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.