The new Companies Act has exacerbated the already existing disparity in the treatment of subsidiaries of Indian public companies and overseas firms. While the subsidiary of an Indian public company is also deemed to be a public company, Indian subsidiaries of foreign companies can remain as private companies.

 

Under the old Companies Act, an Indian subsidiary of foreign public company is not treated as a public company only if the entire share capital of the subsidiary is held by foreign companies incorporated outside India. There is no such exemption provision under the new Companies Act and as a result foreign firms can freely set up subsidiaries as private companies.

The Ministry of Corporate Affairs (MCA) had recently clarified that Indian subsidiaries of foreign companies can continue to remain as private companies. Further, MCA has said that foreign companies are entitled to establish their Indian subsidiaries either as public companies or private companies. "The question MCA must urgently address is why listed foreign companies are permitted to have their Indian subsidiaries as private companies conferring upon them a host of exemptions and privileges while denying the same status to subsidiaries of Indian public companies," says K S Ravichandran, Partner, KSR&Co., Company Secretaries.

Public companies registered in the country would also want to set up their subsidiaries as private companies for various reasons, he says. A public company with a capital of Rs 10 crore must mandatorily appoint a chief executive officer or managing director and one chief financial officer and one company secretary as its key managerial personnel (KMPs).

The same person cannot hold two positions at the same time. If the company is a private company, irrespective the capital and size, this provision would not apply. Private companies need not appoint KMPs and have been exempt from secretarial audit under the new Companies Act.

"It (the new provisions) would be advantageous for foreign companies. They (foreign firms) need not comply with the rules on KMPs and secretarial audit," says G Karthikeyan, a Coimbatore-based chartered accountant. (Times of India)