Loan and Investment by Company (FAQs) –Updated Up-to 19/07/2021
Q.1 What is maximum limit thorough which a company can make investment through layers of companies? [Sec 186(1)]
(a) 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;
(b) 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.
Q.2 What are the ceiling limits for providing Loan / Guarantee/ making Investments in Securities by Companies? [Sec 186(2), (3) and (6)]
(a) give any loan to any individual who is not in employment of the Company or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other body corporate or person; and
(c) acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,
exceeding the ceiling limit as pre bellow mentioned chart unless a Special Resolution is passed by the members.
However, loan or guarantee if 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, the requirement of above limit shall not apply.
Provided further that the company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement.
Further, no company, which is registered under Section 12 of the Securities and Exchange Board of India Act, 1992 shall take inter-corporate loan or deposits exceeding the limit stated above and such company shall furnish in its financial statement the details of the loan or deposits.
Q.3 What all disclosures to be made when a Company provides Loan, gives Guarantee and makes Investments? [Sec 186 (4) & (5)]
Q.4 What all consent/ prior approval are needed making Investment/ providing Security / giving Loan? [Sec 186 (5)]
Q.5 What shall be minimum rate of interest to be charged against loan provided? [Sec 186 (7)]
Q.6 Which are the Companies prohibited for giving loan, providing Security or making Investments? [Sec 186 (8)]
Q.7 What all registers to be maintained by the Company for Loan/ Guarantee / Investment and the points to be kept in mind while maintaining it? [186 (9) & (10)]
Q.8 Which are the Companies exempted from the applicability of Section 186 of Companies Act, 2013? [Sec 186 (11)]
(b) 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]
Q.9 What are the penalties / Consequences for violation of Section 186 of Companies Act, 2013? [Sec 186 (13)]
Procedure – Inter-Corporate Loan-Investment-Guarantee-Security
(Author – CS Nayan Pitroda proprietor of Pitroda Nayan & Co., Company Secretary in Practice can be contacted at +91 8866021210 and / firstname.lastname@example.org)