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MCA has issue [1] Notification on 20th September, 2017 in respect of 'Numbers of Layers of Investment in Subsidiaries' of Company. These rules called as Companies (Restriction on number of layers) Rules, 2017

Allowed Numbers - Layers of Investment

No Company other than below mentioned 4 categories of company shall have more than two layers of subsidiaries.

Companies on which rules above not applicable Companies:

• Banking Company
• Non-banking Financial Company
• Insurance Company
• Government Company

Exemption to the Companies:

i. Acquiring Company incorporated outside India: These provisions shall not affect a company from acquiring a Company incorporated outside India with subsidiaries beyond two layers as per the law of such Country.

Note: If a company incorporated outside India and having more than 2 layers of subsidiaries according to their law. An Indian company acquiring that foreign body corporate then these provisions shall not affect such transaction. Indian Company can acquire foreign company which have more than 2 layers of subsidiaries.

ii. One Layer of Subsidiaries: For computing the numbers of layers, one layer which consists of one or more wholly owned subsidiary or subsidiaries shall not be taken into account.

Note: If a Company have more than 2 WOS or subsidiaries on one layer, such companies shall not taken into account while calculating the layers of subsidiaries. On one layer there may be more than 2 Subsidiaries or WOS's.

Question: If Company existing before 20th September, 2017 (commencement of these rules) having more than 2 layers of subsidiaries. In such situation what is the way out?


i. Such Company shall file, with the Registrar a return in Form CRL-1 disclosing the details specified therein, within a period of150 (i.e. 17th February, 2018) days from the date of publication of these rules in the Official Gazette

Note: Companies have to file CRL-1 within 150 days.

ii. Such Company 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

Note: Companies can continue with no. of layers as on 20.09.2017 without any restriction. Even there is no need to dis-investment in such excess no. layers of subsidiaries.

iii. Such Company 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.

Note: If any time after 20.09.2017 Company made dis-investment in any of its subsidiary (which is on and above counting of 2 layers) in that situation company can't make new investment until unless its having less than 2 layers of subsidiaries.

Example: Company 'XYX' having 6 layers of subsidiaries as on 20.09.2017. Company made disinvestment in one of its layers on 15.11.2017. Therefore, as on 15.11.2017 Company XYZ having 5 layers of subsidiaries. In such situation Company can't make investment in one more company to reach its limit of 6 Companies. Because as per rules the limit is 2 layers.

NOTE: In case Company having more than 2 layers of subsidiaries as on 20.09.2017 it's has to (i) file form CRL-1 with ROC within 150 days (ii) no need to reduce the excess no. of layers by dis-investment in Companies.


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 ten thousand rupees and where the contravention is a continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which such contravention continues.



Published by

CS Divesh Goyal
(Practicing Compnay Secretary)
Category Corporate Law   Report

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