Restrictions on Layering of Subsidiaries Now Effective

In two earlier posts published in July (here and here), our guest contributors had voiced their trenchant criticism of the Government’s move to introduce restrictions of the ability of companies to create layers of subsidiaries. After a round of consultation, the Ministry of Corporate Affairs (MCA) has decided to implement the restrictions, which have now been brought into force.

The MCA has notified 20 September 2017 as the date on which the proviso to section 2(87) of the Companies Act, 2017 (which deals with layering of subsidiaries) has been brought into force. Simultaneously, the MCA has also notified the Companies (Restriction on number of layers) Rules, 2017, which contain the specific details on the restrictions. The nature of the restrictions is similar to the draft rules the MCA released during the consultation process, which were discussed in detail in the guest posts linked above. However, from a form perspective, while the consultation process had envisaged amendments to the Companies (Specification of Definitions Details) Amendment Rules, in the end it seems to have decided upon an entirely new set of rules to address the issue. The restrictions continue to be stringent, and most of the issues pointed out in the earlier posts continue to hold good in relation to the final (enacted) version as well.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • Whether the wholly owned subsidiary layer has to be the first layer to qualify for exemption or it can be any second layer as well ?

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