Law Aspire (CS) (755 Points)
09 March 2013
When a Pvt Ltd Company is a Subsidiary of Public ltd it becomes a public company by virtue of Section 3(1)(iv). Then whether all the provisions applicable on a public ltd company will be applicable as it is to a Pvt Ltd which is a subsidiary of Public Ltd Company? Dear Members Please Provide your views?
Prashanth S K
(Practice)
(148 Points)
Replied 09 March 2013
I dont think we can blindly take that all sections applicable to a public company is also applicable to a pvt company which is a subsidiary of a public company. But most of the sections are like what you have said only and is such most of the cases i think its mentioned in the act that the section does not apply to a private company unless it is a subsidiary of a public company. So its better we refer each section and then decide.
Kindly correct me if i am wrong.
Regards
Prashanth.
Law Aspire
(CS)
(755 Points)
Replied 13 March 2013
Members are requested to refer to (explanatory notes to Section 3) of “A. Ramaiya’s Guide to the Companies Act – 16th edition reprint 2006” which reads as follows:-
Private Company which is subsidiary of public company (Sub-section (1)(iv)(c) of Section 3:
In respect of several sections of the Act where a private company is exempted, it is provided that the exemption will apply only in the case of private companies which are not subsidiaries of public companies. The reason for this is that a private company which is subsidiary of a public company, is throughout in the Act put in the same position as a public company. For, where a private company is subsidiary of a public holding company, it is controlled by the latter, and treated as having the chacteristics of the holding company itself, enjoying the same privileges and rights and subject to the same restrictions, duties and liabilities. Its interests are the interests of the holding company and its acts are the acts of the holding company. Such a company is now statutorily declared as a public company for all purposes under the Act in view of section 3 (iv)(c).
In view of the above clarifications, private company, which is a subsidiary of a public company, is a public company for all practical purposes and are to follow the provisions applicable to a public company.
In other words, the number of members has to be increased to 7, the number of board of directors have to be increased to 3 and the paid-up capital has to be increased to Rs.5 lakhs.
Besides, such companies should also remove the resctrictive clauses from its Articles of Association, which are applicable to only private companies, refer Sec. 27(3) of the Act.
If others have different views/opinions, I invite them to clarify with examples/Department of Corporate Affairs’ notifications/clarifications, if any.
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