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Public or Private

Neeta (Finance) (345 Points)

08 February 2010

Hello members

I have a query , perhaps simple... In sec 4(7), A private company, subsidiary of a public company incorporated outside india, shall be deemed to be subsidiary of a public co for the purposes of this act if the entire share capital in that pvt co is not held by that body corporate...

Now , my query is... A private co incorporated in India and whose entire shares are subscribed by a foreign co exept one share which is with a NRI. Does this section (4(7) ) effects this company.

Also plz quote a small example where section 4 (7) becomes effective !

Regards

Neeta

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9 Replies

Aman Jain (Company Secretary in Practice) (165 Points)
Replied 09 February 2010

Dear Neeta,

According to your quote it seems that this NRI becomes a shareholder as nominee of the body corporate. if yes then its not a 4(7) company.

if not then its a 4(7) company.

Other views are solicited.

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 09 February 2010

As per section4(7) A private company, being a subsidiary of a body corporate incorporated outside India, which (Body corporate incorporated outside india), if incorporated in India, would be a public company, shall be deemed (private company) 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.

Thus, your company shall be deemed to be subsidiary of a public company.

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Neeta (Finance) (345 Points)
Replied 09 February 2010

thanks for the reply sir , but is that mean if a foreign co has even one percentage share in a pvt co , that co will automatically be called as the sub of public co , it isn't digesable !!!

the section says " if the entire share capital is not held by that foreign co ". can u plz quote any example u dealt with .

i think we re some where , we need an amendment( or explanation) in law , if what we are intending is right ?

thanks and regards

Neeta.

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 09 February 2010

Agree, I have also objection with the word Not. The word not should not be there

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Aman Jain (Company Secretary in Practice) (165 Points)
Replied 09 February 2010

hey friends,

Excuse me! This section does not define holding- subsi relationship. The section 4(1) is the basic provision to determine the holding-subsi relationship.

Sec. 4(7) has the object to bring India private company with in the ambit of same regulatory provision as public company.

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 09 February 2010

Hello Neeta,

Your thinking is correct that if a foreign co has even one % share in a pvt co., that co will automatically be called as the sub of public company. Further let me tell you there are various drafting errors in Companies Act, 1956.

In this way I also agree with Mr. Srivastava.

Regards

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Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 09 February 2010

Kindly appreciate further that first it is very difficult to interpret the second line of the section 4(7) which goes as follows “if incorporated in India, would be a public company,”

However if you can prove that foreign company, if incorporated in India would not be a Public company, then exit route is very much available to you and you can easily escape from section 4(7).

As per my understanding a professional with good foreign law knowledge can easily prove that a particular foreign company, if incorporated in India would not be a Public company.

Best Regards

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