Yellow Limited, a public company, holds 2,00,000 fully paid-up equity shares of Resolution Private Limited, whose paid-up equity share capital is ₹…

(i) Whether Resolution Private Limited is deemed a small company despite Yellow Limited's shareholding: Provisions: According to Section 2(85) of the Companies Act, 2013, "small company" means a company, other than a public company, having- (A) paid-up share capital not exceeding ₹ 10 crore, and (B) turnover, per the profit and loss account for the immediately preceding financial year, not exceeding ₹ 100 crore. Provided that nothing in this clause shall apply to— (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act Under Section 2(87), a company is a subsidiary of another ("holding") 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: Analysis: Here in the given instance, Yellow Limited holds 2,00,000 of fully paid up equity shares of Resolution Private Limited's with paid up share capital of ₹ 50,00,000 divided into 5,00,000 equity shares of ₹ 10 each (carrying voting rights). This holding of 2,00,000 equity shares constitutes 40% of the total voting power in the Resolution Private Limited, which is less than the prescribed threshold of holding more than 50% of the voting power. Conclusion: Therefore, Resolution Private Limited is not a subsidiary of Yellow Limited, and so it is out of the purview of the exemption from the applicability of the clause 2(85). So, Resolution Private Limited qualifies as a small company meeting up the requirements of paid-up capital and turnover within the prescribed limit of ₹ 10 crore and ₹ 100 crore respectively. (ii) Whether Resolution Private Limited has defaulted in filing its financial statements: Provisions: As per Section 2(40) of the Companies Act, 2013, "financial statement" includes a balance sheet, profit and loss account, cash flow statement, statement of changes in equity (if applicable), and explanatory notes. However, the financial statement of a One Person Company, small company, dormant company, and a private company classified as a "start-up", need not include a cash flow statement. Analysis: In the given instance as Resolution Private Limited qualifies as a small company, it is exempted from including a cash flow statement in its financial statements. Conclusion: It has therefore not defaulted in filing its financial statements with the ROC, and the notice issued on this ground is not sustainable.