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Unit 3: Kinds of Companies

3.5 Classification on the Basis of Ownership Notes

On the basis of ownership, a company may be:
1. Government company

2. Non-government company
3.5.1 Government Company

Section 617 defines a Government Company as “any company in which not less than 51% of the
paid-up share capital is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one or more State Governments
[and includes a company which is a subsidiary of a Government Company”].
Government Companies are as much governed by the provisions of the Companies Act as any
other company; but by virtue of s.620, the Central Government may direct that any of the
provisions of the Act will not apply to them or shall apply only with such exceptions, modifications
and adaptations as may be notified by the Government. However, the Central Government
cannot exempt the Government Companies from the provisions of Ss.619 and 619-A which
specifically deal with such companies.
Section 619 provides that the auditor of a Government Company shall be appointed or
re-appointed by the Central Government on the advice of the Comptroller and Auditor-General
of India. The ceilings on the number of audits to be undertaken by an auditor under s.224 are
equally applicable to audit of Government Companies. The Comptroller and Auditor General
of India have the power to direct the manner in which the accounts are to be audited and to give
instructions to the auditor in regard to any matter relating to the performance of his functions.
He is also empowered to get a supplementary test audit of accounts conducted by persons
authorised by him. The auditor of the Government Company has to submit a copy of his audit
report to the controller and auditor general who has the right to comment upon, or supplement
the audit report in such manner as he thinks fit. Such comments or supplementary audit report
must be placed before the annual general meeting of the company at the same time and in the
same manner as the auditor’s report.
Section 619-A provides that the Central Government must place before both Houses of the
Parliament, an annual report on the working and affairs of each Government Company to be
prepared within three months of its annual general meetings, together with a copy of the audit
report and any comments upon or supplement to, such audit report, made by the controller and
auditor general of India. Where a State Government is a participant in a Government Company,
this report has, likewise, to be placed before the State Legislature.
Section 619-B provides that the provisions of s.619 as stated above also apply to a company in
which the Central Government or any State Government or any Government Corporation hold
either singly or jointly not less than 51% of the paid-up share capital.

3.5.2 Foreign Company

Foreign Company is a company incorporated in a country outside India and has a place of
business in India.
However, where not less than 50% of the paid-up share capital (whether equity or preference or
partly equity and partly preference) of a company incorporated outside India and having an
established place of business in India, is held by one or more citizens of India or by one or more
Indian bodies corporate, such company shall comply with such of the provisions of the Act as
may be prescribed with regard to the business carried on by it in India.

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