India: Wholly Owned Subsidiaries: Broadened Ambit Under The LODR Regulations

Last Updated: 15 January 2018
Article by Vineet Shingal, Tanushree Bhuwalka and Aman Dwivedi

Most Read Contributor in India, July 2019

The Securities and Exchange Board of India ("SEBI"), in its recent informal guidance to Renaissance Jewellery Limited ("Renaissance Informal Guidance"), has introduced a rather novel but somewhat contentious interpretation of Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("LODR Regulations"). In a nutshell, the informal guidance is in relation to an exemption from the requirement of obtaining an 'observation letter' or a 'no-objection letter' from the relevant stock exchanges on the draft scheme of arrangement, involving merger of an 'indirect' wholly owned subsidiary with its listed parent company.

While Regulation 37 of the LODR Regulations requires a listed entity desirous of undertaking a scheme of arrangement or involved in a scheme of arrangement to file the draft scheme of arrangement with the relevant stock exchange(s) for obtaining an 'observation letter' or a 'no-objection letter', before filing such scheme with any court or tribunal, it creates a carve-out from such a requirement for schemes involving the merger of a 'wholly owned subsidiary' ("WOS") with its listed parent entity.

Factual Matrix

Renaissance Jewellery Limited ("List Co"), a public limited company with its shares listed on the BSE Limited and National Stock Exchange of India Limited, sought to merge its unlisted WOS, N. Kumar Diamond Exports Limited ("NKDEL") and a subsidiary of NKDEL, House Full International Limited ("HFIL") with itself. NKDEL held ~55% of the paid-up share capital of HFIL and the remaining shareholding of HFIL was held by the List Co.

Given that the List Co did not hold the entire paid-up share capital of HFIL directly, the List Co requested SEBI to provide its interpretative letter on whether the proposed merger of NKDEL and HFIL with the List Co would qualify for the exemption available under Regulation 37 of the LODR Regulations.

SEBI's View

Interestingly, SEBI adopted a liberal approach while examining the applicability of the exemption provided under Regulation 37 of the LODR Regulations and noted that the List Co not only held ~45% of the paid-up share capital of HFIL directly but also that the balance ~55% of the paid-up share capital of HFIL was held by the List Co indirectly through NKDEL.

Accordingly, SEBI took the view that HFIL can be categorised as a WOS of the List Co in terms of the LODR Regulations and the exemption under Regulation 37 of the LODR Regulations will be available for the proposed merger of HFIL and NKDEL with the List Co.

While SEBI did expressly clarify in its letter to the List Co that the current interpretation expresses the view of Division of Issues and Listing (SEBI) solely from the perspective of enforcement and will not affect the applicability of any other law or requirements of any other regulations, guidelines and circulars issued / administered by SEBI, the approach adopted by SEBI in this letter will have to be analysed in light of its interplay with other laws and authorities.


Until now, the construct of a company being categorised as a WOS of another company was understood as being limited to the entire paid-up share capital of the former being directly held by the latter. Given that the Companies Act, 2013 ("2013 Act") does not provide a definition of WOS, it may be argued that despite the express qualification of SEBI in its letter to the List Co, the view expressed by SEBI in the instant case may be used by other companies (specifically unlisted companies) to seek similar relaxations from the Regional Director and Registrar of Companies in terms of Section 233 of the 2013 Act. Section 233 of the 2013 Act provides for a fast track merger process for a WOS merging with its holding company.

Additionally, the view expressed in this case also becomes relevant from the perspective of the SEBI Circular on Schemes of Arrangement by Listed Entities dated 10 March 2017 ("SEBI Scheme Circular"), read with the recently issued SEBI circular dated 3 January 2018 which amended the SEBI Scheme Circular. According to the recent amendment, the SEBI Scheme Circular shall not apply to a merger of a WOS or its division (demerger/ hive-off) with its parent company.

In consideration of the aforesaid reasoning of SEBI, it is likely that several companies may seek exemption from the requirements of the LODR Regulations and the SEBI Scheme Circular for a merger involving an unlisted company with a listed entity even for cases in which a listed entity does not directly hold even a single share in the unlisted company but indirectly holds the entire share capital of the unlisted company.

It may also be noted that the Foreign Exchange Management (Transfer or Issue of Any Foreign Security) (Amendment) Regulations 2004 ("ODI Regulations") categorises 'wholly owned subsidiaries' as a company whose entire capital is held by the Indian party. As such, the ODI Regulations do not expressly clarify that the entire capital is to be held 'directly' by the Indian party.

While we note that a word or expression defined in one statute cannot ordinarily be used to interpret the same word or expression in another statute, SEBI's reasoning in the instant case may still however be used to further an argument for a company to be categorised as a WOS under ODI Regulations if its entire capital is held indirectly by an Indian party.

Having said that, if the view adopted by SEBI to categorise a WOS in the Renaissance Informal Guidance is employed to interpret the Companies (Restriction on Number of Layers) Rules 2017 ("Layering Rules"), then it may lead to significant ambiguities and complexities as the Layering Rules exclude layers comprising of WOS while determining the maximum number of permissible layers of subsidiaries that may be set-up by companies.

Khaitan Comment

The view adopted by SEBI in the instant case is indeed laudable and a welcome departure from the otherwise strict interpretation of the law to adopt an approach that was cognizant of the facts at hand. SEBI's view seeks to avoid the rigour of Regulation 37 of the LODR Regulation for mergers of companies that are part of the same group. However, this may lead to several unwarranted ambiguities while interpreting the 2013 Act and other statutes as highlighted above.

In wake of this informal guidance issued by SEBI despite the express qualification recorded therein, it may be the appropriate time for lawmakers to categorically define a 'wholly owned subsidiary', particularly from the perspective of the 2013 Act and the Layering Rules so as to abort the rise of any unwarranted interpretation that may be harnessed from this informal guidance.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions