Subsidiary Company Not To Hold Shares In Its Holding Company-Section 19 of the Companies Act, 2013

Section 19(1)of the Companies Act, 2013 imposes the restriction on Subsidiary Companies to hold shares in its Holding Companies.

Section 19(1)of the Companies Act, 2013 provides that:

No company shall, either by itself or through its nominees, hold any shares in its holding company 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.

Thus, Section 19(1) restricts the subsidiary Company to hold any shares in its Holding Company either directly or indirectly. Further, if any allotment or transfer is made by any company to its Subsidiary Company then that transaction would become void.

Now lets discuss the proviso to the above section which mentions about the exceptions to Section 19(1) of the Act, where a subsidiary Company can hold shares in its holding Company.

Provided that nothing in this sub-section shall apply to a case—

  • where the subsidiary company holds such shares as the legal representative of a deceased member of the holding company; or
  • where the subsidiary company holds such shares as a trustee; or
  • where the subsidiary company is a shareholder even before it became a subsidiary company of the holding company:

Provided further that the subsidiary company referred to in the preceding proviso shall have a right to vote at a meeting of the holding company only in respect of the shares held by it as a legal representative or as a trustee, as referred to in clause (a) or clause (b) of the said proviso.

The Second Proviso mentions that subsidiary company shall have no right to vote at a meeting of Holding Company in respect of shares held by it as referred to in clause (c) of the first proviso.

Further, Section 19 (2) of the Companies Act, 2013 provides:

The reference in this section to the shares of a holding   company which is a company limited by guarantee or an unlimited company, not having a share capital, shall be construed as a reference to the   interest of its members, whatever be the form of   interest.

Thus, Section 19(2) mentions about the Companies other than those Companies that are limited by shares i.e. company limited by guarantee or an unlimited company, wherein shares of holding Company shall mean or shall be construed as interest of its members.

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Disclaimer: The entire content of this document have been prepared as per the information existing at the time of the preparation. The blog is based on author’s personal views and the author does not take any responsibility of the same.