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1 to 25 of 108 Queries

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Query Id is 213
We, X Ltd. a closely held company incorporated under the provisions of the companies act, 1956 intends to invest in another private limited company called ‘Y’ Pvt.Ltd. incorporated under provisions of companies act, 1956 by subscribing to its equity share capital. The board of directors of X Ltd. comprises of the following: 1) Mr. A (M.D.) 2) Mrs. A (Jt. M.D.) 3) Mr. S (Director) 4) Mrs. S. (Director) The board of directors of ‘Y’ Pvt.Ltd comprises of the following: 1) Mr. I (Director) 2) Mr. S. (Director) The shareholders of X Ltd comprises of 7 family members of which 4 are on board of directors The shareholders of ‘Y’ Pvt.Ltd. comprises of Mr. I, Mr. S and 2 individual foreign citizens Query: 1) What is the maximum percentage of total paid up capital upto which X Ltd can subscribe to avoid ‘Y’ Pvt.Ltd. becoming its subsidiary. 2) What compliances X Ltd. is liable to perform under companies act if it is subscribing to shares in ‘Y’ Pvt.Ltd. under following scenario: i) If ‘Y’ Pvt.Ltd. is subsidiary of X Ltd ii) If ‘Y’ Pvt.Ltd. is not a subsidiary of X Ltd.? (20.1.2006)



Query Id is 210
SEBI has recently amended SEBI (Substantial Acquisition of Shares & Takeovers) Regulations, 1997. Definition of Promoter has been widened. Reg. 2(h) provides for meaning of term "Promoter" which means (i) any person who is directly or indirectly in control of the Company or (ii) (iii) and includes - (a) where such person is an individual - (i) his spouse, parents, brothers, sisters or children and (ii) to (v) (b) where such person is a body corporate - (i) to (v) WE HAVE REPRODUCED ONLY THOSE SUB-CLAUSE OF REG. 2(h) IN RESPECT OF WHICH WE NEED YOUR CLARIFICATION Our Query mainly pertains to the term "Children" used in the said definition. As generally understood, the term `child' applies to the person below certain age. It is our assumption that by applying term `children' the definition intends to cover shares held in name of minor - whether male or female. We request your kind clarification to our query - Whether Major & Married daughters are covered within the term `children' irrespective of their age & marital status attained by them. We add here that, such daughters have no control over the Company and also it is difficult to have control over their dealing in shares of the Company as they belongs to other family after marriage. Similary position applies to married Sisters. Under above circumstances, Is it appropriate to deem married Sisters & Daughters as `Promoters' merely by virtue of their shareholding and apply the term 'Children' to married daughters subject to above definition of Promoters ? (4.1.2006)

Query Id is 209
Applicability of Section 297 of the Companies Act. A Public Limited Company is supplying spare parts to a Partnership Firm in which few Directors of the aforesaid Company are Partners. There is no formal contract entered into between both the parties for such supply. It is supply as per requirement by other party. Payment is made regularly by such firm. There is no supplier for such item other than the said Company which, manufacture and supply as per specific need of above firm. Transaction are made regularly at market price, without agreement covering price at which to supply, period of supply or other terms. It is in ordinary course of business like supply to other customers. There is no special treatment of any nature. Directors of the Ltd. Company are also partners in such firm is matter of consideration. Such transactions are noted at the Board Meeting of said Company and approved by the non-interested directors with proper quorum. Whether Central Government approval is necessary under Section 297 of the Companies Act ? Applicability of Section 314 of the Companies Act A Public Limited Company engages firms of Chartered Accountants for tax advise and representations from time to time. One Director of the company is a Partner & Proprietor in these firms. The service availed from these firms are purely of professional nature and they are paid fees as per bill raised at the year end for rendering such service. Fees paid is more than Rs. 20,000/- (the limit specified under section 314). Whether availing service provided by the above referred firms requires prior approval from Central Government under section 314 ? Your guidance is sought on above matters. (4.1.2006)

