & Articles of Association or other documents constituting or defining the constitution including shareholding pattern of that body corporate. Where the charter/ bye-laws of the foreign company do not include the specific restrictions imposed on a private company in India under section 3(1)(iii) of Co Act (as discussed in subsequent paragraph), such Indian company may be deemed to be a public company in India by virtue of aforesaid provisions. Further, if any of the holding companies (immediate or parents of the holding company – till the ultimate shareholder) of the foreign company is a public company, then the proposed company may be regarded as a “deemed public company” and therefore be required to comply with stringent compliance requirements, under the Indian Company Law.

To mitigate the risk of the Indian Company becoming a public company, by virtue of section 4(7) of the Co Act, it should be ensured that the  charter and bye laws of foreign body corporate should contain following restrictions as imposed on a private company in India so as to ensure that if such company were incorporated in India it would have been a private company:

 

a.     restriction on transfer shares;

b.    limiting the number of members to fifty;

c.     prohibiting any invitations to the public to subscribe for any shares in, or debentures of, the company;

d.    prohibiting any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

 

Also where the entire share capital of an Indian company is held by two or more foreign body corporate or by a foreign body corporate along with a nominee shareholder holding a single share, the provisions of section 4(7) will not get attracted.

Further, where a foreign body corporate does not hold more than 50% of the equity share capital of the Indian company nor does it control more than 50% of total voting power of such company, the Indian company would not qualify as “subsidiary” of a foreign company, in which case the provisions of section 4(7) will not get attracted.

Trust the same clarified to you.

With Warm Regards,

--
Abhishekh

[ramela rangasamy]

Very nice explanation. My opinion is also the same.

R.Ramela

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From: Abhishekh Kanoi <corporates...@gmail.com>
To: csmy...@googlegroups.com
Sent: Friday, 17 February 2012 4:13 PM
Subject: Re: [CSMysore] Section 4(7) of Companies Act, 1956

[Ramya HC]

Dear Members,

I need your opinion for the below case:

A foreign company is a public company (A Company) and it holds 100% shares in another foreign company (B company).

B company holds 40% shares in C Company (Indian Pvt. Ltd.) and 40% shares in D company (Indian Pvt Ltd. Company)

D company is a Joint venture of B company (40%) and C company (60%)

Now my question is whether D company is a subsidiary of A company and attracts sec  4(7)

Thanks and Regards,

Ramya

[Prakash Verma]

Dear All,

I do agree with you all, but i'm confused with DCA clarification No. 23/2002 dated 30th day of September, 2002 for Section 4(7) of Co. Act, 1956

and view (personal view) of Renu Kawatra via  http://www.algindia.com/publication/article3000.pdf 

Because, after reading these two documents, what im getting is that in my case (as i mentioned above) my Company is not a deemed public Company.

Kindly make me right if im wrong ?

Thanks

Sigma Legal, Pitam Pura, New Delhi 

(Advocates & Corporate Consultants)
Contact No: +91- 9990379137

[Prakash Verma]

: 18.02.2012

[himanshu jain]

Dear Parkash,

 

As per Section 4(7) If the entire share capital(100%) of the private company holds by foreign bodies corporate(Public comapny), then the private company will be not be treated as the subsdiary of the public company. 

Although DCA Clarification provides that " the private company would be treated as a subsidiary of the another private company which is a holding foreign bodies corporate, then the subsdiary company do not need the exemption provided U/s 4(7), as the company got the status of private company. 

 

As in your Case, first of all, your company is treated as the subsdiary of foreign company as the foreign comapny does not hold the entire share capital of the indian company.

 

With Thanks & Regards

Himanshu Jain

Thanks & Regards

Himanshu Jain

P-43, Phase -1,

Budh Vihar

Delhi – 110086.

Mobile : 91-9313697283