In a move that will make it difficult for large companies to have a pyramid-like holding structure, the Ministry of Corporate Affairs plans to prohibit a subsidiary company from floating a 100 per cent owned company of its own.In a string of new changes proposed to the Companies Bill, 2009, the Ministry has told the Parliamentary Standing Committee on Finance that a company would be permitted to have only one investment company. It also plans to do away with complete exemptions to companies from compliance with provisions of inter-corporate loans. “Such absolute exemptions to private companies and wholly-owned subsidiaries should be disallowed,” Ministry sources told The Indian Express.
The Ministry also proposes to keep a strict vigil on funds flowing to and from promoters and bigger shareholders. These new proposals may be incorporated in the Companies Bill, 2009, the sources said, as a measure to check misuse of such provisions.
Source : Indian Express
What is the fundamental of not allowing formation of a second level subsidiary ? It does mean two of my subsidiaries can form a thrid subsidiary. Then this can not be a measure to curb formation of shell or dummy companies
Instead, it is better not allow formation of multiple companies under one group for the same or similar businesses