A company, ABC limited as on 31.03.2023 had a paid-up capital of 1 lakh (₹ 10,000 equity shares of 10 each). In June, 2023, ABC limited had issued…

As per Section 2 (46) of the Companies Act,2013, holding company in relation to one or more other companies, means a company of which such companies are subsidiary companies. Section 2 (87) defines “subsidiary company” 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 voting power either at its own or together with one or more of its subsidiary companies. In the instant case, as on 31.03.2023, ABC Limited had a paid-up capital of 1lakh (₹ 10,000 equity shares of 10each). In June, 2023, ABC Limited issued additional - 10,000 equity shares, which was fully subscribed. Post-issue, the total paid-up capital of ABC Limited is 2lakhs (₹ 20,000 equity shares of 10each). Out of these,5,000 shares were issued to XYZ Private Limited. Since XYZ Private Limited holds only25% of the shares in ABC Limited, it does not have control of more than one-half of the total voting power of ABC Limited. Hence, XYZ Private Limited cannot be considered as a subsidiary company of ABC Limited in terms of the second criteria stated above, that of controlling of voting power. XYZ Private Limited is the holding company of PQR Private Limited by having control over the composition of its Board of Directors. But since XYZ Private Limited cannot be termed as a subsidiary company of ABC Limited, PQR Private Limited cannot claim the status of being a subsidiary of ABC Limited in terms of the first criteria, that of controlling of the composition of directors. As per section 2 (6) of the Act, Associate Company in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. The expression “significant influence” means control of at least twenty per cent of total voting power, or control of or participation in business decisions under an agreement. In terms of the above provision, the relationship between ABC Limited and XYZ Private Limited can be of an Associate Company. Since XYZ Private Limited holds more than20percent of voting power in ABC Limited, it can be considered as an Associate Company of ABC Limited.