Monday, June 20, 2011

Whether Subsidiary company can become member in its Holding Company ?

As per section 42 , the subsidiary company is not allowed to hold shares in its holding company.
A Subsidiary Company cannot become member of a holding Company except two cases mentioned in the Section 42 of the Companies. Hence, a subsidiary  cannot invest in the shares of holding company.

However , in Himachal Telematics Ltd & Himachal Futristic Communication Ltd , it was held in the case of merger of two group companies ,the application of section 42 of the Companies Act and section 77 of the Companies Act ( buy-back of shares) will not be applicable if an order is passed by the competent court under section 391 to 394 of the Companies Act . In such cases , a court order can override any statutory violation  i.e. under section 42.

Further , the section 42 will not be applicable if the shares are held by the subsidiary's legal representative of deceased member or by any trustee .

One another way to hold shares is that a director of a subsidiary company can hold the shares in the Holding company by declaring a beneficial interest under section 187 C.

One another way , to allot shares to the proposed subsidiary before there exists any holding and subsidiary relations.

1 comment:

  1. Is this applicable for an Indian Subsidiary to buy shares of a foreign parent holding company? under any RBI/ FEMA regulations?