CA Intermediate · Corporate and Other Laws · Preliminary
Nirmal Textiles Limited is a listed public company. Its holding company is Bharat Fabrics Limited, which holds 55% of the equity voting power of Nirmal. Nirmal in turn holds 60% of the voting power of Kaveri Dyes Private Limited. Under the Companies Act, 2013, what is the position of Kaveri Dyes with respect to Bharat Fabrics?
Kaveri Dyes is a subsidiary of Bharat Fabrics. The Companies Act treats a company as a holding company of the subsidiaries of its subsidiaries too, so the chain of control through Nirmal Textiles makes Kaveri a subsidiary of Bharat, without any need for direct shareholding.
- AKaveri is a subsidiary of Bharat Fabrics, since a subsidiary of a subsidiary is also a subsidiary of the holding companyCorrect
- BKaveri is an associate company of Bharat Fabrics because Bharat Fabrics has significant influence
- CKaveri is not related to Bharat Fabrics because it is a private company
- DKaveri is a subsidiary of Bharat Fabrics only if Bharat Fabrics directly holds more than 50% of its voting power
Explanation
Under the Act, a company is a holding company of another if the latter is its subsidiary, and the subsidiary definition covers control of the composition of the board or more than half of total voting power. Bharat controls Nirmal, which controls Kaveri, so Kaveri is a subsidiary of Bharat as a subsidiary of its subsidiary. Requiring direct holding, as option D says, is wrong.
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