According to Sub-section (1) of Section 49, investments made by a company (other than an investment company) on its own behalf shall be made and held by it in its own name.
The requirement that the investment made by the company must be held in its own name is confined to only those investments which are made by it on its own behalf and not on behalf of someone else. In a case where the company is a trustee, the investment is supposed to be made on behalf of the beneficiaries of the trust and not on its own behalf. Therefore, the investments by the company as a trustee and held in the name of the beneficiaries is allowed.
Sub-section (2) of Section 49 provides that where a company has right to nominate a director or directors on the Board of another company, it would be open to the appointing or nominating company to hold the shares upto the amount of qualification shares (i) in its own name, (ii) jointly in its own name and the name of appointee or nominee director, or (iii) exclusively in the name of the appointee or nominee. As per Section 49(3), a company may hold any share or shares in its subsidiary through nominee or nominees of the company if it is so required to ensure that the number of members of the subsidiary does not fall below the minimum number prescribed under the Act for public and private companies.
Where the shares of a company were registered in the joint names of the company and one of its directors, it was held that the director was a nominee of the company for that purpose and could only act jointly as he had no rights of his own. [Exchange Travel (Holdings) Ltd. Re, (1991) BCLC 728 (Ch D)].
If company holds shares in dematerialised form, the name of depository is entered in the register of members as member of the company and the name of the investing company as the beneficial owner of the said shares.
Section 49(6) provides that the certificate or letter of allotment relating to the shares or securities in which investments have been made by a company shall, except in two cases covered by Sub-sections (4) and (5) be in the custody of such company or with the State Bank of India or a Scheduled Bank, being the bankers of the company.
Exemptions
- Sub-section (4) of Section 49 exempts a company from the requirement of holding shares or securities on its own behalf and in its own name if its principal business consists of buying and selling of shares or securities.
- In terms of the provisions of Section 49(5), Section 49(1) does not prevent a company:
- from depositing with the bank, being the bankers of the company, any shares or securities for collection of any dividend or interest payable thereon; or
- from depositing with or transferring to, or holding in the name of, the State Bank of India or a scheduled bank, being the bankers of the company, shares or securities, in order to facilitate the transfer thereof. However, if within a period of 6 months from the date from which the shares or securities are transferred by the company to, or are first held by the company in the name of, the State Bank of India or a scheduled bank as aforesaid, no transfer of such shares or securities takes place, the company shall, as soon as practicable, after the expiry of that period, have the shares or securities retransferred to it from the State Bank of India or the scheduled bank or, as the case may be, again hold the shares or securities in its own name; or
- from depositing with, or transferring to, any person any shares or securities, by way of security for the re-payment of any loan advanced to the company or the performance of any obligation undertaken by it.
- from holding investments in the name of a depository when such investments are in the form of securities held by the company as a beneficial owner.
Thus, it is not necessary for the company to hold the shares or stocks or debentures in its own name if they are deposited with the bank as aforesaid. A resolution of the Board of directors in this behalf is sufficient. The bank is entitled to have the shares or debentures registered in its own name with the specific purpose of collecting dividend or interest from the company whose shares or debentures are deposited with the bank. The company holding the investment in the name of the bank is only required to enter into a separate agreement with the bank that the latter will collect dividend and interest and credit the company with the amounts so collected. It may be noted that the deposit of shares, stocks and debentures with the bank need not be by way of a pledge but may be made for the specific object of enabling the banker to act as agent of the company to collect dividend and interest.
