Chap 13: Government Company

Chapter 13:
Government Company (Sec 394-395)
Sec 2: Definitions (Sec 2(45): Government Company)
M16: Answer the following:
(i) Central Government and Government of Maharashtra together hold 40% of the paid-up share capital of MN
Limited. A government company also holds 20% of the paid-up share capital in MN Limited.
(ii) PQ Limited is a subsidiary but not a wholly owned subsidiary of a government company.
Examine with reference to the provisions of the Companies Act, 2013 whether MN Limited and PQ Limited can be
considered as Government Company.
Ans:
Provision: [Relevant section 2(45) of the Companies Act, 2013 is as follows]
A company shall be a Government company if it satisfies any of the following 2 conditions:
a) It is a subsidiary company of a Government company.
b) 51 % or more of its paid up share capital is held –
(i) by the Central Government; or
(ii) by State Government(s); or
(iii) jointly by the Central Government and State Government(s).
Explanation & Answer: The given cases are discussed as follows:
(i) A Government company holds only 20% of the paid up share capital of MN Limited. As per section 2(87), a compa-
ny shall be a subsidiary of another company if more than 50% of its the paid up share capital is held by such other
company. Since only 20% of the paid up share capital of MN Limited is held by Government Company, MN Limited is
a not a subsidiary of any Government Company.
The Central Government and a State Government (viz. Government of Maharashtra) together hold 40% of the paid
up share capital of MN Limited which is less than the required 51% for being a Government company. For this pur-
pose, the shares held by any Government company are not to be considered.
MN Limited is not a government company since it is neither a subsidiary of any Government Company nor 51% or
more of its paid up share capital is held by the Central Government or one or more State Government or jointly by
the Central Government and one or more State Governments.
(ii) Since PQ Limited is a subsidiary of a Government Company it shall be considered as a Government Company. For
being a Government Company, there is no requirement that it has to be wholly owned subsidiary.

394: Annual report of Government Company

N16:Discuss the provisions relating to annual reports of Government Companies-
(i) Where in addition to the Central Government, any State Government is a member of the company.
(ii) Where the Central Government is not a member of the Government Company.
Ans:
Provision: [Relevant section 394 of the Companies Act, 2013 is as follows]
Section 394 of the Companies Act, 2013 provides for annual reports on Government companies.
According to section 394 (1) of the Companies Act, 2013, where the Central Government is a member of a Govern-
ment company, the Central Government shall cause an annual report on the working and affairs of that company to
be prepared and laid before Parliament with the copy of audit report and comments made by the Comptroller and
Auditor-General of India.
Explanation & Answer: The given cases are discussed as follows:
In the given case of in addition to the Central Government, any State Government is a member of the company:
(i) According to section 394(2) of the Companies Act, 2013 where in addition to the Central Government, any State
Government is also a member of a Government company, that State Government shall cause a copy of the annual
report prepared under section 394(1) to be laid before the House or both Houses of the State Legislature together
with a copy of the audit report and the comments upon or supplement to the audit report referred above.
(ii) According to section 395 of the Companies Act, 2013, where the Central Government is not a member of a Gov-

© CA Darshan D. Khare 13.1

 Chap 13: Government Company
ernment company, every State Government which is a member of that company, or where only one State Govern-
ment is a member of the company, that State Government shall cause an annual report on the working and affairs of
the company to be—
(a) Prepared within the time specified in sub-section (1) of section 394; and
(b) as soon as may be after such preparation, laid before the House or both Houses of the State Legislature together
with a copy of the audit report and comments upon or supplement to the audit report referred to in sub-section (1)
of that section.

13.2 © CA Darshan D. Khare