Loan and Investment by Company under Section 186
In pursuant to
provisions of Section 186(2) of the Act, no company shall directly or
indirectly
provisions of Section 186(2) of the Act, no company shall directly or
indirectly
–
give
any loan to any person or other body corporate,
give
any loan to any person or other body corporate,
– give any guarantee or provide security
in connection with a loan to any other body corporate or person
and
in connection with a loan to any other body corporate or person
and
– acquire
by way of subscription, purchase or otherwise, the securities of any other body
corporate exceeding 60% of its paid-up
share capital plus free reserves
plus securities premium
account or 100% of its free reserves plus securities
premium account, whichever is more.
by way of subscription, purchase or otherwise, the securities of any other body
corporate exceeding 60% of its paid-up
share capital plus free reserves
plus securities premium
account or 100% of its free reserves plus securities
premium account, whichever is more.
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Key Notes:Since Section 186(2)(c) provides for
acquisition by way of subscription, purchase or otherwise, the securities of any other body corporate. It is not necessary that the target
entity into which
investment flows must be
a company. It can be any type of body corporate. But it is to be kept in mind that the intermediary company through which investments are
made must have to be a company.This section mandates a company to make
investment only through two layers of investment companies. It is the investor
company which shall be held liable in case of any violation of the section;
therefore, It is prudent and advisable that the investee
company to seek a declaration from the investor company whether the
investment made by the investor is coming from more than two layers up.
acquisition by way of subscription, purchase or otherwise, the securities of any other body corporate. It is not necessary that the target
entity into which
investment flows must be
a company. It can be any type of body corporate. But it is to be kept in mind that the intermediary company through which investments are
made must have to be a company.This section mandates a company to make
investment only through two layers of investment companies. It is the investor
company which shall be held liable in case of any violation of the section;
therefore, It is prudent and advisable that the investee
company to seek a declaration from the investor company whether the
investment made by the investor is coming from more than two layers up.
Approval
from Members [Section 186(3)]
from Members [Section 186(3)]
Though the
Section 186(2) makes restriction as above, Section 186(3), empowers a Company
to give loan, guarantee or provide any security or acquisition beyond the limit
but subject to prior approval of members by a special resolution passed at a
general meeting.
Section 186(2) makes restriction as above, Section 186(3), empowers a Company
to give loan, guarantee or provide any security or acquisition beyond the limit
but subject to prior approval of members by a special resolution passed at a
general meeting.
Disclosure
of Particulars of Loan, Guarantee given and Security Provided [Section 186(4)]
of Particulars of Loan, Guarantee given and Security Provided [Section 186(4)]
Section 186(4)
of the Act provides that the Company shall disclose following details to the
members in the financial statement.
of the Act provides that the Company shall disclose following details to the
members in the financial statement.
– the
full particulars of the loans given,investment made or guarantee given or
security provided.
full particulars of the loans given,investment made or guarantee given or
security provided.
– the purpose
for which the loan or guarantee or security is proposed to be utilised
by the recipient of the loan or guarantee or security.
for which the loan or guarantee or security is proposed to be utilised
by the recipient of the loan or guarantee or security.
The notice of
the general meeting for passing resolution shall indicate that
the general meeting for passing resolution shall indicate that
(a)
The
limits that will be required in excess of the prescribed limits involved in the proposal;
The
limits that will be required in excess of the prescribed limits involved in the proposal;
(b) The
particulars of the body corporate in which the investment is proposed to be made
or to which the loan or guarantee or security proposed to be given.
particulars of the body corporate in which the investment is proposed to be made
or to which the loan or guarantee or security proposed to be given.
(c)
The
purpose of the investment, loan, guarantee or
security;
The
purpose of the investment, loan, guarantee or
security;
(d)
The
source of funding for meeting the proposal; and
The
source of funding for meeting the proposal; and
(e)
Other
details as may be specified.
Other
details as may be specified.
Approval
of Board and Public Financial Institution [Section 186(5)]
of Board and Public Financial Institution [Section 186(5)]
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In pursuant to
provisions of Section 186(5) of the Act, every company shall take consent of
all the directors present at the board meeting before making any investment,
giving loan and guarantee and providing security.
In case of company has already taken loan etc., from any Public Financial
Institutions, then it is mandatory to take prior approval from such Public
Financial Institution.
provisions of Section 186(5) of the Act, every company shall take consent of
all the directors present at the board meeting before making any investment,
giving loan and guarantee and providing security.
In case of company has already taken loan etc., from any Public Financial
Institutions, then it is mandatory to take prior approval from such Public
Financial Institution.
Exception:
Provided that
prior approval of Public Financial Institution shall not be required where the
aggregate loan, investment, guarantee and security proposed is within the
limits as specified under section 186(2) and there is no default in repayment
of loan instalments or interest thereon to the Public Financials Institution.
prior approval of Public Financial Institution shall not be required where the
aggregate loan, investment, guarantee and security proposed is within the
limits as specified under section 186(2) and there is no default in repayment
of loan instalments or interest thereon to the Public Financials Institution.
