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Restriction on number of layers of Subsidiaries

By September 29, 2017 December 20th, 2019 No Comments
Section 2(87) of the Companies Act, 2013 defines the term ‘subsidiaries’
and recently, the proviso to the sub-section which provides for prescribing a
limit to number of layers of subsidiaries which a holding company may have, has
been notified.
Companies (Restriction on number of layers) Rules, 2017 (the ‘Rules’)
provides that a company cannot have more than two layers of subsidiaries except
in following cases:
a.      
A banking company;
b.     
A systematically important non-banking financial
company;
c.      
An insurance company;
d.     
A government company;
e.     
A company acquiring another company incorporated
outside India with subsidiaries beyond two layers;
f.       
In computing two layers, a holding company
having one layer of more than one wholly owned subsidiaries will be taken as
one.
g.      
Those allowed under Section 186(1) of Companies
Act, 2013.
Every company have more layers than prescribed are required
to file a return with the Registrar of Companies and are restricted to add to
the layers beyond two or such number as is existing as on the date of the
Rules, whichever is more.

It may be noted that both J J Irani Committee report as well
as the Companies Law Committee formed in 2015 recommended against having any restriction on
number of layers of subsidiaries which a company may have, as it will
significantly put Indian companies at a disadvantage vis-à-vis their
international counterparts.

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