When an Indian Private Limited Company can be regarded as deemed public company if its shares are held by a foreign parent company ?- AN INTERPRETA​TION ON SECTION 4(7) OF COMPANIES ACT, 1956

When an Indian Private Limited Company can be regarded as deemed public company if its shares are held by a foreign parent company ?

INTERPRETA​TION ON SECTION 4(7) OF COMPANIES ACT, 1956

Section 4(7) in The Companies Act, 1956

(7) 1[ A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act 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.

If we analyse the above section ,the following can be construed:

1. The Indian Company is a private limited company

2. The foreign parent company would have to fall within the definition of public company under Indian Companies Act if it is incorporated India

3. The entire capital of Indian private limited company should have been held by the foreign company either singly or together with other foreign companies.

On further analysis , we can come into the following conclusion:

1.An Indian subsidiary company (private company ) is held by a foreign private limited company , then it will not be considered as the subsidiary of the said foreign company.

2. If the foreign parent company if does not fall under the definition of a public company under Indian Companies Act, then it will not be construed as subsidiary of such foreign company.

3.If the share capital of Indian private company is held jointly by an Indian investors or companies and along with foreign parent company , then it will not fall under the above section.

4. Where the entire share capital of an Indian company is held by two or more foreign body corporate or by a foreign body corporate along with a nominee shareholder holding a single share, the provisions of section 4(7) will not get attracted.

5. Where a foreign body corporate does not hold more than 50% of the equity share capital of the Indian company nor does it control more than 50% of total voting power of such company, the Indian company would not qualify as “subsidiary” of a foreign company, in which case the provisions of section 4(7) will not get attracted.

6. The charter and bye laws of foreign body corporate should contain following restrictions as imposed on a private company in India so as to ensure that if such company were incorporated in India it would have been a private company:

a. restriction on transfer shares;

b. limiting the number of members to fifty;

c. prohibiting any invitations to the public to subscribe for any shares in, or debentures of, the company;

d. prohibiting any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

If such provisions are there in the foreign parent company, then the Indian private limited company will not fall under the provisions of section 4(7).

ADDITIONAL DIRECTOR CAN BE APPOINTED THROGUH CIRCULAR RESOLUTION

Appointing Additional Director in case of urgency- we can have circular resolution
 

Whether a company can Appoint an Additional Director through Circular Resolution ?

 

Unless the Articles of associaion of the company requires for appointment of Additional Director at Board meeting, he can be appointed by circular resolution. Companies Act, is silent on this issue.

Matters which can be approved by the circular resolution

All matter other than those which require shareholders' approval as contemplated in section 293 and other sections and matters which require approval of the Central Government, or the CLB/Tribunal or Regional Director can be passed by the directors or committee of directors by circular resolution. An illustrative list of matters which can be approved by the by passing circular resolution is given below:
(i) Opening a current account for the company with a bank;
(ii) Authorising the company secretary to file suits in civil courts on certain urgent matters;
(iii) Authorising on officer of the company to sign declaration forms;
(iv) Authorising for affixing common seal to a document the content of which have already been discussed and approved at a Board meeting;
(v) Authorising the managing director to fix the dates of closure of register of member/register of debentureholders;
(vi) Fixing 'record date' for rights or bonus issue or authorizing managing director for fixing the 'record date';
(vii) Changing the rate of interest payable on fixed deposits whenever the Government amends rule 3(c) of the Companies (Acceptance of Deposits) Rules, 1975;
(viii) Convening an extra ordinary general meeting on requisition of certain members;
(ix) Authorising on officer to make application for telex, fax and telephone connection for the company;
(x) Changing the registered office within the same town or city;
(xi) Appointing on Auditor in the casual vacancy caused by death of Auditors;
(xii) Appointing Additional Director in case of urgency;
(xiii) Appointing Alternate Director in case of urgency;
(xiv) Engaging a practising Company Secretary to issue compliance certificate contemplated by proviso to section 383A(1) of the Act;
(xv) Authorising an officer of the company to file criminal complaints in a Judicial Magistrate's Court for dishonour of cheque under section 138 of the Negotiable Instruments Act, 1881;
(xvi) Authorising the printing of share certificates;
(xvii) Appointment of Cost Auditors;
(xviii) Authorising Managing Director to sign the Listing Agreement with Stock exchange;
(xix) Nominating a director as occupier of a factory;
(xx) Forming subcommittees of thee Board, in case of urgency;
(xxi) Approving Transmission of shares before a Right Issue;
(xxii) Approving a mutual fund scheme by the Board of an Assets management company;
(xxiii) Authorising contribution to National Defence Fund;
(xiv) Making investment in the shares of Company's Employees Cooperative Credit society;
(xxv) Appointing the first Auditors within one month of incorporation of the company, in case the Board is unable to meet within a month from the date of incorporation of the company;
(xxvi) Fixing the date and time of an adjourned general meeting in case the adjourned general meeting is not desired to be held on the same day in the next week;
(xxvii) Appointing a representative of the company to represent the company in the general meeting of any other company;
(xxviii) Authorisation of the Board to keep company's books of account at a place other than the registered office

