CRL-1 - NEW DANGER - Number - Layers of Investment in Subsidiaries
CRL-1
NEW DANGER
Number - Layers of
Investment in Subsidiaries
MCA
has issue [1]Notification on 20th September, 2017 in
respect of “Numbers of Layers of Investment in Subsidiaries” of Company. These
rules called as Companies (Restriction on number of layers) Rules, 2017.
In
such notification MCA mentioned about which company shall be include or not in term “two Layers”. What are the compliances
required to be done by Company in respect of “Subsidiaries”. What are the
consequences of non compliances of same?
Recently “Registrar of
Companies” has issued ‘Show Cause Notice’ many companies who have not made
compliances as per these rules.
Language
of Notice: As per information of your Company available on the MCA portal, it
has been observed in the form MGT-7 for the financial year 2016-17, the Company
has declared more than 2 (two) subsidiaries, has failed to file the form CRL-1.
This is article no. 342 of the series of editorials written by the author on corporate
laws {Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
Allowed Numbers
- Layers of Investment
No Company
other than below mentioned 4 categories of company shall have more than two
layers of subsidiaries.
Companies
on which rules above not applicable Companies:
·
Banking
Company
·
Non-banking
Financial Company
·
Insurance
Company
·
Government
Company
A.
Meaning
of Two Layers of Subsidiaries?
Illustration:
Situation: 1: Company “H” is having three Subsidiaries
“S1”, ‘S2” and ‘S3”.
Situation: 2: Company ‘S1” Is having one Subsidiary “X1”
and ‘S2’ having Subsidiary ‘P1’.
Situation: 3: Company ‘X1” having one Subsidiaries “Y1” and
‘P1’ having Subsidiary ‘Q1’.
Solution:
Exemption to the Companies:
B.
Whether an Indian company can acquire, a
company incorporated outside India having more than two layers of subsidiary?
i.
Acquiring Company incorporated outside India: These provisions shall not affect a company from
acquiring a Company incorporated outside India with subsidiaries beyond two
layers as per the law of such Country.
Note: If a company
incorporated outside India and having more than 2 layers of subsidiaries according
to their law. An Indian company acquiring that foreign body corporate then
these provisions shall not affect such transaction. Indian Company can acquire
foreign company which has more than 2 layers of subsidiaries.
Whether an Indian company can acquire, a company
incorporated outside India as 3rd layer of subsidiary?
(in
simple word Company ‘H’ having subsidiary ‘S”, ‘S’ having subsidiary ‘Q’ and
‘Q’ acquire ‘P’ a company incorporated outside India?
Before
answering above situation, ‘A new question arises i.e. whether a Company incorporate outside india can
be Subsidiary of Indian Company?’
As per Section 2(87)(c) of Companies Act, 2013, in
definition the expression ‘Company’ includes ‘any Body Corporate’. However,
company incorporated outside India shall be considered as Body Corporate.
Therefore, it is clear that a Company/ Body corporate incorporated outside India
shall be considered as subsidiary Company if company with definition.
As per
Rule 2, a Company can’t have more than two layers of Subsidiary. Therefore, we
can opine that w.e.f. 20th September, 2017 a Indian Company can’t
acquire a Company incorporated outside India as 3rd Layer of
Subsidiary. (As per above example Company ‘Q’ can’t acquire Company ‘P’).
\ A.
Whether a company having more than 2
subsidiaries on one layer shall fall under these rules or need to comply the
provisions of these rules?
One Layer of Subsidiaries: For
computing the numbers of layers, one layer which consists of one or more wholly
owned subsidiary or subsidiaries shall not be taken into account.
B.
If Company existing before 20th September, 2017
(commencement of these rules) having more than 2 layers of subsidiaries. In
such situation what is the way out / Compliances?
Answer:
i.
Such Company shall file, with the
Registrar a return in Form CRL-1 disclosing the details specified
therein, within a period of 150 (i.e. 17th February, 2018) days
from the date of publication of these rules in the Official Gazette
Note: Companies have to file CRL -1 within 150 days.
ii.
Such Company shall not, after the
date of commencement of these rules, have any additional layer of subsidiaries
over and above the layers existing on such date; and
Note: Companies can continue with no. of layers as on 20.09.2017 without any
restriction. Even there is no need to dis-investment in such excess no. layers
of subsidiaries.
iii.
Such Company shall not, in case one
or more layers are reduced by it subsequent to the commencement of these rules,
have the number of layers beyond the number of layers it has after such
reduction or maximum layers allowed in sub rule (1), whichever is more.
Note: If
any time after 20.09.2017 Company made dis-investment in any of its subsidiary
(which is on and above counting of 2 layers) in that situation company can’t
make new investment until unless its having less than 2 layers of subsidiaries.
Example:
Company “XYX” having 6 layers of subsidiaries as on 20.09.2017. Company made
disinvestment in one of its layers on 15.11.2017. Therefore, as on 15.11.2017
Company XYZ having 5 layers of subsidiaries. In such situation Company can’t
make investment in one more company to reach its limit of 6 Companies. Because as per rules the
limit is 2 layers.
C.
Penalty if Company fails to file CRL-1?
If any company contravenes any
provision of these rules the company and every officer of the company who
is in default shall be punishable with fine which may extend to ten
thousand rupees and where the contravention is a continuing one, with a
further fine which may extend to one thousand rupees for every day after the
first during which such contravention continues.
D.
What shall be implications if Company fails to
file e-form CRL-1?
I.
Penalty as
mentioned in question F shall be applicable on Company and Officer in Default.
II.
Company can file
application for condonation of delay with Central Government
III.
Company can file
application with NCLT / RD for compounding of offence.
(Author – CS Divesh Goyal, GOYAL DIVESH &
ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com). Disclaimer:
The
entire contents of this document have been prepared on the basis of relevant
provisions and as per the information existing at the time of the preparation.
Although care has been taken to ensure the accuracy, completeness and
reliability of the information provided, I assume no responsibility therefore.
Users of this information are expected to refer to the relevant existing
provisions of applicable Laws. The user of the information agrees that the
information is not a professional advice and is subject to change without
notice. I assume no responsibility for the consequences of use of such
information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT,
SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION
WITH THE USE OF THE INFORMATION
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