Query: Private Company subsidiary of Public Co.

[anjali bansal]

Dear Friends

One of my private companies has become subsidiary of public company. In this regard, I have been suggested to

1.       Increase its number of Directors up to 3

2.        Increase its Number of Members up to 7; and

3.       Increase its paid up capital to Rs.5 Lacs.

However, as per my view, in case a private company becomes a Subsidiary of public company, it shall not lose the privileges and exemption to which it is entitles as per  the provision of the Companies Act, 1956.  Also, it shall not be treated as a pubic company unless it complied all the basic conditions of Public company specified in Section 3(1)(iv) of the Companies Act, 1956 i.e.  

1. No restriction clause in Articles of Association as specified in Section 3(1)(iii) to comply the condition stated in the Item No.(a) of Section 3(1)(iv), (most important of all)
2. Minimum capital of 5 Lakhs as per the Item No. (b) of Section 3(1)(iv) and
3. should not be a subsidiary of private company as per the Item No. (3) of Section 3(1)(iv)

and not because of attraction in single clause of Section 3(1)(iv) of the Companies Act, 1956. For example, any private co. having paid up capital of Rs. 5 lac or more cannot be treated as a public co.  

Moreover, if every private co. which is a subsidiary of public co. has to be treated as a public co., then why there is no mandate to amend its Articles of Incorporation in order to delete the provisions of section 3(1)(iii).

Also, it can be observed that such deemed public co. follows only those provisions which are applicable to public co., which are specifically mention to be followed in such a way. e.g. section 255, 256, 269 etc. On the other hand there are many provisions which are followed by purely public companies only like Section 70-Prohibhition of allotment before Registration of statement of Statement in lieu of prospects with RoC, Section 81- manner in which subscribed shares can be increased for Issue of further shares, Section 149- Restriction on commencement of business, Section 165- statutory meeting and statutory report, Section 219-right of a member to copies of Balance sheet and Auditors report.  Section 266- consent and qualification shares for directors and Section 284- removal directors holding directorship for life prior to 1952. Therefore, we can say that only such provisions, which are specifically asked to be followed by deemed public companies needs to be complied by private companies which are subsidiary of public companies and not the entire Companies Act.

Also, since there is no procedure of Conversion private company into public or treating such companies as a public Company in the Companies Act, 1956 by default, such private companies can continue as a Private Company but have to comply those provisions the Sections which are applicable to private company which is subsidiary of Public Company only and not all the provision which are applicable to public companies by default or by Incorporation.

I request learned members to kindly share their views and supporting case laws please.

Many Thanks

Anjali

[kameswara Rao Kappagantula]

A private Company which has beecome puiblic Company by virtue of Subidiary of a Public Company is a deemd Public Company but it can have two directors and two members and need not increase its Capit to Rs. 5 lacs.

 

Kamesh

Anjali

--
************************************************
Mail your comments, feedback and suggestions on CSMysore to Moderator: datta...@gmail.com and Manager: vivekhe...@gmail.com
 
Find eNewsletters of ICSI Mysore at: www.icsi.edu/NewsEvents/enewsletters/tabid/1757/Default.aspx

[mann vishwakarma]

Yes, agree with Mr. Kamesh.

[nishi jain]

dear kamesh,

it raises a doubt in my mind that a deemed public company will be a
public company but can have two directors and two members and need not

increase its Capit to Rs. 5 lacs.

I think you want to say that a ( private company) subsidary of a
Deemed public company will enjoy all priveleges of a private company.

please clarify

nishi jain

>>> 1. *No restriction clause in Articles of Association as specified in

>>> Section 3(1)(iii) to comply the condition stated in the Item No.(a) of

>>> Section 3(1)(iv),* *(most important of all)
>>> *2. Minimum capital of 5 Lakhs as per the Item No. (b) of Section

>>> 3(1)(iv) and
>>> 3. should not be a subsidiary of private company as per the Item No. (3)
>>> of Section 3(1)(iv)
>>>
>>> and not because of attraction in single clause of Section 3(1)(iv) of
>>> the
>>> Companies Act, 1956. For example, any private co. having paid up capital
>>> of
>>> Rs. 5 lac or more cannot be treated as a public co.
>>>

>>> *Moreover, if every private co. which is a subsidiary of public co. has

>>> to be treated as a public co., then why there is no mandate to amend its
>>> Articles of Incorporation in order to delete the provisions of section

>>> 3(1)(iii). *

[sandeep tanwar]

yes, private company which is the subsidiary of public company which is called as deemed public company  but it pertains to be a private company comprises nd enjoys all privileges and exemption which is reserved for private company  there is one case law hereas follows:

 The Company Law Board (CLB) in Hillcrest Realty Sdn.Bhd vs Hotel Queenroad (P) Ltd [(200 6) 72 CLA 245 CLB] held that the basic characteristics of a private company do not get altered by the mere fact that such a company is a subsidiary of a public company.

Thanks

sandeep

[nishi jain]

will their be any difference if the same is wholly owned subsidiary.

thanks for clearing my doubts

[sandeep tanwar]

all  the provision applicable to private company which is the subsidiary of public company shall mutatis mutandis  apply to the wholly owned subsidiary company also

[kameswara Rao Kappagantula]

Nishi Madam

 

The Company status is not altered it is a private Company only and some prvileges and exemptions which are aimed for Pure Private Companies are not available to Such deemed Pvt Company.

 

Kindly refere Dr. Chandratre Book on the same in the Book all, about Private Li mited Companies.

 

Kamesh

[anjali bansal]

Thank you all for clearing my doubts.

 

Regards

 

Anjali

[VISHAL BANSAL]

Dear Friends
Pls share information about the benefit/purpose to create a Unlimited company in India


regards



VISHAL BANSAL

Follow Rediff Deal ho jaye! to get exciting offers in your city everyday.