Attention of this Ministry has been drawn to General Circular No 06/2013 dated 14.03.2013 vide which it was clarified that in cases where the effective yield (effective rate of return) on tax-free bonds is greater than the
yield on prevailing bank rate, there was no violation of Section 372A(3) of Companies Act, 1956. Stakeholders have requested for similar clarification w.r.t. corresponding section 186(7) of the Companies Act 2013.
The matter has been examined in the Ministry and it is hereby clarified that in cases where the effective yield (effective rate of return) on tax-free bonds is greater than the prevailing yield of one-year, three years, five years or ten-year Government Security closest to the tenor of the loan, there is no violation of sub-section (7) of section 186 of the Companies Act, 2013.