February 2, 2013
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In the earlier issue we discussed on Section 2(30) of the Companies Act, 1956 and in the present issue we shall proceed with Section 4 of the Companies Act, 1956. Query No 1: Can a Subsidiary Company always be treated as an asset of holding Company? Decided Case Law. Free Wheel (India) Limited Vs Dr Veda Mitra Facts of the case: F was the subsidiary of G which held 52 percent of its Share Capital. The petition for winding up of G was pending and a provisional liquidator was already appointed, F decided to issue further Share capital, though 52 percent of fresh issue was offered to G obviously G could not subscribe to it. G asked for injunction restraining F from the issue of further Capital on the ground that the further issue of capital was malafide to deprive G of its right to control F its subsidiary company and thereby a valuable asset. Clarification : The parent Company held only a nominal majority in the Share Capital of the subsidiary whose holding was 52 percent. With the merger majority alone, it was not possible to hold that the Subsidiary Company had lost its identity as a Separate Company. Hence G's request for injunction could not be acceded to. Important Point : If in every case a Subsidiary Company is treated as an asset of the holding Company, then each subsidiary will crack not only under the pressure of its own uncongenial shareholders, which may invariably exist in every Company but also under the pressure of Shareholders and Creditors of the holding Company. Conclusion : However if the proposed issue of further capital was inspired by the Directors of the holding Company and was collusive or malafide being merely to get out of the control of the holding Company, different considerations may prevail. Each case must necessarily turn on its own facts. Hence a Subsidiary Company cannot always be treated as an asset of an holding Company. Query No 2 : By virtue of section 4 (5) expression Company includes body Corporate and therefore the bank which is a body Corporate and Holding Company whether comes within the realm of the Company or not for the purpose of the Act ? Decided Case Law : Andhra Bank Housing Finance Limited. Facts of the case : The petitioner Company being a 100 percent subsidiary of transferee Company, which was a bank, sought sanction of proposed scheme of amalgamation. The Registrar of Companies raised an objection that the transferee company was a scheduled bank and was not a Company registered under the act. Important point : Held that Section 394(4) and section 4 should be read together harmoniously so as to give effect to the object and scheme of the Act. It is essential under Section 394(4)(b) that the transferee Company shall be a Company within the meaning of the Act but the transferor Company can be a body corporate, whether that body Corporate is a Company or not within the meaning of the Act. When both the provisions are read together, it is apparent that the transferee company which is a holding company which includes a body corporate is a company for the purpose of the Act. Therefore, the transferee company includes a body corporate, but that body corporate need not necessarily be a company within the meaning of the expression ‘company’ under the Act. Clarification : As there is Holding and Subsidiary Relationship between the Companies Section 4(5) of the Companies Act, 1956 comes into existence. The Bank which is although a Body Corporate comes within the realm of the expression Company as was obvious from Section 4(5). Conclusion : When an application was filed seeking amalgamation of subsidiary with its holding Company(Bank) although a body Corporate would come within the realm of expression ‘Company’.