Inter‑corporate investments ‑ In excess of limits ‑ Scope of the section clarified and explained - Companies Law - No. 8(36)‑CL‑VI/66,

Letter : No. 8(36) ‑ CL ‑ VI/66, dated 10 ‑ 5 ‑ 1967. Subject:- Inter ‑ corporate investments ‑ In excess of limits ‑ Scope of the section clarified and explained Reference is made to the clarification contained in item 3 under the caption Clarifications of the Circular Letter No. 48(50)‑CL‑VI/61, dated 12‑2‑1962 [printed as Clarification 1]. In a recent case a company made investments in the shares of another company without obtaining the approval under section 372 even though by making that investment, total investments made in the shares of all other companies exceeded 30 per cent of its subscribed capital. It was, however, urged by the company that if investments made in the shares of its subsidiary companies and the companies managed by it were excluded, the particular investment made in the shares of the other company would be within the permissible limit of 30 per cent of its subscribed capital and, therefore, approval under section 372(4) was not required for making that investment. Since a doubt regarding the legality of the above interpretation of section 372 was raised, the Company Law Board has reconsidered the matter in consultation with the Ministry of Law and it has been advised that the investments enumerated under sub‑section (14) are to be excluded from calculation in consi-dering the limits prescribed in sub‑section (2) and the proviso thereto. As sub‑section (14) of section 372 provides that this section shall not apply to certain companies and to certain types of investments mentioned in clauses (a) to (e) of that sub‑section, it virtually means that the limits placed by the section on the power of an investing company to invest in the shares of any other body corporate are exclusive of the investment made by a holding company in its subsidiary or by a managing agent or secretaries and treasurers in a company managed by him or them vide clauses (d) and (e).