Question

Which of the following statements are correct?
(i) A “holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies.
(ii) Government companies are proscribed from being holding companies.
(iii) No company shall, either by itself or through its nominees, hold any shares in its holding company.
(iv) No holding company shall allot or transfer its shares to any of its subsidiary companies.

• A. Only (i), (ii), and (iii)
• B. Only (i), (ii), and (iv)
• C. Only (i), (iii), and (iv)
• D. Only (ii), (iii), and (iv)

Hint:

Section 19 has three exceptions: where a subsidiary holds shares as a legal representative of a deceased member, as a trustee, or if the shares were held before it became a subsidiary.

Answer 1

The Correct Option is C

Step 1: Understanding the Question:
The question asks about the legal relationship between holding companies and their subsidiaries under the Companies Act, 2013, with special focus on cross-shareholding limits.

Step 2: Key Principles and Statutory Provisions:
Section 2(46) defines a holding company, and Section 19 of the Companies Act, 2013, governs the restriction on holding shares in a holding company.

Step 3: Detailed Explanation and Analysis:

• Section 2(46) defines a "holding company", in relation to one or more other companies, as a company of which such companies are subsidiary companies.
Therefore, statement (i) is correct.

• There is absolutely no legal restriction on Government companies acting as holding companies.
Many major Government companies (like ONGC, NTPC) have subsidiaries.
Therefore, statement (ii) is incorrect.

• Section 19(1) of the Act sets out a strict general rule: "No company shall, either by itself or through its nominees, hold any shares in its holding company...".
This is to prevent circular ownership and the abuse of voting power.
Therefore, statement (iii) is correct.

• Section 19(1) further states: "...and no holding company shall allot or transfer its shares to any of its subsidiary companies, and any such allotment or transfer of shares of a company to its subsidiary company shall be void."
Therefore, statement (iv) is correct.

Step 4: Final Answer:
Statements (i), (iii), and (iv) are correct, which corresponds to Option C.