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CMA Final · Corporate and Economic Laws · Investment and Loans

Meru Capital Ltd holds 100% of Ridge Invest Ltd (investment company), which holds 100% of Valley Invest Ltd (investment company). Valley Invest Ltd's subsidiary, Crest Finance Ltd, is a subsidiary of Valley and is being incorporated as a further investment company solely because a SEBI regulation requires a separate entity for a regulated activity. Which statement is correct under Section 186(1)?

The layer limit does not stop it. Under the second proviso to Section 186(1), a subsidiary company may have an investment subsidiary to meet requirements of any law or of a rule or regulation framed under a law, so the third layer for the SEBI requirement is permitted.

  1. ACrest Finance Ltd cannot be formed since it would be the third layer without exception
  2. BCrest Finance Ltd can be formed only if Meru Capital passes a special resolution
  3. CCrest Finance Ltd can be formed only if Valley Invest Ltd ceases to be an investment company
  4. DThe layer limit does not affect a subsidiary company having an investment subsidiary to meet requirements under a law or rule or regulation framed under a lawCorrect

Explanation

The second proviso to Section 186(1) says the sub-section does not affect a subsidiary company from having an investment subsidiary for meeting requirements under any law or any rule or regulation framed under any law. Valley is a subsidiary and the purpose is regulatory, so the third layer is permitted. No special resolution is prescribed for this by the proviso.

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