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CMA Final · Corporate and Economic Laws · Investment and Loans

Meridian Ltd invests through Layer-1 Co, a wholly owned investment company, which invests through Layer-2 Co, an investment company, which in turn holds shares in Layer-3 Co, also an investment company. None of the provisos to Section 186(1) applies. Which statement is correct?

Section 186(1) is contravened. Meridian invests through three layers of investment companies, and only two are allowed when no proviso applies. The exemption in Section 186(11) expressly excludes sub-section (1), and a special resolution under sub-section (3) deals with monetary limits, not layers.

  1. ANo contravention arises, since Section 186(11) exempts investments by an investment company from all of Section 186
  2. BMeridian has made investment through three layers of investment companies, exceeding the limit of two layers, and Section 186(1) is contravenedCorrect
  3. CMeridian is compliant because Layer-1 Co is wholly owned, so the layers are counted only from Layer-2 Co
  4. DMeridian is compliant if a special resolution under Section 186(3) is passed

Explanation

Section 186(1) permits investment through not more than two layers, and here there are three. Section 186(11) exempts investment by an investment company from the section except sub-section (1), so sub-section (1) still applies. Special resolution under sub-section (3) concerns monetary limits, not layers.

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