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ARTICLE · 11 OCTOBER 2017

Layering Rules: An Overzealous Regulation?

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Prior to the notification of the Layering Rules, the restriction on number of subsidiaries specified in Section 2(87) was not in force. The limitation on use of investment companies under Section 186(1) has been applicable since 1 April 2014.

IndiaCorporate/Commercial Law
Surbhi Kejriwal
Surbhi Kejriwal
Pranay Bagdi
Pranay Bagdi
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Introduction

The Companies Act, 2013 (Act) sought to regulate the number of layers of subsidiaries used by companies vide sections 2(87) and 186(1). On 20 September 2017, the Central Government has notified proviso to Section 2(87) of the Act and the Companies (Restriction on number of layers) Rules, 2017 (Layering Rules). Prior to the notification of the Layering Rules, the restriction on number of subsidiaries specified in Section 2(87) was not in force. The limitation on use of investment companies under Section 186(1) has been applicable since 1 April 2014.

Ever since, stakeholders have made requests to re-look restricting the number of subsidiaries to avoid unnecessary regulation on business activities. The Companies Law Committee (which was mandated to suggest amendments to the Act) had recommended the removal of the layering restrictions specified in proviso to Section 2(87) and Section 186(1) in its report issued in February 2016. Having said that, in sync

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