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CA Foundation · Business Laws · The Companies Act, 2013

Bharat Power Ltd holds 55% of the equity voting power of Sunrise Energy Ltd. Sunrise Energy holds 60% of the voting power in Zenith Solar Ltd. Bharat Power has no direct holding in Zenith Solar and has no control over its board. Under the Companies Act, 2013, what is the status of Zenith Solar Ltd in relation to Bharat Power Ltd?

Zenith Solar is a subsidiary of Bharat Power. Sunrise Energy is Bharat Power's subsidiary, and Zenith Solar is Sunrise's subsidiary, so under the Companies Act a subsidiary of a subsidiary is also a subsidiary of the holding company. Absence of a direct holding is irrelevant.

  1. ASubsidiary, because the subsidiary of a subsidiary is also a subsidiary of the ultimate holding companyCorrect
  2. BAssociate company, because Bharat Power holds indirectly more than 20%
  3. CNot related, because Bharat Power has no direct holding
  4. DJoint venture, because both companies hold shares in Zenith Solar

Explanation

Under the Act, a company is a subsidiary of another if the latter controls its board or holds more than half of total voting power, directly or through one or more subsidiaries. Sunrise is a subsidiary of Bharat Power, and Zenith is a subsidiary of Sunrise. Therefore Zenith is a subsidiary of Bharat Power. Lack of a direct holding does not matter.

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