Restriction on subsidiary layers limits holding company tiers while exempting banks, insurers, government firms and imposing filing and penalty duties. The rules limit most Indian companies to two tiers of subsidiaries, excluding one layer of wholly owned subsidiaries from the count and allowing foreign acquisitions that result in deeper foreign-law subsidiary chains. Exemptions include banks, systemically important NBFCs, insurance companies, and Government companies. Existing non-exempt companies exceeding allowed layers must file Form CRL-1, must not add further layers, and if they reduce layers must not later exceed the higher of the reduced position or the permitted maximum; breaches attract fines and continuing daily penalties.