Government opts for transparency, retains subsidiary limit

NEW DELHI: Despite intense lobbying by India Inc, the government has opted to retain restrictions on how many layers of subsidiaries a company can have as it attempts to ensure that their operations remain transparent and transactions are not routed through a maze of entities.

Sources told TOI that the modified Companies (Amendment) Bill, which was cleared by the Union Cabinet earlier this month but could not be tabled during the Budget session of Parliament, has opted to retain the existing provision where corporate houses can make investments “through not more than two layers of companies“.

While the government had inserted the clause in the wake of the Satyam scam, the corporate sector has been pitching hard to have the condition re moved, arguing that it was impacting flexibility in their operations. The NDA government, which has been receptive to the proposals that were put forward by industry chambers, has already amended the Companies Act once and had moved a bill to amend the Act for second time.

While the parliamentary standing committee was not averse to the plan, a powerful section within the government was of the view that by amending the provision, the Act would be significantly diluted and he Modi government did not want to be seen to be in favour of promoting a structure that is transparent.

In any case, the tax department along with the ministry of corporate affairs is waging battle against shell companies, many of which depend n routing funds through several entities to hide the ultimate beneficiary.

“The government has decided to retain the cap on two layers for investment companies and it will also have flexibility o intervene in case of others,“ said a source, who did not wish o be identified.

Similarly, the government has also decided against amending provisions that bar chartered accountants whose relative or partner has a loan from company or has given a guarantee or has similar relationship. This was again cited as a step impeding business.

But the government has opted to play safe and avoid possibilities of conflict of interest. Auditors had said that relatives with links with a company we e an inhibiting factor in getting business.

The government now hopes to get the revised amendment bill passed by both houses during the monsoon session.