India Inc is in for disappointment with the Modi government making a complete U-turn on its earlier proposal to remove layering restrictions on investment companies.
The 43 amendments moved to the Companies (amendment) Bill 2016 on Thursday included one that sought to drop the earlier proposal removing layering restrictions on investment companies, official sources said.
If this Bill goes to become law, then India Inc cannot have more than two layers of investment companies as part of their corporate structures, company law experts said. However, this restriction will not be applicable for banking, insurance and housing finance companies.
The Bill was passed by the lower house through a voice vote after Arjun Ram Meghwal, Minister of State for Finance, replied to the discussion that lasted nearly four hours.
It may be recalled that Companies Act 2013 had stipulated that a company can make investment through not more than two layers of investment companies.
The Companies (amendment) Bill 2016 was introduced in May last year to remove the restrictions around structuring of companies and to give them complete flexibility in designing efficient structures among other things.
The 2016 version of amendment Bill had introduced a specific provision to remove the existing layering restrictions on investment companies under the Companies Act, 2016. However, this specific provision has now been removed through the amendments moved in the lower house on Thursday.
Panel report It may be recalled that the government’s plan to do away with layering restrictions were based on the recommendations of the 10-member Companies Law Committee, which proposed 100 amendments to the existing company law enacted in 2013 by the UPA government.
In its report, submitted in late January last year, the committee had suggested that the layering restriction on investment companies be done away with. It had noted that there may be several legitimate business justifications for use of a multi-layered structure and such restriction hampers the ability of a company to structure its business.
It had also felt that layering restrictions may become too obtrusive and impractical in the modern business world. Regulatory concerns arising out of earlier scams were also noted.
The committee had said that sufficient safeguards have been built into the oversight mechanism of market regulator SEBI and stock exchanges, and the recommendations on Beneficial Ownership register requirements should dispel the regulatory concerns.