« Top Headlines » Open DEMAT Account in 24 hrs  Income Tax Calculator FY 2023-24: How To Know Your Tax Liability Online On IT Dept's Portal?  BackBack Income Tax Act amendment on cards on tax treatment of MSME dues  ITR-1, ITR-2, ITR-4 forms for FY 2023-24 available for e-filing. Check details here  Income tax slabs FY 2024-25: Experts share these 8 benefits for taxpayers in new income tax regime  How To File ITR Online - Step by Step Guide to Efile Income Tax Return, FY 2023-24 (AY 2024-25)  Old or new tax regime for TDS on salary? This post-election 2024 event will impact your tax planning  What Are 5 Heads Of Income Tax?  Income Tax Dept releases interim action plan for FY25 on tax collection, refund approvals   Income Tax Return: 5 lesser-known tax-saving tips from Section 80  Income Tax Return: 5 lesser-known tax-saving tips from Section 80  Why you need not rush to file your ITR immediately «  Guarantee on capital, not returns... If only `torn books' repaired themselves `as they landed... » When does private turn public? August, 31st 2006 The Delhi High Court has held that "unless a private company is a subsidiary of a public company it cannot be treated as a public company." The Companies (Amendment) Act 2000 had amended Section 3 of the 1956 Act to provide that a private corporate which is a subsidiary of public company will be public outfit. The Amendment Act had specifically removed the category of `deemed public companies' under Section 43A of the Act. A deemed public company basically refers to a private company which is deemed to have become public under certain circumstances. However, such deemed public companies were permitted by Section 43A to retain the three restrictive conditions which are mandatorily required to be present in the Articles of a private company. These conditions, inter alia, restrict the free transferability of shares, and prohibit inviting the public to subscribe to the shares of the company. The Amendment Act had also provided a summary procedure for conversion of a deemed public company into a private company. Thus, in effect, the legal position is that the law permits only two categories of companies public and private. However, notwithstanding this clear position, one basic issue still remains un-resolved: Can a private company which is a subsidiary of a public company continue to retain the three restrictive conditions in its Articles? CLB vs High Court ruling This confusion is further compounded by a recent decision of the Company Law Board (CLB) in Hillcrest Realty Sdn.Bhd vs Hotel Queenroad (P) Ltd [(2006) 72 CLA 245 CLB]. In this case, the CLB held that the basic characteristics of a private company do not get altered by the mere fact that such a company is a subsidiary of a public company. The CLB further held that such a company may be a public company for the other provisions of the Act, but the three restrictive conditions contained in its Articles will continue to be operative. This decision will only re-establish the position of a third category of companies, whereas the Amendment Act had categorically removed the same. Incidentally, the Delhi High Court, in the Hotel Queenroad (P) Ltd vs Hillcrest Realty Sdn.Bhd [(2006) 68 SCL 197] case, held that "unless a private company is a subsidiary of a public company it cannot be treated as a public company." The court, on this basis, denied voting rights of preference shareholders of a private company on the ground that it was not the subsidiary of a public company. The court's views are certainly in line with the spirit of the Amendment Act and should prevail. However, the Government must clear the iota of confusion by further amending the Act so as to replace the words "nothing in this section will apply to a private company unless it is a subsidiary of a public company" by the words "nothing in this section shall apply to a private company." Amit K. Vyas (The author is Counsel Company Affairs and Legal of L&T Ltd, Mumbai.)