The government has allowed banking companies to make investments through more than two layers of entities, a relaxation that makes acquisitions of securities easier for them.
Besides, it has tweaked the norms for classifying entities as small companies.
The Corporate Affairs Ministry, which is implementing the Companies Act, 2013, has made the amendment to address difficulties faced by banking, insurance and housing finance entities.
Under the Act, companies are allowed to make investments through “not more than two layers of investment companies”.
Through a Companies (Removal of Difficulties) Order, 2015, the ministry has exempted banking, insurance and housing finance company from this restriction.
“...in clause (b) of sub-section (11) of section 186, in the absence of provisions for exemption to a banking company or an insurance company or a housing finance company making acquisition of securities in its ordinary course of business, a difficulty has arisen that such companies cannot make any acquisition of securities in their ordinary course of business,” the order, dated February 13, said.
In the Act, clause (b) of sub-section (11) of section 186 relates to exemption for investment companies.
As for classification, with the amended norms, only those entities complying with both paid-up capital and turnover threshold levels would be classified as small companies.
As per the Act, a small company is an entity whose paid-up capital does not exceed Rs 50 lakh and the turnover is not more than Rs 2 crore.
However, there has been ambiguity in getting classified as a ‘small company’ in case of being compliant with either of the criteria.
To bring more clarity, the Ministry has said that a ‘small company’ should comply with both paid-up capital and turnover threshold requirements.
“...a company may be treated as a ‘small company’ if it meets either of the conditions provided therein thereby making the second limit unrestricted or inconsequential.
“Difficulties have arisen in this regard as companies which, though, meet one of the criteria but exceed the monetary limit in respect of second criteria excessively are also getting classified as ‘small companies’,” the ministry said in the order.
