New Companies Act not to curb pyramiding

New Delhi, Nov 13 | Updated: Nov 14 2005, 05:30am hrs
The new company law in the making is unlikely to restrict the number of subsidiaries a company can create. Neither would it impose any curbs on subsidiaries floating their own subsidiaries nor on floating of investment companies by corporates.

India Inc. would be given a free hand to operate and choose the structure they deem appropriate to control businesses, company affairs minister Prem Chand Gupta told FE.

The companies Bill is now being vetted by the law ministry. However, it is unlikely to be introduced in the winter session of Parliament.

Virtually endorsing the JJ Irani Committees view that instances of wrongful transfer of funds from one company to another could not be solely attributed to holding-subsidiary structures, the minister said any complaints in this regard would be addressed by making consolidation of accounts mandatory. We will introduce maximum disclosure norms in the proposed companies Bill, the minister said. Considering that the worlds entire financial system operates through investment companies, the government would not attempt to upset that system in totality by exercising control on the freedom of corporates to float such entities, he said.

JPC on stock scam: Web-like and complicated structures dupe investors as ownership cant be traced
Concept Paper on new co law:
There should be a cap on the number
of subsidiaries a company can float
JJ Irani PANEL: All wrongful transfer of funds cant be solely attributed to holding-subsidiaries structure
Company Affairs ministry: Pyramiding is nothing new or special to India. It exists all over the world
Now that Indian companies are increasingly investing abroad, restrictions on investment companies would only affect them adversely, the minister said.

Pyramiding (structure of subsidiaries having subsidiaries) is nothing new or special to India, rather it existed all over the world, the minister said.

Through the proposed Bill, we will try to remove obstructions in the processes to enhance efficiencies. This will be quite perceptible with reference to mergers, liquidation etc., he said. The proposed Bill would introduce strict disclosure and compliance norms regarding utilisation of funds raised and loans and advances given by one company to other entities in the corporate group.

He also said that the government might not have much to do with joint venture agreements. These (JVs) are trade agreements and are best left to the partners, he said.