Article explains Provisions of Section 186 of Companies Act, 2013 related to Inter-Corporate Loans & Investments.

Section 186 is NOT Applicable to Loan Made, guarantee given or security provided or investment made by Banking Company, or Insurance Company or Housing Finance Company in the ordinary course of its business or whose principal business is of lending of money to the general public.

Section 186 is also NOT Applicable To any Investment made by an investment company; made in shares allotted by way of rights issues made by a body corporate; Investment made by an NBFC company whose main business is to invest in the securities of the Company.

Inter-Corporate Loans and Investments
1 Inter-corporate investment by the Company As per section 186(1) of the Companies Act, 2013, a company shall make investment through not more than two layer of investment Company

investment Company             

2 Exception to Section 186(1) a. If an Indian Company acquire any other Company which incorporated outside India and if such subsidiary has Investment subsidiaries beyond two layers as per the law of such Country.

b. A subsidiary having investment subsy for the purpose of fulfilling the requirements of any Law, Rule, Regulations for time being in force.

3 Limits for Loan, Guarantee, Security and Investment In case if company directly or indirectly-

a. Giving any loan, or

b. Provide any security in connection with loan , or

c. Giving any Guarantee, or

d. making investment in any other body corporate or person, then as person 186(2) it shall not exceeding-60% of its paid up share capital, free reserve and security premium account, and

100%  of its free reserve and securities premium account,

Whichever is more,

*Note- Person does not includes individual who is in the employment of the Company.

4 Special Resolution Section 186(3) If the aggregate amount loan, guarantee, security, and investment the company exceeds the limit as prescribed in section 186(2) in such a case no investment or loan shall be made or guarantee shall be given or security shall be provided unless its authorized by special resolution passed in a general meeting.
5 1st proviso to section 186(3) The requirement of section 186(3) shall be apply, in case if Loan, Guarantee or security has provided by a Company-

a. to its wholly owned subsidiary Company; or

b. a Joint venture Company;

or acquisition made by holding company by any mode, of securities of its wholly owned subsidiary Company.

6 2nd proviso to section 186(3) Company shall disclosed the details of such loan, Guarantee, Security, acquisition in the financial statement.
7 Disclosure to Member Section 186(4) Company shall disclose to the member in financial statements-

1. the full details of the Loan, Investment, Guarantee,

2. Purpose of the same,

8 Board resolution Section 186(5) For every inter-corporate loan, investment, guarantee, security the board resolution required to be passed.
9 Approval of financial Institutions Section 186 (5) Where any term of the loan subsisting that the approval of financial institution shall be required then before giving any loan, guarantee, security, Investment the approval of the financial Institutions shall be required;

Exception:

Approval of Public financial Institution shall not be required where the aggregate of the loans and investment so far made, amount for which guarantee and security so far provided along with any Investment, loan, security, Guarantee proposed to be made shall not exceed the limit under section 186(2) of the Act.

10 Section 186(6) 1. Company Registered under section 12 of the SEBI Act, 1992 and

2. such class of companies as may be notified by the CG in consultation with the SEBI,

shall take inter-corporate loan and 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 SEBI and such Company shall furnish in its financial statements the details of the loans or deposits;

11 Rate of interest Section 186(7) The rate of Interest shall not be lower than the prevailing of one year, three year, five year, ten year government security closet to the tenure of the loan.
12 Defaulted companies Section 186(8) In case any company made default in repayment of deposit accepted before or after this act or in payment of interest, shall not give any guarantee or provide any security or make an acquisition till such default is subsisting.
13 Register to be maintained Section 186 (9), (10) Company giving loan, or providing security, giving guarantee, or making investment in securities in any body corporate shall from the date of its incorporate, shall maintain a register of loan, guarantee, security, investments,

2. The Register shall be in form MBP 2

3. The entries in the register shall be made within 7 days of making Loan, or giving guarantee, or providing security, making acquisition.

4. Each entries in the register shall be authenticated by the CS or any person authorized by the Board of directors.

5. Register can maintained either manually or in electronic mode.

6. The extracts of the register may be furnish to the member of the Company on payments of such fees as may be prescribed in the article which shall not exceed 10 rupees for each page.

14 Non Applicability of section 186 Section 186(11) 1. Banking Company;

2. Insurance Company;

3. House Finance Company

4. NBFC

If any such transactions doing in ordinary course of business

15 Fine and Imprisonment Section 186(13) If a company contravenes the provisions of this section,

Fine;

Min- 25,000 Rupees

Max- 5,00,000 Rupees

Officer in default

Imprisonment: 3 Years

Fine;

Min- 25,000 Rupees

Max- 1,00,000

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