SECTION 186 OF COMPANIES ACT 2013
- A Company can give Loan or provide Security/Guarantee to Any Person/Body corporate and
- acquire by way of subscription securities of any other body corporate
(By Board Resolution) ⇓ (With Consent Of All Director Present + PFI Prior Approval *)
UP TO 60% of its Paid up capital + Free reserve + Security premium account
OR
100% of its Free reserve + Security premium account, Whichever Is More.
Note: The word “person“ does not include any individual who is in the employment of the company.
*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 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.]
> If Present and Proposed (Aggregate) Loan /investment/ Guarantee and Security Exceed 60% of its Paid up capital + Free reserve + Security premium account OR 100% of its Free reserve + Security premium account
⇓
Should be authorised by Special resolution in General Meeting
> 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.
Section Not Apply :
> This section not apply 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 But company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement.
> To any loan made, any guarantee given or any security provided or any investment made by a banking company, or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of and engaged in the business of financing industrial enterprises, or of providing infrastructural facilities(as per schedule VI.)
> 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.
If a company contravenes the provisions of this section:-
For Company: – Fine shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees
Every officer of the company who is in default:- 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.
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