Companies Act Section 378ZL — Investment in other companies, formation of subsidiaries etc
CHAPTER XXI
Commercial / Corporate
Summary
Sub-section (1) requires a Producer Company to invest its general reserves in a way that aims for the highest possible returns, using only approved securities, fixed deposits, units, or bonds issued by the Government, a co-operative bank, or a scheduled bank, or in any other mode that may be prescribed by rules.
Sub-section (2) allows a Producer Company to buy shares of another Producer Company, as long as doing so helps promote its own objectives.
Sub-section (3) permits a Producer Company to subscribe to the share capital of, or enter into any agreement or arrangement with, any body corporate. This can include forming a subsidiary company, creating a joint venture, or any other manner, but only if it is for promoting the Producer Company's objects and is approved by a special resolution.
Sub-section (4) sets a limit on investments. A Producer Company, either on its own or together with its subsidiaries, may invest in shares of any company other than a Producer Company (which is covered under sub-section (2)) or subscribe to capital under sub-section (3), but the total amount must not exceed thirty per cent of the combined value of its paid-up capital and free reserves. The proviso adds that a Producer Company can invest more than this limit if it passes a special resolution in its general meeting and gets prior approval from the Central Government.
Sub-section (5) states that all investments made by a Producer Company are allowed only if they are consistent with the objects of the Producer Company.
Sub-section (6) gives the Board of a Producer Company the power to sell or otherwise dispose of any investments referred to in sub-sections (3) and (4), but only with the previous approval of the Members through a special resolution.
Sub-section (7) requires every Producer Company to keep a register that records details of all its investments. This register must show the names of the companies in which shares were acquired, the number and value of those shares, the date of acquisition, and the manner and price at which any shares were later sold or disposed of.
Sub-section (8) says that the register mentioned in sub-section (7) must be kept at the registered office of the Producer Company, and it must be open for inspection by any Member, who is also allowed to take extracts from it.
Official Text
(1) The general reserves of any Producer Company shall be invested to secure the highest returns available from approved securities, fixed deposits, units, bonds issued by the Government or co-operative or scheduled bank or in such other mode as may be prescribed.
(2) Any Producer Company may, for promotion of its objectives acquire the shares of another Producer Company.
(3) Any Producer Company may subscribe to the share capital of, or enter into any agreement or other arrangement, whether by way of formation of its subsidiary company, joint venture or in any other manner with any body corporate, for the purpose of promoting the objects of the Producer Company by special resolution in this behalf.
(4) Any Producer Company, either by itself or together with its subsidiaries, may invest, by way of subscription, purchase or otherwise, shares in any other company, other than a Producer Company, specified under sub-section (2), or subscription of capital under sub-section (3), for an amount not exceeding thirty per cent. of the aggregate of its paid-up capital and free reserves:
Provided that a Producer Company may, by special resolution passed in its general meeting and with prior approval of the Central Government, invest in excess of the limits specified in this section.
(5) All investments by a Producer Company may be made if such investments are consistent with the objects of the Producer Company.
(6) The Board of a Producer Company may, with the previous approval of Members by a special resolution, dispose of any of its investments referred to in sub-sections
(3) and (4).
(7) Every Producer Company shall maintain a register containing particulars of all the investments, showing the names of the companies in which shares have been acquired, number and value of shares; the date of acquisition; and the manner and price at which any of the shares have been subsequently disposed of.
(8) The register referred to in sub-section (7) shall be kept at the registered office of the Producer Company and the same shall be open to inspection by any Member who may take extracts therefrom. PART VIII PENALTIES