The Companies (Amendment) Act, 2017 at first glance manifests sweeping changes in the Corporate Governance system of our country and highlights the intention of the government to change from control based or regulatory regime to a disclosure based and transparent regime.

Section 186 is the hottest topic in the corporate sector today which reads as follows:

A a company shall unless otherwise prescribed, make investment through not more than two layers of investment companies- Investment does not effect-
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;
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
No company shall directly or indirectly — 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
acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,
exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more.
Explanation- Here, the word “person” does not include any individual who is in the employment of the company.
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- If 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 as specified above.
No requirement of Special Resolution-
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
Disclosure 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.
Approvals of  Board and Public Financial Institutional No investment shall be made or loan or guarantee or security given by the company unless
Board Resolution passed with the consent of all the Directors present at meeting and
the prior approval of the public financial institution concerned where any term loan is subsisting.
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 above 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.
No company, which is registered under section 12 of the Securities and Exchange Board of India Act, 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.
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.
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.
Register  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.
The Register shall be kept at Registered Office of the Company and shall open to inspection at such office and 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.
Non-Applicability of Section Loan Made, guarantee given or security provided or investment made by
Banking Company, or
Insurance Company or
Housing Finance Compnay
in the ordinary course of its business or Company established with the object of and engaged in the business of financing industrial enterprises or of providing infrastructural facilities;
to any Investment-
made by an investment company;
made in shares allotted in pursuance of Section 62(1)(a) or in shares allotted in pursuance of rights issues made by a body corporate;
made, in respect of investment or lending activities, by NBFC registered under Chapter III-B of the Reserve Bank of India Act, 1934 and whose principal business is acquisition of securities.”
Here, Investment Company means-
a Company whose principal business is the acquisition of shares, debentures or other securities and a 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 per cent. of its total assets, or if its income derived from investment business constitutes not less than 50% as a proportion of its gross income.”.
the company shall be penalized with fine ( Rs. 25000 to Rs. 5 lacs).
For Officers in default-
Every Office in-default shall be punishable with imprisonment (max Two Years) and fine ( Rs. 25000 to Rs. 1 lac).

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Qualification: CS
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Location: New Delhi, New Delhi, IN
Member Since: 02 Feb 2018 | Total Posts: 1

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Category : Company Law (4013)
Type : Articles (17631)
Tags : Companies Act (2477) Companies Act 2013 (2250)

2 responses to “Analysis of Section 186 with respect to Companies (Amendment) Act, 2017”

  1. MANJEET KAUR says:

    Very exhaustive yet concise. Compelling article.

  2. Malvika Mall says:

    Thanks for this informative article. Keep up the good work 🙂

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