CS Akhilesh Kumar Jha
Loan and Investment by Company Under section 186 of the Companies Act, 2013
1- Notified Section
This section is not covered under notification which was issued on 12th September, 2013, Hence this section is not applicable at the time of issue of this Article.
2- Applicability of Section
A) The Sub Section (1) of Section 186 is applicable on all Companies either private Companies or public Companies.
B) Considering the Sub Section (11) of Section 186 of the Act, whole section except sub section (1) shall be applicable on Private Company as well as Public company also.
3- Non Applicability of Section
The Section 186 (Except Section (186 (1)) of the Companies Act, 2013 does not apply in following:-
1- Banking Company, Insurance Company, Housing Finance Company etc
2-Any company whose main business of acquisition of shares or securities etc
The intention of sub section 11 is clear that if the companies are involved in the area of banking, insurance, funding, facilitating of loan etc, In that case, this section cannot be applicable.
4- Meaning of layers
(d) “layer” in relation to a holding company means its subsidiary or subsidiaries; (Explanation (d) of Section 2 (87))
5- Investment (u/s 186 (1))
It means a company may not make investment its money more than Two Layer. The limit has been fixed. It is showing a good sign for transparency.
6- Investment not affects (Proviso of section 186(1))
The provisions of Section 186 (1) shall not be make compulsion on following cases:-
1- A company acquires any company which is incorporated outside India. Such company has Investment Subsidiary beyond Two layers as per the law of host country.
2- A subsidiary company from having any investment subsidiary for the purpose of meeting of the requirement under any law framed under any law for the time being in force.
7- Limits for Investment and Guarantee (u/s 186(2) )
The Limit is fixed in the Section 186(2), that 60% of Paid up capital + Free Reserve + Security Premium or 100% of Free Reserve + Security Premium (whichever is More). In this Section, the company cannot give loan, guarantee or provide any security or acquisition as per fixed limit. This sub section restricts within limit.
8- Approvals for Investment and Guarantee etc (u/s 186 (3))
The Sub section (2) of Section 186 makes restriction, but Section 186(3), gives power to the company, that it may give loan, guarantee or provide any security or acquisition beyond the limit but before taking prior approval from Shareholder in the General Meeting.
It means once we need to take approval from Shareholder in the General Meeting, thereafter we may make investment beyond the limit.
9- Disclosures (u/s 186 (4))
It is duty of the Company to disclose in the Financial Statement the full particulars of the loan given, security provided and guarantee given. The Company shall also disclose in its Report about its utilization.
10- Approvals of Board and Public Financial Institutional u/s 186 (5))
The company must take 100% consent from Board to give loan and guarantee and provided security. In case of Company has already taken loan etc from any financial institutions, banks etc. Then, it is mandatory to take prior approval also from public Financial Institution, banks etc.
The approval from Public Financial Institution shall not be required where the company has not been make default to pay interest and comply the limits and provisions of section (186 (2))
10- Companies Registered under SEBI u/s 186 (6))
Those companies or prescribed companies which are registered under SEBI can take interoperate loans or deposited exceeding the prescribed limit.
The intention of government is clear, if the company is registered under SEBI, this section is not applicable for the part of limit. But, simultaneously, it is prescribed a condition in Section i.e.:-
At the end of the Financial Year, such companies shall furnish details of loans or deposit in its Financial Statement.
So, the company can utilize the benefit mentioning the information and details in the Financial Statement of the Company.
11- Register (u/s 186 (9 and 10))
The Company shall must maintain a Register under this section and it shall be kept at the Registered office of the Company which shall be prescribed.
This register shall be opened for inspection and in case of any member, if demand its extract, the company shall provide them as per prescribed fee.
12- Penalty
For Company:-
If company contravenes this provision, the company shall be penalized with fine which shall not be less than Rs. 25000/- but which may extend to Rs. 5 lacs.
For Officers:-
Every officer of the Company who is default shall be punishable with imprisonment for a term which may extend to Two Years and find which shall not be less than Rs. 25000/- but which may extend to Rs. 5 lacs.
Can Company B borrow Rs.5 crore from Company A by pledging shares worth Rs. 7,75,000 and also Company B is a shareholder of Company A.
can u clarify on sub section 6 regarding companies registered u/s 12 of SEBI. The sub-section reads
“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.” while as u have mention that such companies can take ICL exceeding such limit.
Can a holding company.. holding 99% of shareholding in its subsidiary company give a loan to the same subsidiary company?
Can a holding company holding 99% shareholding give a loan to ihe same
subsidiary company?
Hello
What is the provision for Loan to Shareholders and another company as per Companies Act 2013
The exception provided to banking company or ainsurance company or a housing finance company is not balnket exception. The same is only in relation to those loans, guarantees or security which are provided in their ordinary course of business.
However in case of companies giving loan to another companies there is no condition that granting of loan should be its principal or substantial or ordinary business. Merely granting loan to companies and considering interest as operating income is sufficient to fall under the exception. A proper reading of exception would reveal the same.
Can a company give interest free loan another company ?
what is the judicial precedent behind section 186(4)?
Can any one have format of resolution u/s 180, 185, 186 of companies act 2013
Whether loan can be given to employee u/s 186 without charging interest if amount of loan is no exceeding (sixty per cent of its paid-up share capital, free reserves and securities premium account or one hundred per cent of its free reserves and securities premium account, whichever is more)
Point raised by miz. Ankita strikes me also. I think interpretation of that part is not in line with legislative intent.
Can a company with negative net worth make investments in Mutual Funds?
Limit is mentioned-
60% of paid up cap+free reserve+sp a/c
or
100% of free reserve+sp a/c
which ever is higher.bt my qs is
Whether at calculation dis limit for investment already made+proposed to b made or only for new proosed investment.
Cz act here mention only limit.bt in saying pfi approval it express investment already made nd proposes to ade separately.
Plz notify my quary….
12 – Penalty
For officer the highest penalty is one lakh not 5 lakhs rupees
Hello All,
Reading sub section (6) it seems that the companies which are registered under SEBI or any such companies shall not take inter-corporate loan or deposits exceeding the prescribed limit but in the above interpretation in point (10) it is written that those companies can take loan exceeding the prescribed limit. please kindly clarify it
Hello Everyone
The point that strikes me is that A Company can take loan from its shareholders. Now if the director is also a shareholder of the said company, Will he be able to take or give advances to the company.
Hello All,
Reading sub section (1) it seems that a company can not invest by more than two layer “investment subsidiary”, but my question is; what it mean? Is it possible that the company may invest in the more than 2 layer subsidiaries whose object are not as investment comapny but manufacturing, trading in goods, education,etc…
Hello All,
Reading sub section (1) it seems that a company can not invest by more than two layer “investment subsidiary”, but my question is; what it mean? Is it possible that the company may invest in the more than 2 subsidiaries whose object is not as investment comapny but manufacturing, trading in goods, education,etc…