Unlisted Public Companies (Prefrential Allotment) Rules, 2011

Unlisted Public Companies (Prefrential Allotment) Rules, 2011

Ministry of Corporate Affairs on 14^th December, 2011 issued Notification and has amended the Unlisted Public Companies (Prefrential Allotment) Rules, 2003. The highlights of the Unlisted Public Companies (Prefrential Allotment) Rules, 2011 are as under:

1. In the Unlisted Public Companies (Prefrential Allotment) Rules, 2003 (hereinafter referred to as the said rules), in rule 3, for clause (1), the following shall be substituted, namely: -

‘(1) “preferential allotment” means allotment of shares or any other instrument convertible into shares including hybrid instruments convertible into shares on preferential basis made pursuant to the provisions of subsection (1A) of section 81 of the Companies Act, 1956;

Provided that the

1. name;
2. father’s name;
3. address and
4. occupation

of persons to whom such allotment is proposed to be made shall be mentioned in the resolution passed by the members under that sub-section:

Provided further that persons to whom such offer is proposed, shall not be more than forty-nine as per the first proviso to sub-section (3) of section 67 of the Companies Act, 1956;’.

2. For rule 4 of the said rules, the following shall be substituted, namely:-

“4. Special Resolution.-

(1) No issue of Shares or any other instruments convertible into shares including hybrids convertible into shares on a prefrential basis can be made by a company unless authorised by its articles of association and unless a special resolution passed by the member in a general meeting authorising the Board of Directors to make such issue.

(2) The special resolution referred to in sub-rule (1) shall be acted upon within a period of twelve months.”.

3. After rule 7 of the said rules, the following rule shall be inserted, namely:-

“8. Invitation and allotment of securities.-
(1) No fresh offer or invitation shall be made unless the allotment with respect to any offer or invitation made earlier have been completed in terms of sub-section (9) of section 60B of the Companies Act, 1956.

(2) Any offer or invitation not in compliance with sub-section (1A) of Section 81 read with sub-section (3) of section 67 of the said Act, shall be treated as a public offer and the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be complied with.

(3) All monies payable on subscripttion of securities shall be paid through cheque or demand draft or other banking channels but not by cash.

(4) Any allotment of securities shall be completed within sixty days from the receipt of application money and in case the company is not able to allot the securities within the said period of sixty days, it shall repay the application money within fifteen days thereafter, failing which it will be required to be re-paid with interest at the rate of twelve percent per annum:

Provided that the monies received on such application shall be kept in a separate bank account and shall not be utilised for any purpose other than—
(i) for adjustment against allotment of securities; or
(ii) for the repayment of monies where the company is unable to allot securities.

(5) No company offering securities shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer”.