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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Bharat Industries Ltd, the holding company, plans to subscribe to further shares of its wholly owned subsidiary, Bharat Components Ltd, taking the aggregate investments beyond the section 186(2) limits. Which statement is correct under section 186(3) of the Companies Act, 2013?

The special resolution requirement does not apply, but disclosure is still required. Section 186(3) exempts a holding company's acquisition of securities of its wholly owned subsidiary from the special resolution rule, while the second proviso requires the details to be disclosed in the financial statement.

  1. AA special resolution is mandatory because the limit is crossed
  2. BThe special resolution requirement does not apply, but the acquisition details must be disclosed in the financial statementCorrect
  3. CApproval of the Central Government is mandatory
  4. DThe acquisition is prohibited beyond the limit

Explanation

The first proviso to section 186(3) states that where a holding company acquires securities of its wholly owned subsidiary, the special resolution requirement does not apply. The second proviso still requires disclosure of the details in the financial statement. Hence the special resolution option is wrong.

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