Companies
Registered Under Securities Exchange Board of India (SEBI) [Section 186(6)]
Registered Under Securities Exchange Board of India (SEBI) [Section 186(6)]
Section 186(6)
of the Act provides that those Companies which are registered under Section 12
of SEBI Act, 1992 and covered
under such class or classes
of companies which may be notified by the Central
Government in consultation with
the Securities and Exchange Board,
shall can take
inter-corporate loans or deposits exceeding the prescribed limit and shall
furnish details of loans or deposit in their financial statements.
of the Act provides that those Companies which are registered under Section 12
of SEBI Act, 1992 and covered
under such class or classes
of companies which may be notified by the Central
Government in consultation with
the Securities and Exchange Board,
shall can take
inter-corporate loans or deposits exceeding the prescribed limit and shall
furnish details of loans or deposit in their financial statements.
Rate
of Interest on Loan [Section 186 (7)]
of Interest on Loan [Section 186 (7)]
No loan shall be
given under this section at a rate of interest lower than the prevailing yield
of one year, three year, five year or ten year Government Security closest to
the tenor of the loan.
given under this section at a rate of interest lower than the prevailing yield
of one year, three year, five year or ten year Government Security closest to
the tenor of the loan.
No
Loan by Defaulter Company [Section 186 (8)]
Loan by Defaulter Company [Section 186 (8)]
No company
which is in default in the repayment
of any deposits accepted before or after the commencement of this Act or in payment of interest thereon, shall give any
loan or give any guarantee or provide any security or make an acquisition till
such default is subsisting.
which is in default in the repayment
of any deposits accepted before or after the commencement of this Act or in payment of interest thereon, shall give any
loan or give any guarantee or provide any security or make an acquisition till
such default is subsisting.
Register
of Loan [Section 186 (9 And 10)]
of Loan [Section 186 (9 And 10)]
Section 186(9)
of the Act mandates every
Company to maintain
a register which shall contain
particulars of loan or
guarantee given or security provided
or investment made.
Every company giving
loan or giving
guarantee or providing
security or making an acquisition of securities shall, from the date of its
incorporation, maintain a register in Form MBP 2 and entered therein separately, the particulars of loan and
guarantee given, securities provided and acquisitions made as aforesaid.
of the Act mandates every
Company to maintain
a register which shall contain
particulars of loan or
guarantee given or security provided
or investment made.
Every company giving
loan or giving
guarantee or providing
security or making an acquisition of securities shall, from the date of its
incorporation, maintain a register in Form MBP 2 and entered therein separately, the particulars of loan and
guarantee given, securities provided and acquisitions made as aforesaid.
This register
shall be kept at registered office of the company and the register shall be
preserved permanently and shall be kept in the custody
of company secretary
of the company or any person authorized by the Board for
the purpose.
shall be kept at registered office of the company and the register shall be
preserved permanently and shall be kept in the custody
of company secretary
of the company or any person authorized by the Board for
the purpose.
The entries in
the register (either manual or electronic) shall be authenticated by the
company secretary of the company or by any other person authorized by the Board
for the purpose.
the register (either manual or electronic) shall be authenticated by the
company secretary of the company or by any other person authorized by the Board
for the purpose.
The extracts
of the register
may be opened
for inspection and copies may
be furnished to members who demands
for the same on payment of prescribed fee as mentioned in the Articles which
shall not exceed ten rupees for each page.
of the register
may be opened
for inspection and copies may
be furnished to members who demands
for the same on payment of prescribed fee as mentioned in the Articles which
shall not exceed ten rupees for each page.
Non-Applicability
of Section 186
of Section 186
The Section 186
(except Sub-Section 1) of the Companies Act, 2013 does not apply to the
following:
(except Sub-Section 1) of the Companies Act, 2013 does not apply to the
following:
(a) to a loan made,
guarantee given or security provided
by a banking company or an insurance company or a housing finance company in the ordinary course of
its business or a company engaged in the business of financing of companies or
of providing infrastructural facilities;
guarantee given or security provided
by a banking company or an insurance company or a housing finance company in the ordinary course of
its business or a company engaged in the business of financing of companies or
of providing infrastructural facilities;
(b)
to
any acquisition –
to
any acquisition –
(i) made by a
non-banking financial company registered under Chapter IIIB of the Reserve Bank
of India Act, 1934 and whose principal business is acquisition of securities:
non-banking financial company registered under Chapter IIIB of the Reserve Bank
of India Act, 1934 and whose principal business is acquisition of securities:
Provided that exemption to non-banking financial company shall be in respect
of its investment and
lending activities;
of its investment and
lending activities;
(ii) made by a
company whose principal business is the acquisition of securities;
company whose principal business is the acquisition of securities;
(iii) of shares
allotted in pursuance of clause (a) of sub-section (1) of section 62.
allotted in pursuance of clause (a) of sub-section (1) of section 62.
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