No. 4(1)/92-SSI-Bd.(4)

GOVERNMENT OF INDIA
MINISTRY OF INDUSTRY

DEPTT. OF SMALL SCALE INDUSTRIES AND ARGO & RURAL INDUSTRIES
OFFICE OF THE DEVELOPMENT COMMISSIONER (SSI)
Nirman Bhavan, New Delhi,
Dated, the 17th May, 1993

To,

  1. Secretary (Industries)
    All states/UTs


  2. Commissioner/Director of Industries
    All States/UTs

Subject: Clarification regarding Notification No. S.O. 2(E) dated 1st January 1993.

    The notification No. S.O. 2(E) dated 1st January, 1993 provides definition and explanation of the terms "owned", "subsidiary" and "controlled" in their application to Small Scale Industries. This, in effect, prescribes the method to determine whether a Small Scale Industrial undertaking is owned, controlled or is a subsidiary of any other industrial undertaking under the IDR Act, 1951.

  1. Although the notification is quite clear in its intent and explanation, even then a large number of queries have been received from various quarters asking for clarification in respect of the notification. The confusion is mainly in the area of "control" and "clubbing" contained in the explanation C(I) to (v) of the said notification. Queries regarding interpretation have been raised, among others, by industrial units, associations, State Govts, and some Govt. Deptts.

  2. Broadly, the following type of questions have been raised:

    1. Whether a company not engaged in industrial activity can invest more than 24% in a small scale industrial undertaking?
    2. What is the extent to which an NRI can invest in a small scale industrial undertaking?
    3. What is the permissible extent of participation by a foreign company in a small scale industrial undertaking?
    4. Whether the Managing Director of a company owning an industrial undertaking can set up a proprietary or partnership concern in a small scale?

  3. All issues relating to the question that have been raised have been examined in this office. The notification is quite clear on this subject and ordinarily the Licensing Authorities should have been able to determine and decide on the above questions. However, since there seems to be some confusion over interpretation, following clarification is being issued interpreting the various implications of the provisions of the notification: -

    1. It should be understood that industrial undertaking is different from its form of ownership. The forms of ownership as stated in the notification are of three types viz., proprietary, partnership and company. As per clause, C(i), C(ii) and C(iii) of the notification the provisions of "controlled" and "clubbing" will apply only to similar forms of ownership of industrial undertakings, e.g. an industrial undertaking owned by a proprietary concern cannot be clubbed with one owned as a company OR an industrial undertaking owned by a partnership firm cannot be clubbed with an industrial undertaking owned as a proprietary concern irrespective of the concerned persons (proprietor, partner or equity holder) being common. In other words, in the above examples the provisions of "controlled" and "clubbing" will not apply.

    2. Clarification in respect of Clause C(III) is as follows: -

      1. A Company will be considered as having set up an industrial undertaking only if it has an equity interest (i.e. invested in equity) in an industrial undertaking. In other words, a company with no equity interest in any industrial undertaking can invest in a small scale unit without such equity being counted as equity by other industrial undertaking, thus, in the first instance, such a company can invest even more than 24% equity in a small scale industrial unit. However, no sooner the company acquires an equity interest in an industrial undertaking, it becomes a company that has set up an industrial undertaking. Therefore, in the second or subsequent instances the equity investment by such a company will count towards equity by other industrial undertaking and the provisions of clubbing will apply.
      2. Similarly, an NRI can invest in the first instance in a small scale industrial unit without such equity being counted as equity by other industrial undertaking. Thus, in the first instance the equity investment can be more than 24% even 100%. However, in the second or subsequent instances, the provisions of "clubbing" will start to apply.
      3. Similarly, a foreign company with no equity interest in an industrial undertaking, whether in India or abroad, can, in the first instance, invest equity of any amount in a small scale industrial undertaking. However, in the subsequent instances, the provisions of "clubbing" will apply because such a company would, after the first investment, be considered as having set up an industrial undertaking.

  4. The above clarification should, normally, answer all the queries that have been raised by various quarters. You are requested to take decisions regarding provisions of "controlled" in the light of the clarifications made above. You are requested to bring it to the notice of all registered authorities.

Yours faithfully,

Sd/-
(Raju Sharma)
Director (SSI Bd.)