The document discusses the concepts of holding companies, subsidiaries, and cross-border transactions. It defines a holding company as one that controls the board composition and holds over half of another company's equity shares. It provides an example of Twinstar Holdings acquiring shares of Sterlite. The document also discusses foreign holding companies, board of directors' duties and potential conflicts of interest, and an example case of Ferruccio Sias vs Jai Manga Ram Mukhi regarding conflict of interest on a company board.

1. Holding and Subsidiary
Companies, with Cross-border
transactions
By:
P. Santosh Kumar (09FN-075)
Prabal Pratap Singh (09FN-076)
Pushkar Kumar Singh (09FN-082)
Rajani Singh (09FN-087)
Rajeev Kumar (09FN-088)
Varun Dhupar (09FN-114)

2. Definition: Holding and Subsidiary
Definition (Section 4, Company Act)
Holding Company
Controls composition Holds more than half Holds the holding
of the board of equity share company
capital in nominal
value
Subsidiary1 Subsidiary2 Subsidiary3
1

3. Controls Board
Controls Board
 Appoints a director who couldn’t have been
appointed otherwise
 A person appointed as a direct rot manager or to
another office of employment becomes director
 Nominates a director

4. Hold at least half equity
Holds at least half of equity
 Has more than half of the equity share capital in
nominal value
 Holds at least half of total voting share if preference
share holders have the same voting right as the equity
share holders
 Excludes
Share or power held in fiduciary capacity
Share or power held by provisions of
debentures
Shares or power held by a lending company

5. Example
Example
2

6. Foreign holding company
Special Case: Foreign Holding
• Indian company is subsidiary/holding only if it is
holding/subsidiary in of foreign company as per the
law of that country.
• In case one company is foreign company, provisions
of Indian Company Act is not relevant.
• Example: Vedanta Group
3

7. Twin
Twinstar acquiring the shares of Sterlite
• Patriarch DP Agarwal founded a company called Twinstar
Holdings Limited in Mauritius with a nominal equity capital
base of $ 100 in 1993.
• Twinstar commenced operations as the subsidiary of a company
incorporated in Nassau, Bahamas, in November 1992, called
Volcan Investments Limited, which had an even lower capital
base — only $2, or not even Rs 100.
• Twinstar acquired the shares of Sterlite and various investment
companies controlled by group promoters.
• On April 29, 1999, the investment companies were liquidated
and all the shares of Sterlite came under Twinstar’s
possession, making it the 100 percent owner in the investment
companies.
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8. Board of Directors
• A company is an artificial legal person and the directors
as a body endow the artificial legal person with human
face than can act and react.
• According to the act (Company Law) ―director‖ includes
any person occupying the position of director, by
whatever name called.
• The persons, through whom a company acts and does its
business, are termed as directors.
• Collectively known as Board of Directors
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9. Foreign holding company
Appointment of Directors
• Appointment by third parties (nominee directors)
• By proportional representation
• Appointment by central government
• Appointment by small share holders
6

10. Foreign holding company
Removal of Directors
• By Shareholders: Shareholders have the right to
remove a director by passing an ordinary resolution
• By Central government
• By Tribunal (NCLT)
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11. Foreign holding company
Managing Director
• A director who is entrusted with substantial powers of
management which would not otherwise be
exercisable by him
• A person may be appointed as managing Director for
maximum of 2 companies
• MD has a tenure of 5 years but can be re-appointed for
another 5years
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12. Foreign holding company
Holding & Subsidiary company BoDs
• At least one independent director on the Board of
Directors of the holding company shall be a director on the
Board of Directors of a subsidiary company
• The Audit Committee of the listed holding company shall
also review the financial statements, in particular, the
investments made by the unlisted subsidiary company
• The minutes of the Board meetings of the unlisted
subsidiary company shall be placed at the Board meeting
of the listed holding company
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13. Foreign holding company
Director’s conflict of interest
• Clause 49 of the Listing Agreement entered into with
the Stock Exchanges, requires,(as shown below) as
part of Corporate Governance, the listed entities to lay
down a Code of Conduct for Directors on the Board of
a company. The code of conduct should be posted on
the website of a company
10

