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CMA Final · Corporate and Economic Laws · Investment and Loans

Sagar Holdings Ltd, an Indian company, wants to acquire Nordic Invest AB, a company incorporated in Sweden. Nordic Invest AB has investment subsidiaries beyond two layers, which is permitted under Swedish law. Which statement is correct under Section 186(1)?

The two-layer restriction does not stop the acquisition. The proviso to Section 186(1) protects a company acquiring a foreign-incorporated company that has investment subsidiaries beyond two layers under the laws of that country, so Sagar Holdings need not wait for layers to be removed.

  1. AThe acquisition is barred because Sagar Holdings would then have more than two layers
  2. BThe acquisition requires prior approval of the Central Government in every case
  3. CThe acquisition is not affected by the two-layer restriction, as the target is a foreign company with such layers under its country's lawCorrect
  4. DThe acquisition is allowed only if Nordic Invest AB first removes the extra 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 that country's laws. So the option claiming a bar is wrong, and no removal of layers or Central Government approval is required by the proviso.

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