Govt to soon restrict layers of subsidiaries under cos law

Source: The Hitavada      Date: 01 Jul 2017 10:43:18


NEW DELHI,

June 30,

(PTI),

THE Government will soon put in place restrictions on the number of subsidiaries a corporate can have under the companies law, as it steps up the fight against illicit fund flows. The provision, which provides for “layering restriction on investment subsidiaries” for certain class of corporates, is part of the Companies Act, 2013. However, the particular provision is yet to be implemented.

In this regard, the Ministry -- which is implementing the Act -- has now floated the draft norms for public consultations. Layering restriction on investment subsidiaries were incorporated in the Companies Act, 2013 “with a view to check misuse of multiple layers of subsidiaries for diversion of funds/ siphoning off funds as a measure of minority investor protection”, the Ministry said.

As per the draft rules, a holding company would be allowed to have only upto two layers of subsidiaries, excluding one layer of wholly-owned subsidiary.At the same time, the Ministry said restriction on investment through not more than two layers of investment companies would continue to be in place. The proposed rules will be applicable prospectively which means that existing holding companies will not have to reduce the existing layers of subsidiaries.

Banking companies, systemically important non-banking financial companies, insurance firms and government companies will be exempt from the restrictions.  “The provision to Clause (87) of Section 2 of the Companies Act, 2013 provides for restricting class or classes of holding companies from having layers of subsidiaries beyond prescribed number. “Based on suggestions received, the Ministry of Corporate Affairs is considering commencing the said provision,” the Ministry said in a public notice. The notice, issued yesterday, is to gather views from the stakeholders before implementing the provision.