Restriction on layers of subsidiaries and Return for number of layers in Form CRL-1 By CS Shiriti Kumari


Dear Professional Colleagues,

In this Article, I am putting up about "Return regarding number of layers in Form CRL-1" Under (clause (i) of sub-rule (4)of Rule 2)

Short title and Commencement.—

(1) These rules may be called the Companies (Restriction on number of layers) Rules, 2017.

Background:

MCA has issued a notification notifying the Companies (Restriction on Number of Layers) Rules, 2017, imposing a limit of two layers of subsidiaries which shall be effective from September 20, 2017. The move will bring in major ramifications in Indian corporate structures. No company is permitted to have more than two layers of subsidiaries in India, with an exception of one layer of wholly-owned subsidiary/ies. On and from the date of commencement of these rules (ie. from September 20, 2017), no company, other than a company belonging to a specified class, shall have more than two layers of subsidiaries:

FOLLOWING ARE THE TWO SECTIONS WHICH DEAL WITH RESTRICTION ON LAYERS OF COMPANIES:

Proviso to Section 2 (87) , such class or classes of holding companies (as may be prescribed) shall not have layers of subsidiaries beyond such numbers as may be prescribed in sub-rule (2)*Exemption*

Section 186 (1) [Loan and investment by company]: a company shall unless otherwise prescribed, make investment through not more than two layers of investment companies.

Note:

  • The word “layer”, referred to in Section 2(87), means subsidiary or subsidiaries of the holding company. The same word has also been used in Section 186 (1). Given the intent of the section, ‘layer’ refers to vertical limit.
  • 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.

 

APPLICABILITY:

This rule provides the details regarding restriction on number of layers for certain classes of holding companies.

  • Rule 2 of Companies (Restriction on number of layers) Rules, 2017 provides the no. layers of subsidiaries allowed for a company, its applicability.

 

  • Rule 4 of the Companies (Restriction on number of layers) Rules, 2017 makes it mandatory for those companies which has more than two layers to file Form CRL-1 i.e. Return regarding number of layers within 150 days from the date of publication of this notification. The format of Form CRL-1 is annexed here below*

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) –

  • shall file, with the Registrar a return in Form CRL-1 disclosing the details specified therein, within a period of one hundred and fifty days from the date of publication of these rules in the Official Gazette;
  • 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
  • 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.

*EXEMPTION TO THIS RULE: [OTHER THAN A COMPANY REFERRED TO IN SUB-RULE (2)*]

  • a banking company
  • a non-banking financial company
  • an insurance company
  • a Government company

Note: There is no restriction on a company from acquiring a company incorporated outside India with subsidiaries beyond two layers as per the laws of that respective country.

PENALTY:

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. 

CRL-1 e-form is likely to be deployed shortly for filing purposes on MCA. Once
made available, the form can be downloaded and filed without the additional fee up to 19th March 2018.




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