Query Id is 208
One of the Shareholder of the Company, holding 10 Equity Shares attended last AGM held recently and upon voting by show of hands on two ordinary resolutions related to re-appointment of Director and Auditors, he dissented / voted against. Is it mandatory to mention name of above shareholder in the minutes of AGM, we have only mentioned that - "On a show of hands, all the Members present raised their hands in favour of the said resolution except one and it was carried out with majority". Is it proper compliance by us or name has to be disclosed in the minutes ? The aforesaid shareholder has sent us an e-mail recently requesting us to give him a copy of the last AGM Minutes, Extract of Contract and Investment Registers maintained u/s. 301 and 372A of the Companies Act respectively and also replies on the following queries - 1) Details of Bad-debts written off during last ten years including that of subsidiary, if any with the names and other particulars of their statutory registration and also advised us to forward the same to statutory authority as listed in his email; 2) Donation made to the Prime Ministers Relief Fund; 3) Professional Fees paid to any of the Directors during last three years with the fees and services rendered. Is it mandatory to send reply to such queries ? We seek your valuable guidance. (4.1.2006)

Query Id is 207
We are planning to enter into an arrangement with various organisations wherein they can advertise their products through our stores for sales promotion and branding. In this arrangement, they can even provide free samples to our customers but there will not be a sale of these products through our stores. In light of the above, we have certain queries on the publicity of liquor and tobacco products as under. Kindly advice on the same. 1) Can we advertise for liquor and tobacco products inside our stores? 2)If yes, then what are the legal formalities we need to comply with? 3)One of our clients is holding a liquor licence and wants to advertise his liquor and tobacco products from our stores and also wants to provide free samples to our customers. Kindly advice about the compliances to be done for the same? 4) Is there any ban on publicity of liquor and tobacco products? Can liquor and tobacco companies do surrogate advertising at our stores. If yes what are the terms and conditions to do it? (15.12.2005)


Query Id is 205
A company proposes to enter into a agreement with another company for sub-leasing its godown. The Sub-lessee proposes to put up a processing plant in the Godown after making certain structural modifications in the Godown. These modifications will be carried out by the sub-lessor. In order to get the modifications done the sub-lessee must make some upfront payment to the sub-lessor. Sub-lessee proposes to pay this as advance rent to be adjusted against future monthly rentals. The problem with this arrangement is that this payment of advance would attract TDS @ 20.4%, the same being treated as rent under IT Act, and this is unacceptable to the sub-lessor. Alternative solution is to give a refundable deposit to the sub-lessor. As refundable deposit does not attract the TDS this would solve the TDS problem; however this arrangement is not acceptable to the Sub-lessee as this would mean a substantial escalation of the fund outlay for the lease. And even for sub-lessor the problem of 20.4% TDS would remain with the monthly rentals attracting TDS @ 20.4%. Third alternative that presented itself was to divide the composite rent into lease rental and service charges for Maintenance, security, Gardening and landscaping etc. Substantial part of the payment will be paid as service charges, which attracts a TDS of just 2.04%. This is acceptable to both the parties but it has the following problems: a. Is it possible to defend a large part of the payment given out as service charges while keeping the rent very low (60:40)? Is it not likely to raise audit objections and problems at the time of IT assessment for the sub-lessee? b. Is it really practical to pay huge amount as advance payment of service charges only to avoid the TDS on rent? c. The Sub-lessor is only assuring to give the receipt separately for the lease rent and service charge components, instead of raising the invoice against the services rendered. Now my query is which one is the best alternative among the three. Is there a fourth alternative? Kindly advise us as to how a mutually satisfactory arrangement can be arrived at without overstepping the boundaries of law. (29.11.2005)



