Dynamic Limited, a Company registered in India, has a wholly owned subsidiary M Inc registered in USA. M Inc has further layers of wholly owned subsidiaries N Inc and P Inc, all registered in USA. Advise the Company on t

Section 186(1) of the Act read with Rule 2 of the Companies (Restriction on number of layers) Rules, 2017, prohibits a company from having more than two layers of subsidiaries. Further, every company existing on or before the commencement of these rules, which has number of layers in excess of two shall file with the registrar a return in form CRL-1 and 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. Also, the company, in case one or more layers of its subsidiaries are reduced by it subsequently to the commencement of these rules, shall retain the layers after such reduction subject to maximum of two layers. Further, second proviso of rule 2 of Companies (Restriction on number of layers) Rules, 2017 provides that for computing the number of layers under this rule, one layer which consists of one or more wholly owned subsidiary or subsidiaries shall not be taken into account. Applying the above provisions, M Inc., being wholly owned subsidiary of Dynamic Ltd. shall not be counted into a layer, under the aforesaid provisions of the Companies (Restriction on number of layers) Rules, 2017. (a) Exit from P Inc. and takeover of Q Inc.: Excluding M Inc. the wholly owned subsidiary, Dynamic Ltd. Has only two layers of subsidiaries i.e. N Inc. and P Inc. Hence, N Inc. can exit from P Inc. and take over Q Inc. while being compliant with the applicable provisions. (b) Creating similar layers in France: Yes, it can create such layers of subsidiaries in France also, if it is permitted under the local laws of France, as long as the number of layers of subsidiaries as computed under Section 186(1) read with Rule 2 of Companies (Restriction on number of layers) Rules, 2017 doesn't exceeds more than 2 layers.