Govt likely to retain pyramid structure for manufacturing cos

This means, a manufacturing company can have more than one subsidiaries while the investment arm will be restricted to create only one subsidiary, according to sources in the Ministry of Corporate Affairs (MCA).

After facing resistance from industry over the clause which proposed cap on step-down subsidiaries, the Ministry is learnt to have decided it will only cap the subsidiaries that an investment company can have, and the same may be incorporated in the Companies Bill 2009.

"We are reworking on the provision for cap on the number of subsidiaries a company can have. Though we are planning to remove the cap proposed earlier, we want to retain it for investment companies.

In case of investment companies we cannot allow a pyramid structure as we are seeking to keep a check on inter-corporate loans and debts," a senior MCA official told PTI.

Tightening the subsidy structure norms for finance companies would improve transparency and prevent companies from routing investments through complex web of corporate strcuture.

The industry has been asking the government not to do away with the pyramid structure as it was essential for growth of business and diversification into different areas.

The Parliamentary Standing Committee on Finance, which was scanning the Companies Bill 2009, had recommended the structure with regards to inter-corporate loans and investments.

The committee suggested a withdrawal of all exiting exemptions for investments in wholly-owned subsidiaries, similarly for investments by private companies, a company should have only one investment company and a subsidiary company should not have its own subsidiary company.

This recommendation was opposed by industry as it thought it would act as a deterrent to their overseas acquisitions. Most acquisitions abroad are done through special-purpose vehicles (SPV), a wholly-owned subsidiary, through which a company routes investments.

Tabled in Parliament post the Rs 14,000-crore Satyam scam, the Companies Bill 2009 draws a leaf out of the accounting scam. Interestingly, investigating agencies are still struggling to track funds diverted and siphoned off by Satyam founder B Ramalinga Raju.
One of the most awaited Bills, it was expected to be brought before Parliament for consideration and passage in the ongoing Budget session. However, it looks unlikely as the session is being cut short due to forthcoming elections.

The Companies Bill (2008), which lapsed with the dissolution of the 14th Lok Sabha, was reintroduced in the Lok Sabha in August, 2009. Subsequently, in August 2010 the Parliamentary Standing Committee on Finance gave its report after examining the provisions of the law.