SUBSIDIARY CORPORATIONSCentral

Section 17A of The Road Transport Corporations Act, 1950

Establishment of subsidiary corporations.

1[17A. Establishment of subsidiary corporations.--(1) Where a Corporation (hereinafter in this section referred to as the parent Corporation) is satisfied that it is expedient or necessary so to do for the more efficient discharge of its functions under this Act, it may, with the concurrence of the State Government and the Central Government, frame by notification in the Official Gazette a scheme or schemes providing for the establishment of one or more subsidiary corporations.

(2)A scheme framed under sub-section (1) shall specify the subsidiary corporation or corporations which shall become established thereunder, the date or dates with effect from which they shall be so established, the powers and functions of the parent Corporation which such subsidiary corporation or corporations may exercise and discharge, the conditions and limitations subject to which such powers may be exercised, the management of the affairs of each such subsidiary corporation by a Board of Directors, the capital of each such subsidiary corporation and all other matters relating to such subsidiary corporations corresponding to the various matters for which provisions have been made in this Act with respect to the parent Corporation: Provided that--
1. (a)no subsidiary corporation shall start operation on any new route without the previous approval of the parent Corporation;
2. (b)the representatives of the Central Government on the Board of Directors of a subsidiary corporation shall be in proportion to its contribution to the capital of the parent Corporation;
3. (c)the liability of the Central Government to provide contribution to the capital of the subsidiary corporation or to the parent Corporation shall not be increased without the approval of the Central Government;
4. (d)a subsidiary corporation shall have a Managing Director, a Chief Accounts Officer and a Financial Adviser or a Chief Accounts Officer-cum-Financial Adviser, and such officers shall be appointed by the State Government;
5. (e)the State Government and the parent Corporation shall have power to give directions to a subsidiary corporation in respect of any matter, including directions relating to recruitment conditions of service and training of the employees of the subsidiary corporation, wages to be paid to such employees, reserves to be maintained by the subsidiary corporation;
6. (f)the capital budget, the revenue budget and the annual development plans of a subsidiary corporation shall be submitted for approval to the parent Corporation and where such budget or plan involves any deficit, also to the State Government.
(3)Every subsidiary corporation established under a scheme framed under sub-section (1) shall be a body corporate, by the name specified in the scheme having perpetual succession and a common seal and shall by the said name sue and be sued.]

Summary

A parent Corporation can establish subsidiary corporations to help discharge its functions more efficiently.
The parent Corporation must get agreement from both the State and Central Governments.
Each subsidiary is a body corporate, which means it is a legal entity that can sue or be sued.
The establishment scheme must define the subsidiary's Board of Directors, capital, and powers.
Subsidiaries cannot start running new routes without the parent Corporation's prior approval.
The parent Corporation and State Government have the power to give directions to the subsidiary regarding its employees and finances.

Practical examples

1The Mega State Transport Corporation wants to create a separate entity just for electric buses to be more efficient. They get agreement from the State and Central Governments to launch "Eco-Bus Subsidiary" with its own five-member Board and a capital of ten crore rupees.

2The new "Green Lines" subsidiary wants to start a route from the city to the airport, but the parent Corporation thinks it will compete with their existing luxury line. Under this law, "Green Lines" is blocked from starting that route because the parent company refused to give its approval.

FAQ

1. Who must agree before a subsidiary is formed under The Road Transport Corporations Act, 1950?

Under Section 17A of the Road Transport Corporations Act, 1950, the parent Corporation needs the concurrence, or agreement, of both the State Government and the Central Government.

2. Can a subsidiary corporation in road transport make its own rules for hiring staff under the Act?

The parent Corporation and State Government can give directions on recruitment and service conditions for subsidiary employees under Section 17A of the Road Transport Corporations Act, 1950.

3. Does a subsidiary have its own legal identity under The Road Transport Corporations Act, 1950?

Yes, Section 17A of the Road Transport Corporations Act, 1950, states every subsidiary is a body corporate with perpetual succession and its own common seal.

Test yourself

1.Under Section 17A of The Road Transport Corporations Act, 1950, what is required for a subsidiary to start a new route?

2.Who appoints the Managing Director and Chief Accounts Officer of a subsidiary under Section 17A of The Road Transport Corporations Act, 1950?

3.Compare Section 17 and Section 17A of The Road Transport Corporations Act, 1950. Which body has the power to "sue and be sued" in its own name?

4.Under Section 17A of The Road Transport Corporations Act, 1950, what happens to a subsidiary's budget if it involves a deficit?

17PreviousSection 17 Appointment of Advisory Council.18NextSection 18 General duty of Corporation.

←Section 17 Section 18→