Accounts and Audit

AII-ll

Yl.ns .

Holding-Subsidiary Relationship
Section 4 (1) specifies the circumstances under which the ft.:lationship behyeen holding and subsidiary company arises. According to Section 4, a company is deemed to be a subsidiary of another, if :
(a) that other controls the composition of its Board of Directors; or
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(b) that other
(i) exercises or controls more than half of the total voting power of such company (where the first-mentioned company is an existing company in respect of which holders of preference shares before the commencement of the Companies Act, 1956, have the same voting rights as the holders of equity shares), and
(ii) holds more than half in the nominal value of its equity share ~apital; (c) the first-mentioned company is a subsidiary of any company which is that
other's subsidiary. .
For the purpose of clause (A) above, the composition of the Board of Directors of a company shall be deemed to be controlled by another company if, but only if, the other company, without the concurrence or consent of any other person, can appoint or remove the holders of all or a majority of its directorships. A company shall be deemed to have power to appoint a person as a Director in other company in the following cases:
(i) Where a person cannot be appointed thereto without the exercise in his favour
by the company of such a power of appointment;
(ii) Where a person's appointment or directorship follows necessarily from his
appointment as Director, or Manager of, or to any other office or employment
in the company;
(iii) Where a directorship is held by an individual nominated by the company or
a subsidiary thereof.
In determining whether one company is a subsidiary of another, following shall
be disregarded:
(a) Any shares held or power exercisable by the other company in a fiduciary
capacity shall be treated as not held or exercisable by it.
(b) Any shares held or power exercisable in a company by any person under
provisions of its debentures or of a trust-deed for securing any issue of such
debentures shall be disregarded.
(c) Any shares held or power exercisable by, or by a nominee for a company or its subsidiary, other than as in clause (B) above, shall be treated as not held or exercisable by it if the ordinary business of that other company is lending of money and the shares are held or power is exercisable only by way of security
in the ordinary course of business.
Obligations imposed on holding companies regarding disclosure of information pertaining to subsidiary companies Section 212 of the Act provides that the balance sheet of a holding company should have annexed to it the following documents relating to its subsidiary, or as the case may be, each of its subsidiaries: