You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has proposed in November, 2023 to make an investment of ₹80 lakhs in the equity shares of Hunny Investment (Pvt.) Ltd. the face value of which is

CS Executive · Company Law and Practice · PYQS · June 2024
You are a company secretary of Bunny Ltd. a listed company and Bunny Ltd. has proposed in November, 2023 to make an investment of ₹80 lakhs in the equity shares of Hunny Investment (Pvt.) Ltd. the face value of which is ₹40 lakh. The financial data related to Bunny Ltd. and Hunny Investment (Pvt.) Ltd. as on 31st March, 2023 is furnished below: Particulars Bunny Ltd. (Rs. in Lakh) Hunny Investment Pvt. Ltd. (Rs. in Lakh) I. Authorized Capital 800 400 II. Subscribed and paid-up capital (a) Equity shares 240 300 (b) Preference shares 20 — III. Capital Reserves 20 30 IV. Free Reserves 20 — V. Borrowings from Public Financial Institution 40 — Bunny Ltd. (the company) furnished the following information related to it as on the date of proposed acquisition: (1) No other body corporate has invested any money in its share capital. (2) The company has granted guarantee to the tune of ₹100 lakh to a nationalized bank in connection with the loan granted to Richa Ltd. (3) It has granted housing loan of ₹20 lakh to its employees, other than its managing director or whole-time director. Hunny Investment (Pvt.) Ltd. furnished the following other information related to it: (1) The total assets as on 31st March, 2023 were ₹330 lakh including investment in shares & debentures of body corporate ₹200 lakh. (2) The income derived from investment in shares and debentures was ₹30 Lakh out of the gross income of ₹100 Lakh. Of the total shareholders of the company there are 20,000 shareholders who are holding shares of nominal value of not more than ₹20,000 each. A total number of 1500 such small shareholders have proposed Mr. X as their candidate to be the small shareholders' director. Based on the above information and referring to the provisions of the Companies Act, 2013 and relevant notifications/circulars issued by the Ministry of Corporate Affairs (MCA) answer the following: Whether Hunny Investment Pvt. Ltd. is an investment company based on the data given above ?

Answer & Explanation:

It is clarified by way of clause (a) of Explanation to Section 186 of the Companies Act, 2013 that the expression "investment company" means a company whose principal business is the acquisition of shares, debentures or other securities. Further, a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities: if its assets in the form of investment in shares, debentures or other securities constitutes not less than fifty percent of its total assets; or if its income derived from investment business constitutes not less than fifty percent as a proportion of its gross income. From the above provisions, it is clear that even if a company satisfies any one out of two criteria, it would be treated as an investment company. Investment Test The total assets of Hunny Investment Pvt Ltd. as on 31.03.2023 is ₹330 Lakh. Investment in shares and debentures of a body corporate is ₹200 lakh which is more than 50% of the total assets. Income Test Income derived from investment in shares and debentures is ₹30 Lakh which is less than 50% of the gross income of ₹100 Lakh Since, Hunny Investment Pvt. Ltd satisfies the Investment Test, it is an Investment Company.

Topics: Investments and Loans by Companies

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