Restriction on Number of Layers of Subsidiaries--An Overview

Pragya Bhandari

For restraining the misuse of multiple layers of subsidiaries for siphoning off fund, the Ministry of Corporate of Affairs has issued the Companies (Restriction on Number of Layers) Rules, 2017 imposing the limit of two layers of subsidiary. The present write-up elaborates the provisions dealing with layers of subsidiaries.

1. Prologue

The multiple layers of companies were used for the purpose of money laundering and siphoning off fund. To curb this situation, the Ministry of Corporate of Affairs has issued the Companies (Restriction on Number of Layers) Rules, 2017, effective from 20-9-2017. Section 2(87) of the Companies Act, 2013 is read with this rule. Accordingly, the Central Government has empowered to put a ceiling on the number of layers of subsidiaries that a company may have. Rules prescribe that companies should not have more than two layers of subsidiaries. Further, rule provides some exceptions and punishment, in case of non-compliance, to the same.

2. Definitions

(i) Holding company