What Is An Industrial Undertaking?

According to section 3 (d) of the Industries (Development and Regulation) Act, 1951, ‘industrial undertaking’ means any undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority including government. In this article, we provide an overview of the concepts of small scale industrial undertaking, ancillary industrial undertaking and control of one industrial undertaking by any other industrial undertaking.

Small Scale Industrial Undertaking

A small scale industrial undertaking is defined as related to which the investment in fixed assets in plant and machinery whether they are held on ownership terms on lease or according to terms of hire purchase is not in excess of Rs. 10 million.

Ancillary Industrial Undertaking

An Ancillary industrial undertaking is an industrial undertaking that is engaged or proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling or intermediates, or for the rendering of services and the undertaking of supplies or renders or that which proposes to supply or render not lesser than 50% of its production or services, as may be the case, to one or more other industrial undertakings and where the investments in fixed assets in plant and machinery if held on ownership terms or on lease or on hire-purchase is not in excess of Rs 10 million.

Control of Industrial Undertaking

The following are situations when one industrial undertaking is controlled by another industrial undertaking:

In the event two or more industrial undertakings are created by the same person as a proprietor, each of the aforementioned industrial undertakings shall be considered to be in a situation to be controlled by the other industrial undertaking or undertakings,
In the event where two or more industrial undertakings are set up as partnership firms under the terms of Indian Partnership Act and one or more partners are considered common partner or partners in the firms, each of the undertaking shall be considered to be controlled by the other undertaking or undertakings,
In the event industrial undertakings are created by companies under the terms of Companies Act, 2013 an industrial undertaking will be considered to be in a situation to be controlled by additional industrial undertaking under the following conditions:-
1. The equity holding by other industrial undertaking in the undertaking is in excess of 24 % of its total equity, or
2. The management control of an undertaking is transmitted on to the other industrial undertaking by means of the Managing Director of the first mentioned undertaking also being the Managing Director or Director appointed in the other industrial undertaking or the majority of Directors on the Board of the above first mentioned undertaking who are the equity holders in the other industrial undertaking according to terms of the provisions of the following items (A) and (B) of sub-clause (IV).

The extent of equity participation by any other industrial undertaking or undertakings in the undertaking according to sub-clause (III) above shall be determined according to the following terms:-

The extent of equity participation by any other industrial undertaking shall indeed include both foreign and domestic equity,
The equity participation by other industrial undertaking shall indeed mean total equity that is held in an industrial undertaking by other industrial undertaking or undertakings whether they are small scale or otherwise and are put together as well as the equity held by persons who are Directors in any other industrial undertaking or undertakings even in the situation where the person concerned is a Director in any other Industrial Undertaking or Undertakings,
Equity held by a person who has special technical qualification and experience and who is appointed as a Director in a small scale industrial undertaking, to the level of qualification shares if so provided according to the terms Articles of Association shall not be counted in the computation the equity held by other industrial undertaking(s) even if the person concerned is a Director in any other industrial undertaking(s).

Where an industrial undertaking is considered a subsidiary of or it is owned or controlled by, any other industrial undertaking or undertakings in terms of the sub-clauses including (I), (II) or (III) and if the total investment in various fixed assets in plant and machinery of the primarily mentioned industrial undertaking and the other industrial undertaking or undertakings joined together exceeds the investment limit that is specified in paragraphs (1) or (2) of the notification as the case may be, none of these industrial undertakings will be considered to be either a small scale or ancillary industrial undertaking.

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Frequently Asked Questions

Common questions about Industrial Undertaking Definition and Insights.

According to the article, a small-scale industrial undertaking is defined as one where the investment in fixed assets in plant and machinery, whether held on ownership terms, lease, or hire-purchase, does not exceed Rs. 10 million.

An ancillary industrial undertaking is an industrial undertaking engaged or proposed to be engaged in the manufacture or production of parts, components, sub-assemblies, tooling, or intermediates, or for rendering services. It must also supply or render not less than 50% of its production or services to one or more other industrial undertakings, and have an investment in fixed assets in plant and machinery not exceeding Rs. 10 million.

The article outlines several situations where one industrial undertaking is considered to be controlled by another, such as when they are created by the same proprietor, are partnership firms with common partners, or are companies where one undertaking holds more than 24% equity in the other or has management control through common directors.

Yes, the article states that the extent of equity participation by any other industrial undertaking includes both foreign and domestic equity.

Equity held by a person with special technical qualifications and experience, appointed as a director in a small-scale industrial undertaking, is not counted in the computation of equity held by other industrial undertakings, even if the person is a director in another undertaking.

If an industrial undertaking is considered a subsidiary of or owned or controlled by another industrial undertaking(s), and the total investment in fixed assets in plant and machinery of all the undertakings exceeds the specified limit, none of these industrial undertakings will be considered small-scale or ancillary.

The investment limit of Rs. 10 million in fixed assets in plant and machinery is a crucial factor in determining whether an industrial undertaking qualifies as a small-scale or ancillary undertaking, enabling them to benefit from any incentives or policies specific to these categories.

Yes, according to the article, if two or more industrial undertakings are set up as partnership firms under the Indian Partnership Act and have one or more common partners, each undertaking shall be considered to be controlled by the other undertaking(s).

One industrial undertaking is considered to have management control over another if the Managing Director of the first undertaking is also the Managing Director or Director in the other undertaking, or if the majority of Directors on the Board of the first undertaking are equity holders in the other undertaking.

While the article does not explicitly state this, it is possible for an industrial undertaking to be classified as both small-scale and ancillary if it meets the respective criteria for investment limits and the nature of its operations and supply chain.