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First Notes - 3 October 2017

MCA notifies provisions

MCA notifies provisions relating to restriction on layers of subsidiaries under the Companies Act, 2013


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The provisions (proviso to Section 2(87) and 186(1) of the Companies Act, 2013 (2013 Act)) are aimed at monitoring the misuse of multiple layers of subsidiaries for diversion of funds/siphoning off funds and to ensure minority investor protection. The proviso to Section 2(87) was not made effective till now but Section 186(1) is currently applicable to companies.

Recently, the Ministry of Corporate Affairs (MCA) pointed out that it has been receiving reports that certain companies may create shell companies for diversion of funds. Therefore, MCA decided to operationalise the provisions relating to the restriction on number of layers for holding companies (Section 2(87)) and retain the requirements of Section 186(1) regarding the number of layers of investment companies. Accordingly, MCA issued draft rules for public comments through a notice (no.3/3/2017-CL-I) dated 28 June 2017.

New development

On 20 September 2017, MCA issued notifications with regard to the following:

  • Application date of proviso to Section 2(87) of the 2013 Act with effect from 20 September 2017
  • Issue of Companies (Restriction on number of layers) Rules, 2017 (Restriction on layers Rules).

This issue of First Notes provide an overview of the notified provisions.

To access the text of the MCA notification on:

  • Application date of proviso to Section 2(87) of the 2013 Act, please click here
  • Companies (Restriction on number of layers) Rules, 2017, please click here.


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