White Ltd. is an unlisted public company, having five directors in its board which includes two independent directors. Black (P) Ltd., is subsidiary…

According to section 2(40) of the Companies Act, 2013, Financial statement in relation to a company, includes: (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv): Provided that the financial statement, with respect to one person company, small company, dormant company and private company (if such private company is a start-up) may not include the cash flow statement. To determine the applicability of preparation cash flow statement in case of Black (P) Ltd., it is required first to be analyzed that Black (P) Ltd. does not fall in any of the categories of companies mentioned under proviso to section 2(40) of the Companies Act, 2013: (i) One person company- It is given that the company is having 30 members, so it is not a one person company. (ii) Small company- As per section 2(85), small company means a company, other than a public company, having paid up capital not exceeding ₹ 10 crore and turnover not exceeding ₹ 100 crore. Further, a company which is a subsidiary company cannot be categorized as a small company [as per proviso to section 2(85)]. Thus, even though the paid up capital and turnover of the company are within the prescribed limits (to be categorized as small company), it cannot be considered as small company, as Black (P) Ltd. is a subsidiary company of White Ltd. (iii) Private company (which is a start-up)– It is given that Black (P) Ltd. is not a start-up company and also, as per proviso to section 2(71) of the Act, a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles. Black (P) Ltd. is structured as a private company, but section 2(40) exemption only reaches a private company that is also a start-up, and the facts expressly say it is not a start-up. So, Black (P) Ltd. shall be deemed to be a public company as it is subsidiary of White Ltd., an unlisted public company and so it will not fall into this category of exemption as well. Thus, it can be concluded that Black (P) Ltd. is mandatorily required to prepare cash flow statement for the financial year as a part of its financial statements as it does not fall in any of the categories of companies mentioned under proviso to section 2(40) of the Companies Act, 2013.