Query Id is 202
Company ‘A’ is engaged in manufacture of software products and services and wants to appoint one of its subsidiary in USA, as “Master Distributor” to sell its range of products “Shrink-wrapped products” all over the world, for which the subsidiary will retain a percentage of all revenues earned from the sales of these products. Company A has a paid–up share capital of more than Rs. 50 lakhs and it holds 80.03% stake in the said subsidiary. The Managing Director of the Company A is also a Director of the Subsidiary and holds 10.75% shares of the Company A. The IPR in the products will remain with the Company A. The revenue income earned from the “Products” category is approx. 15% of the entire Sales income of the Company A. Queries: Can the Master Distributor who will be responsible for world wide sales be termed as Sole Selling Agent even it is responsible for the sale of some of the products of the Company which constitute not more than 15% of revenue of Company A. Whether the provisions of section 294 of the Companies Act will become applicable and whether it would require the Shareholders’ approval. Whether provisions of section 294AA (2) and (3) will become applicable and whether the Central Govt. approval will be required? (22.11.2005)

Query Id is 201
1) We have sent a notice to the co u/s 433 & 434 of Co. Act 2) The Co. replied to notice denying their liability 3) We have filed a winding up petition 4) The matter has been accepted & we were askd to serve a notice of Acceptance, which we were unable serve as the co. has left the premises. 5) upon taking search at ROC for new Registered Office address we found out that the Actual RO was "X" situated at Fort area, the Legal notice was sent & received by the Co.at "Y" address which again is at Fort area(the Co. itself has represented that the "Y" address is their RO). Now the Co. has vacated the office situated at "Y" address. There is no intimation at the ROC about the change of address. 6) In the said scenario we have applied for substituted service. My Queries 1) I would like to know, will my Petition hold water, as the legal notice sent to the address is not a registered office, though served & received by the Respondent CO, the act say that the statutory notice has to be served at the Registered office? 2) If not, then what are my remedies which i can rectify? alongwith the case laws 3) If yes, the kindly forward me the case laws in support to the same. (22.11.2005)




Query Id is 197
We have a Subsidiary Company which was incorporated in 1999, with an Authorised Share Capital of Rs.6,00,00,000 divided into 60,00,000 Equity Shares of Rs.10/- each. The Subsidiary is primarily in the business of Watches. Pursuant to a Scheme of Arrangement approved by the Central Government under Section 391 of the Companies Act, 1956, the business of Watches of another Limited company was transferred to the said Subsidiary as a going concern with effect from April 1, 2000 vide Orders dated March 30, 2001. The Paid-up Share Capital of the Subsidiary is Rs.549 lakhs. The Subsidiary has incurred loss from the very first year of operations as per details given below, year wise: Year Loss (Rs.in Crore 2000-2001 59 2001-2002 106 2002-2003 113 2003-2004 135 2004-2005 134 The Subsidiary carries a total accumulated loss of Rs.547 crore and the Net Worth is (-) Rs. 658 crore as on March 31, 2005. We request you to kindly refer the matter to panel of experts and obtain and submit us the opinion on whether the above Subsidiary can be termed as Sick Industrial Company under the SICA and when the reference will have to be made to the BIFR. The Annual General Meeting for adoption of Accounts for the year ended March 31, 2005, is yet to be held. (18.10.2005)


Query Id is 195
It is proposed to deposit title deeds of our immovable properties to secure the credit facilities granted by bank to the Company. The lending banker is insisting to obtain Members' approval under section 293(1)(a) of the Companies Act. We have observed from DCA Circular that said provision is not attracted in our case. DCA Circular no L 8/19/(293)/64-PR dtd 21/7/1964. which reads. : "If a company mortgages the whole or substantially the whole of its undertaking for obtaining the loans or other financial assistance, it need not comply with the provisions of Section 293 (1) (a) of the Act, but if it is a usufructuary mortgage the said section would be attracted." The Company has not taken any Term Loan from the bank. It is borrowing in the ordinary course of business by way of Fund & Non-fund Credit facilities. Our account is not over-drawn and regular repayment is made for facilities enjoyed. Bank can proceed only in the event of default in repayment. We are only depositing title deeds with them and such deposit will be recorded in Memorandum of Entry as our consent to create a charge in bank's favour to secure repayment of facility granted. There is no intention and/or consent to pass right, title, interest of the said properties to the lending bank. As we understand, it is not a case of usufractuary mortgage, nor it amounts to sale of whole or substantially the whole of undertaking or its disposal in any manner. In relation to above, it is also noticed by us that the said resolution is one of the item listed in Postal Ballot Rules, which requires to be passed only by means of a postal ballot, instead of transacting the same in general meeting of the Company. Kindly enlighten us whether such mortgage amounts to transfer of interest of properties to the lending banker requiring members' consent under the provision of Section 293(1)(a) and Section 192-A of the Companies Act. (30.9.2005)


