Section 359 of the Companies Act defines group companies as either holding companies or subsidiary companies (quoted below).
359. (1) In this section—
(a) “group company” means a company that is a holding company or a subsidiary undertaking; and
The 40% shareholder in your example is neither a holding company or a subsidiary, thus is not classified as a group company. As such it would be able to avail of audit exemption under section 358 and can avail of the exemption as long as it meets two of the three size thresholds and does not itself fall into any of the categories in Schedule 5 of the Act.