14. Foreign holding company
Code of Conduct
• Board shall lay down a code of conduct
• All Board members and senior management personnel
shall affirm compliance with the code on an annual
basis
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15. Foreign holding company
Potential conflict of interest
• Outside employment
• Improper personal benefits
• Financial interest or loans or other financial
transactions
• Service on boards & Committees
• Actions of family members
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16. Foreign holding company
Escorts shows door to Dr Trehan
• Dr. Trehan has been the executive director of Escorts
Heart Institute since it was founded in the late 1980s
• Escorts Heart Institute and Research Centre (EHIRC)
believed that Dr Trehan has been focusing more on his
self-promoted Rs. 10 billion Medicity, an upcoming multi-
disciplinary healthcare hub in Gurgaon
• EHIRC believed it is a clear conflict of interest and thus
showed Dr. Naresh Trehan the door by removing him
unceremoniously from the post of executive director.
13

17. Foreign holding company
Satyam's new board: Govt sees no of
interest conflict
• Kiran Karnik was nominated to the board of Satyam
Computer Services , is also a director on the board of EXL
Services, a business process outsourcing (BPO) unit
having direct competition with the Satyam BPO
• Deepak Parekh also nominated to the board of Satyam is
on the board of WNS Global Services, another rival of
Satyam BPO
• There is no conflict of interest, Corporate Affairs Minister
Prem Chand Gupta said when asked about the
appointment
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18. Foreign holding company
Ferruccio Sias And Another vs Jai Manga
Ram Mukhi And Others
• Plaintiff – Mr. Ferrucio Sias ( on behalf of SAE Ltd)
• Suit for damages, declaration and injunction was filed
by plaintiff stating that he is whole−time director in
the company, known as SAE (India) Limited
• The persons who are sued(Defendants) are directors
of SAE Ltd
• Plaintiff’s assertions against defendants
o Mala fide, unauthorized and illegal activities
o Actions detrimental to interest of SAE and its share holders
o Misutilizing funds of the company
15

19. Plaintiff
• Elettrofin Societa Anonima Finanziaria (Elettrofin)
• Elettrofin was a member of Asea Brown Boveri group
(ABB group)
• Elettrofin holds 32.3 percent share capital of SAE
Ltd.
• Board of directors of SAE were J. M. Mukhi, K.
N.Shenoy, Luigi Ruggieri, Ferruccio Sias and
Niranjan Swaroop Mittal
• J.M.Mukhi used to be elected as chairman for the
meetings.
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20. Plaintiff
• On Aug 24 1993 the five directors passed a resolution
agreeing to the increase of share capital of company
• The capital was to be subscribed by Elettrofin at a
price which was a ―fair price‖
• The issue of share capital would increase
Shareholding of Elettrofin to 51 percent
• Amalgamation of the company with ABB Ltd
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21. Plaintiff
• Disputes arose between the members of the board
regarding the valuation of shares and the
amalgamation proposal.
• A meeting of the BoDs was called, according to the
plaintiff, unfairly when some of them were abroad.
• A notice was sent on sep 13, 1993 and the meeting
took place on sep 15, 1993.
• The notice was sent as facsimile(fax).
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22. Plaintiff
• In the meeting 4 additional directors Y. L. Madan, S.
C.Singhal, P. Dasgupta and J. Narayanan were
appointed according to the plaintiff illegally and
malafide
19

23. Arguments
• Mr. Sias has the power to sue on behalf of the company (
as a corporate entity) as he has been granted power of
attorney by BoDs.
• It is necessary that Proper authority by resolution of
BoD, or Power of attorney authorizing institution of suits
on behalf of company, or power conferred by articles of
association , to institute suits on behalf of corporation.
( Oberoi Hotels (India) Pvt. Ltd. v. Observer Publications
(P) Ltd )
• The provisions in the power of attorney indicate that
MR.Sias can institute suits jointly with other persons
named in the power of attorney.
20

