Subsidiary Company not to Hold Shares in its Holding Company

* company 

As per Section 2(46) ‘holding company’, in reference to one or more other companies, means a corporation of which such companies are subsidiary companies.

* subsidiary 

As per Section 2(87) “subsidiary company” or “subsidiary”, in reference to the other company (that is to mention the holding company), means a corporation during which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls quite one-half of the entire share capital either at its own or along side one or more of its subsidiary companies:

Provided that such class or classes of holding companies as could also be prescribed shall not have layers of subsidiaries beyond such numbers as could also be prescribed.


For the needs of this clause,—
(a) a corporation shall be deemed to be a subsidiary of the company albeit the control mentioned in sub-clause (i) or sub-clause (ii) is of another subsidiary of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(c) the expression “company” includes anybody corporate;

(d) “layer” in reference to a company means its subsidiary or subsidiaries;


Transfer of shares means transferring title of shares voluntarily, by one party to a different party. Transfer of shares features a stamp tax that one must pay, supported the market price of shares.

Generally, securities of a corporation are freely transferable though there could also be certain restrictions on the transfer of shares of the private company as provided in their articles. Such restriction on transfer of shares, if one adds any is to guard the interest of shareholders and other security holders.


No company shall, either by itself or through its nominees, hold any shares in its company and no company shall allot or transfer its shares to any of its subsidiary companies and any such allotment or transfer of shares of a corporation to its subsidiary shall be void:

Provided that nothing during this sub-section shall apply to a case—

  1. where the subsidiary holds such shares because the personal representative of a deceased member of the holding company; or
  2. (b) where the subsidiary holds such shares as a trustee; or
  3. (c) where the subsidiary may be a shareholder even before it became a subsidiary of the holding company:

Provided further that the subsidiary mentioned within the preceding proviso shall have a right to vote at a gathering of the company only in respect of the shares held by it as a personal representative or as a trustee, as mentioned in clause (a) or clause (b) of the said proviso.

Comment: The reference during this section to the shares of a company which may be a company limited by guarantee or a vast company, not having a share capital, shall be construed as a regard to the interest of its members, whatever be the shape of interest.

Disclaimer: the whole contents of this document are prepared on the idea of relevant and as per the knowledge existing at the time of the preparation. Although care has been taken to make sure the accuracy, completeness and reliability of the knowledge provided, I assume no responsibility therefore. 

Users of this information are expected to ask the relevant existing provisions of applicable Laws. The user of the knowledge agrees that the knowledge isn't knowledgeable advice and is subject to vary all of sudden . I assume no responsibility for the results of use of such information. In no event shall I shall be responsible for any direct, indirect, special or incidental damage resulting from arising out of or in reference to the utilization of the inform. 

We hope that our readers of CapiTotal India will find this write-up useful in having a far better understanding of the background & core aspects. Happy Reading!