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CS Professional · Corporate Restructuring, Valuation and Insolvency · Acquisition of Company or Business

Arjun Industries Ltd intends to buy a company that itself holds a subsidiary, which holds another subsidiary, which holds a third subsidiary, all being investment holding layers in India. Under the layers rule in the Companies Act, 2013, what is the general position?

A company may make investments through no more than two layers of investment companies, unless otherwise prescribed. Exceptions exist for acquiring a foreign company whose home law permits deeper layers, so the three-layer Indian chain would breach the rule.

  1. AA company may invest through not more than two layers of investment companies, unless otherwise prescribedCorrect
  2. BAny number of layers is allowed
  3. COnly one layer is allowed in all cases
  4. DThree layers are allowed with Board approval

Explanation

Section 186(1) provides that a company shall, unless otherwise prescribed, invest through not more than two layers of investment companies. Exceptions cover acquiring a foreign company with deeper layers under its home law, and a subsidiary having investment subsidiaries required by law. The described Indian chain exceeds two layers.

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