Section 186

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Querist : Anonymous

Querist : Anonymous (Querist)

24 June 2014 Hiiii frndz,, plzz anybody tell me the meaning of two layer under section 186 of the Companies Act 2013 with an example of two layer.

Sandeep Dharar

Sandeep Dharar (Expert)
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24 June 2014 Visit the following link:-

https://taxguru.in/company-law/loan-investment-company-section-186-companies-act-2013.html

Sandeep Dharar

Sandeep Dharar (Expert)
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24 June 2014 Visit the following link:-

https://taxguru.in/company-law/loan-investment-company-section-186-companies-act-2013.html

Querist : Anonymous

Querist : Anonymous (Querist)

27 June 2014 deer sandeep ji...
my que is this... is meaning of two layer is susidiary of subsidiary.????

eg.. A co. is holding co. and co. B is sub of Co. A, Co. C is the sub of co. B.

In above case two layer covered company C for co. A...?????

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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23 July 2025 Yes, you are absolutely correct in your understanding! Let’s break down the concept of two layers under Section 186 of the Companies Act, 2013 using your example.

Explanation of "Two Layers" Under Section 186:
Under Section 186(1), a company is allowed to make investments only through two layers of subsidiaries. This means a company can invest in its subsidiary (1st layer) and its subsidiary’s subsidiary (2nd layer), but not beyond that (no investment in a third-layer subsidiary).

Example You Provided:
Co. A is a holding company (Parent company).

Co. B is a subsidiary of Co. A.

Co. C is a subsidiary of Co. B.

In this case:
Co. A (holding company) can invest in Co. B (its subsidiary) - 1st layer.

Co. B (subsidiary) can invest in Co. C (its subsidiary) - 2nd layer.

So, Co. A can invest in Co. C indirectly, through Co. B, which makes it a 2nd-layer investment.

What Does “Two Layers” Mean?
The term two layers means the company can invest in its own subsidiary (first layer) and then that subsidiary can invest in another company (second layer). After that, further layers of investment are not allowed.

Therefore, in your example:

Co. A can invest in Co. B (Layer 1).

Co. A can invest in Co. C (Layer 2, since it’s the subsidiary of Co. B, which is a direct subsidiary of Co. A).

Co. A cannot invest in Co. D, because Co. D would be a third-layer subsidiary.

Summary:
Yes, two layers mean a subsidiary of a subsidiary.

In your example, Co. A (holding company) can invest through Co. B (subsidiary) and Co. C (subsidiary of Co. B) as these two companies represent the two layers of investment.

Co. A cannot invest in Co. D (subsidiary of Co. C) because it would be a third-layer subsidiary.

This limitation on the number of layers ensures that there is no excessive layering of subsidiaries, which could obscure investments or complicate governance.

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