Ministry of Corporate Affairs (“MCA”), releases the Companies (Restriction on number of layers) Rules, 2017

MCA, vide notification dated September 20, 2017, has released the Companies (Restriction on number of layers) Rules, 2017. By means of the above stated notification, the MCA now requires that no company, other than a company belonging to a class as specified herein below, shall have more than two layers of subsidiaries. The same is contained in subrule (1) of rule (2) of the Rules, 2017. The class of companies which is considered exempt from the mandate of only two layers of subsidiaries are:

  •  a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949;
  • a non-banking financial company as defined in clause (f) of Section 45-I of the Reserve Bank of India Act, 1934, which is registered with the Reserve Bank of India and considered as systematically important non-banking financial company by the Reserve Bank of India;
  • an insurance company as per the Insurance Act, 1938 and the Insurance Regulatory Development Authority Act, 1999;
  • a Government Company.