Can a Listed Holding Company Sell Its Shares in a Material Subsidiary Without Approval?

The answer is both yes and no—let’s break it down.

Definition of a Material Subsidiary

A material subsidiary is one whose turnover or net worth exceeds 10% of the consolidated turnover or net worth of the listed holding company and its subsidiaries, based on the immediately preceding accounting year.

When Can Shares Be Sold Without Shareholder Approval?

A listed holding company may sell shares in its material subsidiary without requiring shareholder approval if both of the following conditions are met:

• The sale does not reduce the holding company’s shareholding (either independently or together with its subsidiaries) to 50% or below, and

• The sale does not result in the loss of control over the subsidiary.

When Is Shareholder Approval by Special Resolution Required?

A special resolution of shareholders is mandatory if:

• The sale reduces the holding company’s shareholding in the material subsidiary to 50% or below, or

• The sale leads to the loss of control over the subsidiary.

Exceptions to the Requirement for Special Resolution

No special resolution is required if the sale is:

• Carried out under a scheme of arrangement approved by a Court or Tribunal, or

• Pursuant to a resolution plan approved under Section 31 of the Insolvency and Bankruptcy Code, provided that the same is disclosed to the stock exchanges within one working day of such approval.

Disclaimer: This document is based on the applicable laws and information available at the time of writing. While every effort has been made to ensure accuracy, it does not constitute legal advice. Users are advised to consult relevant laws, regulations, and professionals before acting on any information provided. No liability is accepted for any consequences arising from its use.

From the desk of CS Sharath