24. Arguments
• He is a whole-time director and general manager but not a
managing director
• Mr.Sias cannot file a suit
• Unauthorized persons can institute a suit on behalf of the
company and court can call meeting of shareholders to
find their opinion. (Danish Mercantile Co. Ltd. v.
Beaumont)
• In this case the action of Mr.Sias has not been ratified
by the company and he is being motivated because of
his connections with companies like ABB, Saldemi in
Nigeria belonging to ABB group before coming to India.
21

25. Arguments
• In the Judge’s view, the board of directors have to
take action which is in interest of the company and
majority shareholders.
• In this case, the foreign company holds only 33
percent of the shares and rest are owned by Financial
Institutions in India.
• The company has been hijacked by the resolution
passed by J. M. Mukhi, N. S. Mittal, over the
objections of Mr. Sias at the meeting.
22

26. Arguments
• Mr. Shenoy and Ruggieri were outside India and
there was no proper notice to them
• Mr. Sias apparently has old connections with
Elettrofin ,an Italian company, which is in
turn, connection with ABB, Zurich, which is also
connected with ABB,Sadelmi
• K. N. Shenoy is a director of Asea Brown Boveri
(India) Limited
• Ruggieri is based in Milano, Italy, and is connected
with the companies, associated with or connected
with Asea Brown Boveri Limited
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27. Arguments
• A simple majority is not sufficient and a greater
majority is required.
• According to articles of the company the quorum of
the meeting of BoDs is two.
• The Notice has been sent and directors are themselves
responsible for absenting from the meeting.
• By virtue of article 88 of Articles of association of
SAE ltd , the BoDs can make additional directors of
the company.
24

28. Arguments
• No particular form of notice is prescribe for meeting
of BoDs
• The power of attorney only gives authority to file a
suit jointly with other persons
• The BoDs (Mr. Sias, Mr. Ruggieri and K. N. Shenoy)
managed to pass a resolution with majority of three of
them for issuing additional shares to Elettrofin
instead of issuing shares to all the shareholders
25

29. Arguments
• The board of directors of every company has a duty
to that company alone and should not look after the
interest of a company which may be the holding
company of the company in which they are directors
• It is not open to the holding company to dictate to the
board of directors.
• There is very strong assertion that Mr. Sias is looking
after the interest of the foreign company
26

30. Judgment
• Mr. Sias was GM of Saldemi in Nigeria which is a
company of ABB Ltd before he became the GM of
SAE Ltd
• Allocating fresh capital to Eletrrofin increasing its
holding in SAE ltd to 51 percent is part of the grand
design to benefit the foreign companies, rather than
SAE (India) Limited, and its shareholders
27

31. Judgment
• The interest of the shareholders of any company
must, at all times, be protected by the directors of the
company
• There does not appear to be any loss occasioned to
the company as a result of re−constitution of the
board of directors by addition of four director.
• Mr. Sias has no authority to institute the suit
• The suit is accordingly dismissed
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32. Foreign holding company
Trans-border Transaction
Sale of goods contract: Meaning of international Sale
Contracts
• Where the offer or the reply relates to goods which are in
the course of carriage or will be carried from the territory
of on state to the territory of another
• Where the acts constituting the offer and the acceptance
are effected in the territories of different states
• Where delivery of the goods is to be made in the territory
of a State other than that within whose territory the acts
constituting the offer and the acceptance are effected
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33. Foreign holding company
Contd.
• Any two or more states shall not be considered to be
different states if a valid declaration to that effect
made under rules of this convention
• The present law is not applicable
to Stocks, shares, investment securities, negotiable
instruments or money, electricity, Ship, Vessel or
aircraft which is or will be subject to registration
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