Can an Indian Party directly fund such step- down subsidiaries?

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 Uma asked almost 3 years ago

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4 Answers
Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 veeru answered over 2 years ago

Hi, Where the JV/WOS has been established through a SPV, all funding to the operating step down subsidiary should be routed through the SPV only.

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 jitendra etikala answered almost 3 years ago

Where the JV/WOS has been established through a SPV, all funding to the operating step down subsidiary should be routed through the SPV only. However, in the case of guarantees to be given on behalf of the first level step down operating subsidiary, these can be given directly by the Indian Party provided such exposures are within the permissible financial commitment of the Indian Party.

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Open uri20170510 32134 1c996lj?1494421732 Anil answered almost 3 years ago

Multinational corporations have been carrying on business in India through private limited companies (‘Indian Companies’) set up by them under the Companies Act, 1956 (‘the Act’). Often, such private limited companies are not subsidiaries of the principal holding company (which has public shareholding), but are step-down subsidiaries of subsidiary companies of such principal holding companies. Also, the subsidiaries which hold the shares of the Indian Companies are themselves private companies under the laws of the relevant jurisdictions in which they are incorporated. In such cases, a question often arises as to whether such Indian Companies, being step-down subsidiaries of public companies outside India, are deemed to be public companies within the meaning of Ss.(7) of S. 4 of the Act. This aspect gains significance where the Indian Company desires to issue different classes of shares. While the issue of shares with differential rights can easily be provided for in the Articles of Association of private limited companies, the Act prescribes a number of restrictions in relation thereto in case of public companies. In the above circumstances, this article discusses the provisions of S. 4 of the Act as applicable to Indian Companies which are subsidiaries of foreign companies. 2. S. 4 of the Act explains in detail the meaning of the terms ‘holding company’ and ‘subsidiary company’ used in the Act. Ss.(1) of S. 4, inter alia, provides that a company is a subsidiary of another if such other company (a) controls the composition of its Board of Directors; or (b) holds more than half of the nominal value of its equity shares; or (c) if it is a subsidiary of any company which is the sub-sidiary of the other company (i.e., a step-down subsidiary). Ss.(5) of S. 4 of the Act, inter alia, provides that for the purpose of S. 4 of the Act, the expression ‘company’ includes any body corporate, thereby implying that even companies incorporated outside India would be regarded as holding and subsidiary companies of Indian companies, and that the relationship would not be restricted to companies incorporated under the provisions of the Act. Ss.(6) of S. 4 recognises that since a relationship of a holding and a subsidiary company would exist between a foreign company (i.e., a company incorporated under the laws of a foreign country) and an Indian company, the laws under which a foreign company has been incorporated would also have to be considered for the purpose of determining the relationship of a holding company and a subsidiary company. Ss.(7) of S. 4 of the Act provides that a private company which is a subsidiary of a body corporate incorporated outside India (which body corporate would be regarded as a public company if incorporated in India) would be deemed for the purposes of the Act to be a subsidiary of a public company if the entire share capital of that private company (incorporated in India) is not held by that body corporate whether alone or together with one or more bodies corporate incorporated outside India. 3. Therefore, by virtue of the provisions of Ss.(1) of S. 4 of the Act, the Indian Company would be regarded as a subsidiary of not only its immediate holding company but also a (step-down) subsidiary of the principal holding company (which has public shareholding). As stated above, Ss.(5) clarifies that the term ‘company’ used in S. 4 would refer to not only a company incorporated under the Act, but also to any body corporate incorporated outside India and therefore for the purposes of the Act, the principal holding company (which has public shareholding) would be a holding company of the Indian Company. With the aforesaid background, we now discuss the manner in which the provisions of Ss.(7) of S. 4 of the Act would apply to such Indian Company. 4.1 Ss.(7) of the said S. 4 is divided into two parts. The first part states that a private company incorporated in India would be deemed to be a public company if it is the subsidiary of a public company incorporated outside India. The second part of the said Ss.(7) exempts from the provisions of this sub-section those private companies whose entire share capital is held by a public company outside India whether alone or together with other bodies corporate incorporated outside India.

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Open uri20170510 32134 s5bvk0?1494421637 ARJUN PRATAP SINGH answered almost 3 years ago

Dear Friend, as far as your query is concerned that Can an Indian Party directly fund such step- down subsidiaries? Let me informed that Where the JV/WOS has been established through a SPV, all funding to the operating step down subsidiary should be routed through the SPV only. However, in the case of guarantees to be given on behalf of the first level step down operating subsidiary, these can be given directly by the Indian Party provided such exposures are within the permissible financial commitment of the Indian Party. Hope answer was helpful to you Regards, Arjun Pratap Singh

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