A Ltd. has entered into a contract with B Ltd. by which the former will reserve 25% of their output to be sold to B. Ltd. or to a buyer at the direction of B Ltd. Can B Ltd. be called an associate company of A Ltd. ? Als

According to section 2(6) of the Companies Act, 2013 "associate company", in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. "Significant influence" means control of at least 20% of total share capital, or of business decisions under an agreement. In the instant case, B Ltd. controls more than 20% of the sale and disposal of the output of A Ltd. Thus, A Ltd. is the associate of B Ltd. But A Ltd. neither influences the business decision of B Ltd. in any manner nor does it control 20% of the total share capital of B Ltd. Hence B Ltd. cannot be called an associate of A Ltd. Section 2(85) of the Act defines a "small company" as a company, other than a public company: paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees. However, the definition excludes a holding company or a subsidiary company; a company registered under section 8; or a company or body corporate governed by any special Act. In the instant case, S Private Ltd. satisfies the turnover and paid-up share capital criteria to be a small company, but being a subsidiary of H Ltd., falls under the exclusions to the definition and hence, is not a small company.