Clarification about applicability of Section 129 (3) of Companies Act, 2013 (the Act)

    Posted By : CS Shiriti / Published on : 25-Sep-2017 06:45 PM / View : 3201 / Comment : 1
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    A Private Limited has no Subsidiary Company, as defined under Section 2 (87) of the Act. B Private Limited also does not have a Subsidiary Company. However, A Private Limited holds control of more than twenty per cent of total voting power of B Private Limited. Thus, A Private Limited and B Private Limited could be considered Associate Company to each other. According to Explanation to Section 129(3) of the Act, the word “subsidiary” shall include Associate Company and Joint Venture. Kindly clarify following three queries on the subject? (1) In view of the provisions of Section 129(3) of the Act, are both the Companies, namely, A Private Limited and B Private Limited required to prepare and submit a Consolidated Financial Statements of the respective Companies and also of its Associate Company in the same form and manner as that of its own, which is also required to be laid before the Annual General Meeting of either Company, along with the laying of its Financial Statements under Section 129(2) of the Act? (2) Could Section 129(3) of the Act be interpreted to mean that as both A Private Limited and B Private Limited do not have any Subsidiary Company of its own Company, it would not be necessary for both the A Private Limited and B Private Limited to prepare and submit Consolidated Financial Statements and Standalone Financial Statements, simply because A Private Limited and B Private Limited are Associate Company to each other? (3) Could an Associate Company be deemed to be a Subsidiary Company, by way of Fiction of Law, vide Explanation to Section 129(3) of the Act? And hence, both A Private Limited and B Private Limited, being Associate Company to each other, are required to prepare and submit Standalone Financial Statements and Consolidated Financial Statements? An early response will be appreciated.
    Read more on : companies section applicability clarification

    • Dear Madam,

      Kindly note the below points in my view:

      Section 129(1) says, Management of Company has to prepare and present its Financial Statement as per Accounting Standards notified by NFRA.

      As per AS-13 (Accounting for Investments), Purchase of Share in Associate Company is treated as Investment (No Consolidation applicable).

      Further, AS-21 (Consolidated Financial Statements), Its Scope is limited to such extent where one company controls more than half of Voting Powers or Composition of Board of Directors.

      Again, AS-23 (Accounting for Investments in Associates in Consolidated Financial Statements), says the method of presentation if CFS is prepared.

      So, AS does not mandate to prepare CFS in case of Associates.

      Now, Section 129(3) says Mandatory preparation of CFS in case of "One or More Subsidiaries or Associate Companies" but here Plural sense is used with Associate. So, there might be some Exemption in case of single Associate but It is advisable to prepare Consolidated Financial Statements to avoid any Offence/Penalty.

      (1) The Company holding shares in another company (Associates) needs to prepare CFS as per AS-23.

      2) No, 129(3) says Subsidiary as well as Associates.

      (3) Yes, Associate Company may be deemed as a Subsidiary for the purpose of Section 129(3).

      Remember: Only the Company holding shares in Associates needs to prepare CFS. An Associate Company whose shares are being held by another company needs to prepare Separate Financial Statement only (Not CFS).

      05-12-2018 / 08:15:39 PM

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