Section 4(7) of companies act, 1956

the amendment of companies act 200 has made certain amendments which had taken away the force of applicability of section 43 a except 43 2(a). 43 a refers to deemed public companies. 

nw the clarification issued by the department for 4(7) is again dubious in nature since 4(7) is not repealed. 

the said issue needs some more clarification. give me some time and ill get back to you with proper explanation. 

Thanks Manish Ji

I'll be waiting desperately.....

Dear Manish Ji

I am waiting to get a reeply from you.....

Kindly reply as soon as possible...

Thanks

Himanshu

The object of Sec4(7) is to place Indian pvt co  which is a subsidiary of a foreignco at par with a pvt co which is a subsidiary of a public company. But Joint committe constituted by the government for this purpose, however, recommended that exemption be given to private co if its entire share capital (both equity and preference) is held by one or more foreign body corporates .

The committe stated like this  " The committee consider it unnecessary to treat Indian pvt co , the entire share capital of which is held by one or more bodies corporates incorporated outside India, as pvt co which is a subsidiary of a public co for the purposses of this Act"

The Act requires that the entire share capital be held by at least two body corporates. This is because atleast two members are required for pvt co. Please note that the Act shall not allow holding share in the name of an INDIVIDUAL (however small it may be), not even as nominees of the foreign body corporates.

siva208@yahoo.com

Dear Mr. Himanshu,

sorry for th delay since i was busy in some court proceedings.

in th later case, the JV shall retain its private status and that shall not be termed as deepmed to be a public company. it has already been clarified by the department of corporate affairs that n such cases the company shall be treated as a subsidiary of as a private company keeping in mind the amendment of sec 43 a. i hav reproduced the said clarification for your perusal.

Department Clarification of 2002

The Department of Company Affairs came out with a clarification on this subject in the

year 2002, which reads as under:

DCA clarification No. 23/2002 dated 30th day of September, 2002 :

(1) “After amendment of the erstwhile Section 43A, since the

provisions of Section 4 of the Companies Act are independent, a

private company, being a subsidiary of a foreign body corporate,

which, if incorporated in India, would not be a public company.

As such, these deemed public companies are entitled to revert back

to their initial status of private limited companies as the effect of

Section 43A has been nullified by the amendment referred to.

(2) Section 4(7) of the Act was an exemption available to Indian

private companies when foreign body corporates were holding

100% share in them to retain their “private” status. After

amendment of Section 43A, such exemption is not required.

Therefore, applications under Section 43A(2A) shall be dealt with

independent of section 4(7) of the Act. The legal position in the

above circumstances would be that a private company would be

the subsidiary of another private limited company even if the

holding company happens to be a foreign body corporate and

these companies do not need the exemption provided in Section

4(7) of the Act. Therefore, the private company status of such

companies is a statutory one, and takes effect automatically. All

that the company is required to do is to make an application to the

Registrar that the company has become a private company and

there upon the Registrar shall substitute the words “private

limited” in lieu of the words “public limited”.

and further to your query tha t provisions of the companies act are contradictory to each other are not sustainable since section 3 (iv) c or sec 2 (10) or section 4 speaks about companies incorporated india which means status of private company or subsidiary shall be for the companies incorporated in india but under 4(7) the said deemed to be public company shall be a company incorporated in india but gthe holding shall be a company incorporated outside India thus sec 3 (iv) shall not contradict the same. 

 hope it clarifies your dilemma other wise you are alwys free to consult further.

Thanks Manish ji

I'll be surely keep in touch.

Thanks alot

Himanshu Grover

Dear Members,

If the entire shares are held by one body corporate incorporate outside india and being the requirment of minimum shareholders, one share is held by one individual as nominee of first mentioned company,. will this company be considered as deemed public company as per section 4(7) of Companies Act, 1956.

Pls advice.

manoj