Newsflash - Restriction on number of layers of subsidiaries for certain classes of holding companies

Section 2(87) of the Companies Act, 2013 (Act) defines a subsidiary company as under:

Subsidiary company or subsidiary, in relation to any other company (that is to say the holding company), means a company in which the holding company-

i. controls the composition of the Board of Directors; or

ii. exercises or controls more than one-half of the total share capital either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Ministry of Corporate Affairs (MCA) has on 20th September, 2017, notified the commencement of the above proviso. Vide its notification no. G.S.R. 1176(E) dated 20th September 2017, MCA has also notified ‘the Companies (Restriction on number of layers) Rules, 2017’ (Rules).

Thus, the Rules and proviso to clause (87) of section 2 of the Act has become operational with effect from 20 September 2017.

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