The Companies Act, 1956
372. Purchase by company of shares, etc., of other companies
1[372. Purchase by company of shares, etc., of other companies
2[(1) A company, whether by itself or together with its subsidiaries (hereafter in this section and section 373 referred to as the investing company), shall not be entitled to acquire, by way of subscription, purchase or otherwise (whether by itself, or by any individual or association of individuals in trust for it or for its benefit or on its account) the shares of any other body corporate except to the extent, and except in accordance with the restrictions and conditions, specified in this section.]
(2) 3[The Board of directors of the investing company shall be entitled to invest in any shares of any other body corporate up to such percentage of the subscribed equity share capital, or the aggregate of the paid-up equity and preference share capital, of such other body corporate, whichever is less, as may be prescribed:]
Provided that the aggregate of the investments so made by the Board in all other bodies corporate shall not exceed 4[such percentage of the aggregate of the subscribed capital and free reserves of the investing company, as may be prescribed:]
Provided further that the aggregate of the investments made in all other bodies corporate in the same group shall not exceed 4[such percentage of the aggregate of the subscribed capital and free reserves of the investing company, as may be prescribed].
(3) In computing at any time the percentages specified in sub-section (2) and the provisos thereto, the aggregate of the investments made by the investing company in other body or bodies corporate [whether before or after the commencement of the Companies (Amendment) Act, 1960] up to that time shall be taken into account.
5[(3A) A company, which has defaulted in the repayment of any deposit referred to in section 58A or part thereof or interest due thereupon in accordance with the terms and conditions of such deposit, shall riot make any investment under this section till the default is made good.]
(4) The investing company shall not make any investment in the shares of any other body corporate in excess of the percentages specified in sub-section (2) and the proviso thereto, unless the investment is sanctioned by a resolution of the investing company in general meeting and 6[unless previous approved] by the Central Government:
Provided that the investing company may at any time invest up to any amount in shares offered to it under clause (a) of sub-section (1) of section 81 (hereafter in this section referred to as rights shares) irrespective of the aforesaid percentages:
Provided further that when at any time the investing company intends to make any investments in shares other than rights shares, then, in computing at that time any of the aforesaid percentages, all existing investments, if any, made in rights shares up to that time shall be included in the aggregate of the investments of the company.
(5) No investment shall be made by the Board of directors of an investing company in pursuance of sub-section (2), unless it is sanctioned by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting, except those not entitled to vote thereon, and unless further notice of the resolution to be moved at the meeting has been given to every director in. the manner specified in section 286.
(6) Every investing company shall keep a register of all investments made by it in shares of any other body or bodies corporate (whether in the same group or not and whether in the case of a body corporate in the same group, such investments were made before or after that body came within the same group as the investing company), showing in respect of each investment the following particulars:-
(a) the name of the body corporate in which the investment has been made;
(b) the date on which the investment has been made;
(c) where the body corporate is in the same group as the investing company, the date on which the body corporate came in the same group;
(d) the names of all bodies corporate in the same group as the investing company.
(7) Particulars of every investment to which sub-section (6) applies shall be entered in the register aforesaid within seven days of the making thereof or in the case of investments made before the commencement of the Companies (Amendment) Act, 1960, within six months from such commencement, or such further time as the Central Government may grant on an application by the company in that behalf.
(8) If default is made in complying with the provisions of sub-section (6) or (7), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees and also with a further fine which may extend to fifty rupees for every day after the first during which the default continues.
(9) The register aforesaid shall be kept at the registered office of the investing company and-
(a) shall be open to inspection at such office, and
(b) extracts may be taken therefrom and copies thereof may be required,
by any member of the investing company to the same extent, in the same manner, and on the payment of the same fees as in the case of the register of members of the investing company; and the provisions of section 163 shall apply accordingly.
(10) Every investing company shall annex in each balance sheet prepared by it after the commencement of the Companies (Amendment) Act, 1960, a statement showing the bodies corporate (indicating separately the bodies corporate in the same group) in the shares of which investments have been made by it (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investments so made in each body corporate:
Provided that in the case of a company whose principal business is the acquisition of shares, stock, debentures or other securities (hereafter in this section referred to as an investment company), it shall be sufficient if the statement shows only the investments existing on the date as at which the balance sheet to which the statement is annexed has been made out.
(11) For the purposes of this section, a body corporate shall be deemed to be in the same group as the investing company-
(b) if the body corporate and the investing company should, in virtue of subsection (1B) of section 370, be deemed to be under the same management.
(12) References in the foregoing provisions of this section to shares shall in the case of investments made by the investing company in other bodies corporate in the same group, be deemed to include references to debentures also.
(13) The provisions of this section except the first proviso to sub-section (2) 8[and sub-section (5)] shall also apply to an investment company.
(14) This section shall not apply-
(a) to any banking or insurance company;
(b) to a private company, unless it is a subsidiary of a public company;
(c) to any company established with the object of financing, whether by way of making loans or advances to, or subscribing to the capital of, private industrial enterprises in India, in any case where the Central Government has made or agreed to make to the company a special advance for the purpose or has guaranteed or agreed to guarantee the payment of moneys borrowed by the company from any institution outside India;
9[(d) to investments by a holding company in its subsidiary,
other than a subsidiary within the meaning of clause (a) of sub-section (1) of section 4.]
11[(15) Nothing contained in this section shall apply to a company on and after the commencement of the companies (Amendment) Act, 1999.]
1. Subs. by Act 65 of 1960, sec, 138, for section 372 (w.e.f. 28-12-1960).
2. Subs. by Act 31 of 1988, sec, 52, for sub-section (1) (w.e.f. 17-4-1989).
3. Subs. by Act 31 of 1988, sec, 52, for certain words (w.e.f. 17-4-1989).
4. Subs. by Act 31 of 1988, sec, 52, for certain words (w.e.f. 17-4-1989).
5. Ins. by Act 5 of 1997, sec. 8 (w.e.f. 1-3-1997).
6. Subs. by Act 31 of 1988, sec, 52, for “unless further it is approved.” (w.e.f. 17-4-1989).
7. Provisions relating to managing agents, have ceased to have effect by Act 17 of 1969, sec. 6 (w.e.f. 3-4-1970).
8. Ins. by Act 31 of 1965, sec. 47 (w.e.f. 15-10-1965).
9. Subs. by Act 31 of 1988, sec. 52, for clause (d) (w.e.f. 17-4-1989).
10. Provisions relating to managing agents, secretaries and treasurers have ceased to have effect by Act 17 of 1969, sec. 6 (w.e.f. 3-4-1970).
11. Ins. by Act 21 of 1999, sec. 18 (w.r.e.f. 31-10-1998).