Investment/Loan/Guarantees/Security Under Companies Act, 2013

Q1. Whether investment can be made in the name other than Company?

No, Investment can’t be made in the name other than Company until compliance with the provisions of Section- 187 of Companies Act, 2013.

Q2. Conditions when company can hold shares in other’s name.

• Shares in name of Nominee in subsidiary Company.
• Depositing share or securities with banks for collection of dividend or interest.
• Transfer in name of bankers for further transfer.
• Transfer as security for loans.
• Holding securities in depository scheme.
• Register of Investment not in own name.

Q3. Circumstance when Board Resolution required for Investment/Loan/Guarantees/Security?

The overall power for Investment/Loan/Guarantees/Security in the hand of Board of Directors is higher of the following:

• 60% of paid up share capital plus free reserve OR
• 100% of free reserves plus security premium account.

Q4. Circumstance when Special Resolution required for Investment/Loan/Guarantees/Security.

If Company cross the limit mentioned in Que.- C then Prior approval of Shareholder Approval is required by passing of Special Resolution.

Q5. Whether Investment/Loan/Guarantees   made by company earlier will be consider for calculating the limit mention in Question C and D.

 Yes, Investment/Loan/Guarantees   made by company earlier will be consider for the calculating the limit.

Q6. Whether circular resolution can be passed for Investment/Loan/Guarantees/Security   u/s 186.

No,Circular Resolution can’t be passed for the Investment/Loan/Guarantees/Security given u/s 186.

Q7. Whether power to pass resolution for Investment/Loan/Guarantees/Security u/s 186 can be delegate to Committee/ MD/ Manager/ Principle Officer.

Yes, Such delegation is permissible, but only after passing unanimous resolution of the Board..

Q8. Whether resolution for Investment/Loan/Guarantees/Security u/s 186 can be passed in the Board Meeting held through video conference.

YES, Resolution can be passed for the Investment/Loan/Guarantees/Security given u/s 186 in the Board Meeting held through video conference.

Q9. Whether unanimous resolution required to be passed for Investment/Loan/Guarantees/Security   u/s 186?

Yes, For passing of resolution u/s 186 for Investment/Loan/Guarantees/Security approval of all the presented directors are required.

Q10. Whether Investment/Loan/Guarantees/Security given to Wholly Owned Subsidiary (WOS) will be attract Section 186?

No, Investment/Loan/Guarantees/Security is given or security has been provided by a Company to its Wholly owned subsidiary (WOS) will not attract Section- 186.

Q11. Whether Investment/Loan/Guarantees/Security given to Joint Venture will be covered u/s 186?

No, Investment/Loan/Guarantees/Security is given or security has been provided by a Company to its joint venture Company will not attract Section- 186.

Q12. Non applicability of Section 186 on Companies Act, 2013.

The restriction on loans, investment are not applicable in following cases-

• Investment/Loan/Guarantees/Security is given or security has been provided by a Company to its Wholly owned subsidiary (WOS) or a Joint Venture Company
• Acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of it’s wholly owned subsidiary Company.

Q13. If company makes any default in payment of deposits then can Company make Loan or Investments or not.

No, A company which is in default in repayment of public deposits and/or interest thereon is not permitted to make or give any Investment/Loan/Guarantees/Security .

Q14. Whether approval of Board of Directors is required in all cases?

Yes, Approval of Board of Directors is needed in all cases, irrespective of quantum of Investment/Loan/Guarantees/Security . This approval is addition to approval the company has to take from members in General Meeting.

Q15. How to pass Unanimous Board resolution if there is any Interested Director?

Interested directors can’t vote in a resolution in which they are interested.

There should be specific provisions that directors who are not entitled to vote on resolution (being interested) need not vote and the resolution should be passed unanimously.

{Interested Director will not vote} The harmonious construction of provision is that all directors, except those interested, shall vote for the resolution.

Q16. Whether there is required to file any e-form for passing of resolution for Investment/Loan/Guarantees/Security?

E-form MGT-14 will be file for Resolution passed for Investment/Loan/Guarantees/Security .

Q17. Whether it is mandatory charge interest on Loan given u/s 186.

Yes, The interest to be charged by company on loans shall not be less than the prevailing yield of one year, three year, five year or ten year government security closest to the tenor of loan.

Q18. If investment made under Right issue then provisions of Sec 186 will be applicable or not?

Restrictions on investment are not applicable for investments made under right issue made under Section 62(1)(a) of the 2013Act.

Hence, naturally, this will not be considered for overall ceiling of 60%/ 100%.

Q19. Whether company can provide security and guarantee on behalf of its subsidiary Company?

• A parent company can provide security or guarantee on behalf of its subsidiary company which is not wholly owned subsidiary company. However, it cannot give any loan to such subsidiary company.

• This guarantees/security will be included in determining whether the company has breached the 60% or 100% limit.

Q20. Whether Investment/Loan/Guarantees/Security made by company to WOS and Joint Venture will include in the Limit of 60% and 100%?

No, Will not be included to determine whether the company has breached the 60%/100% limit.

Q21. Whether company will charge interest on Loan to WOS and Joint Venture Company?

Yes, There is no relaxation/exemption on the requirement concerning charging of interest on loans. Hence, it appears that a company may need to charge interest at the specified rate on all its loans, including loans given to wholly owned subsidiaries and joint ventures.

Q22. Whether there is required to maintain register under Companies Act, 2013 for Investment/Loan/Guarantees/Security?

Yes, Company required maintaining register in form MBP-2 for Investment/Loan/Guarantees/Security under Companies Act, 2013.

Q23. Whether it’s required to give disclosure of investment in Financials.

Yes, it’s required to give disclosure of investment in financial as per schedule III of Companies Act, 2013.

Q24. Punishment for Contravention of provisions of Section – 186.

Company liable to fine upto Rs. 5 lakh (Minimum 25,000).

Office who is in default: liable to file Rs. 1 Lakh (Minimum 25,000) and imprisonment upto two year.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

Read Other Articles Written by CS Divesh Goyal