Preliminary

(a)(i) According to section 2(71) of the Companies Act, 2013, (the Act) a Public Company means a company which-

(a)is not a Private Company; and

(b)has a minimum paid-up share capital as may be prescribed:

Provided that, a company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company for the purposes of this Act even where such subsidiary company continues to be a private company in its Articles.

As per section 2(51) of the Act, Key Managerial Personnel (KMP), in relation to a company, includes the Chief Financial Officer.

According to section 67(2) of the Companies Act, 2013, Public Company shall not give any financial assistance:

1.Whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise.

2.For the purpose of, or in connection with, a purchase or subscription made or to be made, by any person of or for any shares in the company or in its holding company.

As per section 67(3) of the Act, a company may provide the financial assistance, in case of lending money by a company to its employees (other than its directors or key managerial personnel), not exceeding six-month salary of the employees to enable them to buy or subscribe fully paid shares in the company or its holding company and to hold them by way of beneficial ownership.

In the given question, Silk Segment Private Ltd. (SSPL) is a wholly owned subsidiary of Silk Block Ltd. (SBL). Thus, SSPL will also be deemed as a public company [by virtue of Section 2(71)].

Hence, considering the above provisions we can answer the following to the questions asked:

(i)Mr. Sohan is the Deputy Marketing Manager of SSPL; hence loan may be provided to him upto the limit of his 6 months’ salary i.e. ₹ 6,00,000. Thus, proposal to grant loan of ₹ 15,00,000 to Mr.

Sohan for purchase of shares in SBL is not valid.

Ms. Subarna is a KMP (being the Chief Financial Officer of SSPL), hence, proposal to grant loan to her for purchase of shares in SBL is not valid.

(ii)Section 67 of the Act shall not apply to private companies in whose share capital no other body corporate has invested any money. In case where Silk Block Ltd. (SBL) held only 25% shares of Silk Segment Private Ltd. (SSPL), the latter would not be termed as a subsidiary of the former and hence would not be a deemed public company. It will still be regarded as a private limited company. Further, SBL is holding shares in SSPL, thus SSPL will not fall in the exempted class of private companies and accordingly, the provision of section 67(3) of the Companies Act, 2013 shall apply.

In view of the above provisions, the answer would remain the same in case only 25% shares of SSPL are held by SBL.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, January 2025, 2(a) (New Scheme).

(a)As per section 2(85) of the Companies Act, 2013, Small company means a company, other than a public company, -

(i)paid-up share capital of which does not exceed four crore rupees, and

(ii)turnover of which as per profit and loss account for the immediately preceding financial year does not exceed forty crore rupees:

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.

In the instant case, as per the last profit and loss account for the year ending 31st March, 2022 of S Pvt. Ltd., its turnover was to the extent of ₹ 1.80 crore, and paid-up share capital was ₹ 80 lakh. Though S Pvt. Ltd., as per the turnover and paid-up share capital norms, qualifies for the status of a ‘small company’ but it cannot be categorized as a ‘small company’ because it is the subsidi ary of another company (H Ltd.).

Hence, the contention of the Company Secretary is correct.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2023, 4(a) (Old Scheme).

(a)According to Section 2(68) of the Companies Act, 2013, "Private company" means a company having prescribed minimum paid-up share capital, and which by its articles, limits the number of its members to two hundred.

However, where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member.

It is further provided that following shall not be included in the number of members -

(A)persons who are in the employment of the company; and

(B)persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased.

Accordingly, total Number of members in MNP Limited are:

(i)MNP Limited may be converted into a private company only if the total members of the company are limited to 200. In the instant case, since existing number of members are 162 which is within the prescribed maximum limit of 200, so MNP Limited can be converted into a private company.

(ii)There is no need for reduction in the number of members for the proposed private company as existing number of members are 162 which does not exceed maximum limit of 200.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 1(a) (Old Scheme).

(a)(i) According to section 2(76)(viii) of the Companies Act, 2013, Related party, with reference to a company, means any body corporate which is -

(A)a holding, subsidiary or an associate company of such company;

(B)a subsidiary of a holding company to which it is also a subsidiary; or

(C)an investing company or the venturer of the company;

In the given question, D Private Limited and E Private Limited are wholly owned subsidiary companies of ABC Private Ltd. According to stated clause (B), above, D Private Limited and E Private Limited are related parties.

However, as per the Notification No. G.S.R. 464(E) dated 5th June, 2015, clause

(viii)shall not apply with respect to section 188 to a private company, though being

a related parties.

Alternate Answer

According to section 2(76)(viii)(B) of the Companies Act, 2013, Related party, with reference to a company, means any body corporate which is a subsidiary of a holding company to which it is also a subsidiary.

However, Clause (viii) shall not apply with respect to section 188 (Related Party transactions) to a private company vide Notification No. G.S.R. 464(E) dated 5th June, 2015.

In the given question, D Private Limited and E Private Limited are wholly owned subsidiary companies of ABC Private Ltd. According to stated clause (B), above, D Private Limited and E Private Limited are related parties.

However, as per the mentioned Notification, clause (viii) shall not apply with respect to section 188 to a private company. Therefore, D Private Limited and E Private Limited are not related parties for the purpose of section 188.

(ii)As per Section 9 and 10 of the Companies Act, 2013 following shall be the effect of registration of a company:

(1)From the date of incorporation, the subscribers to the memorandum and all members of the company, shall become a body corporate.

(2)Such a registered company shall be capable of exercising all the functions of an incorporated company with the perpetual succession with power to acquire, hold and dispose of property, and to contract and to sue and be sued.

(3)The memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed by the company and by each member, and contained covenants on its and his part to observe all the provisions of the memorandum and of the articles.

(4)All monies payable by any member to the company under the memorandum or articles shall be a debt due from him to the company.

Source⁠​‌​‌‌​‌​⁠: ICAI Suggested Answers, May 2022, 4(a) (Old Scheme).