The reality is no business unit can be sold thus. Effectively, buyers cannot be found as they would have to wait for at least three years before they can get into the driver's seat of the subsidiary.

Even if a buyer can be found, the asset may have to be sold at a throwaway price to compensate for the phased-out nature of the sale. Such a sale can hardly be in the interest of either the lenders, if any, or the shareholders of a company.

Hinder restructuring: These proposals come when quite a few companies have been trying to restructure involving sale of the entire business or some units. It has also become common for companies to vest such businesses in a subsidiary before they are sold off. Companies such as Hindustan Lever, Binani Industries and Indian Rayon, among others, have adopted this route.

As companies move towards a more focussed business profile, the sale of non-core businesses becomes inevitable. Such sell-offs have helped companies including Raymond, Tata Steel and Indian Rayon get a better focus on their core, long-term interests. If the restrictions are put up, such restructuring plans will be hit.

A different issue: The problem with subsidiaries, essentially, relates to lack of adequate disclosures and uncertainty about how, when and to what extent, their earnings will be distributed. Consolidated financial statements take care of the disclosure aspect to an extent. But the manner in which earnings are distributed or cash flows from the sale of businesses are used, leaves a lot to be desired.

Problems on this score get aggravated when the subsidiary status goes as the parent company's holding slips below 51 per cent. This, more often than not, is done intentionally. This takes the business out of the pale of disclosures required in the annual report of the parent company. Companies — with assets created out of public funds — will move into private domain.

There have been instances, such as of Reliance Capital and Zee Telefilms, where fund support has continued to de-subsidiarised entities. With no disclosures, the degree to which transactions are `arm's length' can never be determined.

If businesses for sale are vested in subsidiaries and, then, the subsidiary status is diluted, for all practical purposes, shareholders of the parent company have to forego their due share in the sale proceeds. How these cash inflows are used fall beyond the pale of any scrutiny.

Improving disclosures — perhaps requiring information about de-subsidiarised companies for a three-year period from the date they cease to be subsidiaries — is a better way to handle the problem. Clamping down with restrictions on purely commercial decisions such as sale of businesses is surely not the way ahead. It can only make matters murkier.

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