Section 186 of Companies Act 2013: Loan and Investment by company
Section 186(1) of Companies Act 2013
Without prejudice to the provisions contained in this Act, a company shall unless otherwise prescribed, make investment through not more than two layers of investment companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.
Section 186(2) of Companies Act 2013
No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and
(c) acquire by way of subscription, purchase, or otherwise, the securities of any other body corporate, exceeding sixty percent. of its paid-up share capital, free reserves, and securities premium account or one hundred percent. of its free reserves and securities premium account, whichever is more.
[Explanation-For the purposes of this sub-section, the word “person” does not include any individual who is in the employment of the company]
Section 186(3) of Companies Act 2013
Where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under sub-section (2), no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting:
Provided that where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4)]
Section 186(4) of Companies Act 2013
The company shall disclose to the members in the financial statement the full particulars of the loans given, investment made or guarantee given or security provided and 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.
Section 186(5) of Companies Act 2013
No investment shall be made or loan or guarantee or security given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the public financial institution concerned where any term loan is subsisting, is obtained:
Provided that prior approval of a public financial institution shall not be required where the aggregate of the loans and investments so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate, along with the investments, loans, guarantee or security proposed to be made or given does not exceed the limit as specified in sub-section (2), and there is no default in repayment of loan instalments or payment of interest thereon as per the terms and conditions of such loan to the public financial institution.
Section 186(6) of Companies Act 2013
No company, which is registered under section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992) and covered under such class or classes of companies [as may be prescribed*], shall take inter-corporate loan or deposits exceeding the prescribed limit and such company shall furnish in its financial statement the details of the loan or deposits.
[as may be prescribed*]:-11 Loan and investment by a company under section 186 of the Act.
(1) Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owne d subsidiary company, the requirement of sub-section (3) of section 186 shall not apply:
Provided that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4) of section 186.
(2) For the purposes of clause (a) of sub-section (11) of section 186, the expression1 [“business of financing industrial enterprises”] shall include, with regard to a Non-Banking Financial company registered with Reserve Bank of India, “business of giving of any loan to a person or providing any guaranty or security for due repayment of any loan availed by any person in the ordinary course of its business”.
(3) No company registered under section 12 of the Securities and Exchange Board of India Act, 19 92 and also 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 take any inter-corporate loan or deposits, in excess of the limits specified under the regulations applicable to such company, pursuant to which it has obtained certificate of registration from the Securities and Exchange Board of India.
Amendment
Substituted by Companies (Meetings of Board and its Powers) Amendment Rules, 2019.
Dated 11th October, 2019
in rule 11, sub-rule 2 for the words;
business of financing of companies”
the following words shall be substituted namely,
“business of financing industrial enterprises”
Section 186(7) of Companies Act 2013
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.
Section 186(8) of Companies Act 2013
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.
Section 186(9) of Companies Act 2013
Every company giving loan or giving a guarantee or providing security or making an acquisition under this section shall keep a register which shall contain such particulars and shall be maintained in such manner [as may be prescribed*].
[as may be prescribed*]:-11 Loan and investment by a company under section 186 of the Act.
(1) Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owne d subsidiary company, the requirement of sub-section (3) of section 186 shall not apply:
Provided that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided under sub-section (4) of section 186.
(2) For the purposes of clause (a) of sub-section (11) of section 186, the expression1 [“business of financing industrial enterprises”] shall include, with regard to a Non-Banking Financial company registered with Reserve Bank of India, “business of giving of any loan to a person or providing any guaranty or security for due repayment of any loan availed by any person in the ordinary course of its business”.
(3) No company registered under section 12 of the Securities and Exchange Board of India Act, 19 92 and also 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 take any inter-corporate loan or deposits, in excess of the limits specified under the regulations applicable to such company, pursuant to which it has obtained certificate of registration from the Securities and Exchange Board of India.
Amendment
Substituted by Companies (Meetings of Board and its Powers) Amendment Rules, 2019.
Dated 11th October, 2019
in rule 11, sub-rule 2 for the words;
business of financing of companies”
the following words shall be substituted namely,
“business of financing industrial enterprises”
Section186(10) of Companies Act 2013
The register referred to in sub-section (9) shall be kept at the registered office of the company and —
(a) shall be open to inspection at such office; and
(b) extracts may be taken therefrom by any member, and copies thereof may be furnished to any member of the company on payment of such fees [as may be prescribed*].
[as may be prescribed*]:-12 Register.
(1) 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 enter therein separately, the particulars of loans and guarantees given, securities provided and acquisitions made as aforesaid.
(2) The entries in the register shall be made chronologically in respect of each such transaction within seven days of making such loan or giving guarantee or providing security or making acquisition.
(3) The register shall be kept at the registered office of the company and the register shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorised by the Board for the purpose.
(4) 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.
(5) For the purpose of sub-rule (4), the register can be maintained either manually or in electronic mode.
(6) The extracts from the register maintained under sub-section (9) of section 186 may be furnished to any member of the company on payment of such fee as may be prescribed in the articles of the company which shall not exceed ten rupees for each page.
Section 186(11) of Companies Act 2013
Nothing contained in this section, except sub-section (1), shall apply-
(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;
(b) to any investment-
(i) made by an investment company;
(ii) made in shares allotted in pursuance of clause (a) of sub-section (1) of section 62 or in shares allotted in pursuance of rights issues made by a body corporate;
(iii) made, in respect of investment or lending activities, by a non-banking financial company registered under Chapter III-B of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities]
Section 186(12) of Companies Act 2013
The Central Government may make rules for the purposes of this section.
Section 186(13) of Companies Act 2013
If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
Explanation. For the purposes of this section,-
(a) the expression “investment company” means a company whose principal business is the acquisition of shares, debentures or other securities;13 [and a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form of investment in shares, debentures or other securities constitute not less than fifty percent of its total assets, or if its income derived from investment business constitutes not less than fifty per cent. as a proportion of its gross income.]
(b) the expression “infrastructure facilities” means the facilities specified in Schedule VI.
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