Company Law - Holding and Subsidiary relationship - Ministry Clarifies
AS per Section 2(87) of the Companies Act 2013,
"Subsidiary company" or "subsidiary", in relation to any other company (that is to say the holding company), means a company in which the holding company-
(i) controls the composition of the Board of Directors; or
(ii) exercises or controls more than one-half of the total share capitaleither at its own or together with one or more of its subsidiary companies:
Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.
Explanation. - For the purposes of this clause,-
(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;
(b) the composition of a company's Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;
(c) the expression "company" includes any body corporate;
(d) "layer" in relation to a holding company means its subsidiary or subsidiaries;
Section 4(3) of the Companies Act 1956 stipulated that, in determining whether one company is a subsidiary of another - any shares held or power exercisable by that other company in a fiduciary capacity shall be treated as not held or exercisable by it.
After the new Act has been notified, the ministry received representations requesting for clarification whether shares held or power exercisable by a company in a 'fiduciary capacity' will be excluded while determining if a particular company is a subsidiary of another company under the new Act.
The Ministry of Corporate Affairs clarifies that the shares held by a company or power exercisable by it in another company in a 'fiduciary capacity' shall not be counted for the purpose of determining the holding-subsidiary relationship in terms of the provision of section 2(87) of the Companies Act, 2013.
Why couldn't they make it clear in the Act as was done in the previous Act, instead of clarifying now?