Query Id is 193
A public limited company is in the process of getting approvals for transferring one of its business activities to another company. The transaction involves selling of some of its assets including Tangible assets (Plant & Machinery, Tools, Dies) and Intangible asset (Right to Manufacture). It is proposed to enter into an asset sale agreement between the seller & the buyer for sale of the tangible as well as intangible assets. On completion of the transaction, possession will be given to the buyer in seller’s factory. The physical assets would remain in the seller’s factory under a separate bailment agreement. 1) We request you to confirm the liability of the parties towards Stamp Duty for sale of tangible as well as intangible assets. 2) In case, the sale of tangible assets is made through Purchase Order & Delivery Note, instead of through Asset Sale agreement, would the liability be different? (30.9.2005)

Query Id is 192
In the matter of non-payment of the fixed deposits placed with the companies, in one case we approached the Company Law Board & got orders in our favour under Section 58 of the Companies Act. In yet another case the company itself approached the CLB & got the scheme framed by them while in the third case some other creditors approached the Hon’ble High Court who in turn appointed an Official Liquidator. The orders of the CLB are not adhered to by the Companies & complaint to CLB in the matter about their non observance of order does not bear any fruit. Subsequently complaints were made to Registrar of Companies in respect of the company engaged in manufacturing activities & to RBI in respect of NBFC but nothing seems to be forthcoming. In fact in respect of the NBFC, a committee has been formed by the concerned High Court to look in to the matter of payment but the committee does not respond at all to the numerous representations sent by us. Similarly in respect of the third case, where Official Liquidator has been appointed, no response is forthcoming. As such advise may please be given as to what should be the further course of action in respect of the following:- a) In respect of manufacturing company where it does not honour the order of CLB and neither the CLB nor the ROC are now responding when a complaint is lodged with them; b) In respect of NBFC where CLB frames the scheme, which is not adhered to by the company. Then High Court appoints a committee but neither the company nor the committee is responding to the request made by us in the capacity of deposit holder; and c) In respect of company where winding up petition is filed in the High Court, who appoints an Official Liquidator but he does not respond to any of the written communications? (30.9.2005)

Query Id is 191
It is proposed to deposit title deeds of our immovable properties at Daman to secure the credit facilities granted by bank to the Company. The lending banker is insisting to obtain Members' approval u/s. 293(1)(a) of the Companies Act. We have observed from DCA Circular that said provision is not attraced in our case. DCA Circular no L 8/19/(293)/64-PR dtd 21/7/1964. which reads. : "If a company mortgages the whole or substainally the whole of its undertaking for obtaining the loans or other financial assistance, it need not comply with the provisions of Section 293 (1) (a) of the Act, but if it is a usufructuary mortgage the said section would be attracted." The Company has not taken any Term Loan from bank. It is borrowing in ordinary course of business by way of Fund & Non-fund Credit facilities. Our account is not over-drawn and regular repayment is made for facilities enjoyed. Bank can proceed only in the event of default in repayment. We are only depositing title deeds with them and such deposit will be recorded in Memorandum of Entry as our consent to create a charge in bank's favour to secure repayment of facility granted. There is no intention and/or consent to pass right, title, interest of the said properties to the lending bank. As we understand, it is not a case of usufractuary mortgage, nor it amounts to sale of whole or substantially the whole of undertaking or its disposal in any manner. In relation to above, it is also noticed by us that the said resolution is one of the item listed in Postal Ballot Rules, which requires to be passed only by means of a postal ballot, instead of transacting the same in general meeting of the Company. Kindly enlighten us whether such mortgage amount to transfer of interest of properties to the lending banker requiring members' consent under the provision of Section 293(1)(a) and Section 192-A of the Companies Act. (16.9.2005)

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