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CMA Final · Corporate and Economic Laws · Investment and Loans

Sagar Holdings Ltd, an Indian company, plans to acquire Kestrel Pte Ltd, incorporated in Singapore. Kestrel already has investment subsidiaries stacked three layers deep, as permitted by Singapore law. Which statement is correct under Section 186(1)?

The acquisition is not hit by the two-layer restriction. The first proviso to Section 186(1) protects a company acquiring a foreign-incorporated company that has investment subsidiaries beyond two layers as permitted by that country's laws. No special resolution or prior restructuring is needed for this purpose.

  1. AThe acquisition is barred because Kestrel has more than two layers of investment companies
  2. BThe acquisition is unaffected by the two-layer restriction because the proviso protects acquisition of a foreign company whose investment subsidiaries beyond two layers are lawful in its countryCorrect
  3. CThe acquisition is allowed only if Sagar obtains a special resolution authorising the extra layer
  4. DThe acquisition is allowed only if Kestrel first reduces its structure to two layers

Explanation

The first proviso to Section 186(1) says the two-layer limit does not affect a company acquiring a company incorporated outside India that has investment subsidiaries beyond two layers as per the laws of that country. No special resolution or restructuring is required under this proviso. The 'barred' option ignores the proviso.

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