Introduction of Companies (Restriction on number of layers) Rules, 2017 under Section 2(87) of Companies Act, 2013

With reference to MCA Notification dated September 20, 2017, the Central Government has made a new Rule i.e. Companies (Restriction on number of layers) Rules, 2017.

The proviso to Section 2(87) was earlier not enforced, however the same is now enforced after issuance of this notification.

The rule has been made to specify the Restriction on number of layers for certain classes of holding companies.

Sub Rule 1:

No company, other than a company belonging to a class specified in sub-rule (2), shall have more than two layers of subsidiaries:

·         Provided that the provisions of this sub-rule shall not affect a company from acquiring a company incorporated outside India with subsidiaries beyond two layers as per the laws of such country:

·         Provided further that for computing the number of layers under this rule, one layer which consists of one or more wholly owned subsidiary or subsidiaries shall not be taken into account.

Sub Rule 2:

The provisions of this rule shall not apply to the following classes of companies, namely:—

(a) a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);

(b) a non-banking financial company as defined in clause (f) of Section 45-I of the Reserve Bank of India Act,1934 (2 of 1934) which is registered with the Reserve Bank of India and considered as systematically important non-banking financial company by the Reserve Bank of India;

(c) an insurance company being a company which carries on the business of insurance in accordance with provisions of the Insurance Act, 1938 (4 of 1938) and the Insurance Regulatory Development Authority Act, 1999 (41 of 1999);

(d) a Government company referred to in clause (45) of section 2 of the Act.

The provisions of this rule shall not be in derogation of the proviso to sub-section (1) of section 186 of the Act.

In case number of layers exceeds the limit specified:

Every company, other than a company referred to in sub-rule (2), existing on or before the commencement of these rules, which has number of layers of subsidiaries in excess of the layers specified in sub-rule (1) -

(i) shall file, with the Registrar a return in Form CRL-1 disclosing the details specified therein, within a period of 150 days from the date of publication of these rules in the Official Gazette;

(ii) shall not, after the date of commencement of these rules, have any additional layer of subsidiaries over and above the layers existing on such date; and

(iii) shall not, in case one or more layers are reduced by it subsequent to the commencement of these rules, have the number of layers beyond the number of layers it has after such reduction or maximum layers allowed in sub rule (1), whichever is more.

Penal action:

If any company contravenes any provision of these rules the company and every officer of the company who is in default shall be punishable with fine which may extend to 10,000 rupees and where the contravention is a continuing one, with a further fine which may extend to 1,000 rupees for every day after the first during which such contravention continues.

References:

MCA

Contact:

CS Divyanshu Bansal

Email ID: divyanshubansal401@gmail.com
Ph: 9958381905