♦ Section – 186: Loan and Investment by Company:
> “investment company” means a company:
√ assets in the form of investment in shares, debentures or other securities constitute not less than 50% of its total assets, or
√ income derived from investment business constitutes not less than 50% as a proportion of its gross income.
> “infrastructure facilities” means the facilities specified in Schedule VI.
> “person”does not include any individual who is in the employment of the company.
> “Layer”: As per explanation (d) of Section 2(87) of the Act in relation to a holding company means its subsidiary or subsidiaries.
♦ Sec-186(1): This states that a company shall make investment through not more than 2 layers of investment companies:
√ Exception of the provisions:
(i) a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond 2 layers as per the laws of such country;
(ii) 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.
(iii) in case of Specified IFSC Public Company – Section 186(1) shall not apply. [Notification Date 4th January, 2017.]
(iv) in case of Specified IFSC Private Company – Section 186(1) shall not apply. [Notification Date 4th January, 2017.]
♦ Sec-186(2): Limits prescribed for Loans, Guarantee, Security, Investments:
No company shall directly or indirectly:
(a) give any loan to any person 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:
or
whichever is more.
√ Exception of the provision:
> In case of Specified IFSC Public Company: if a company passes a resolution either at meeting of the Board of Directors or by circulation. [Notification Date 4th January, 2017.]
> In case of Specified IFSC Private Company: if a company passes a resolution either at meeting of the Board of Directors or by circulation. [Notification Date 4th January, 2017.]
Sec-186(3): Prior approval of Members by a Special resolution at General Meeting required:
Where the aggregate of the loans and investment so far made, the amount for which:
√ Exception of the provision:
> where a loan or guarantee is given or where a security has been provided by a company to its :
> company shall disclose the details of such loans or guarantee or security or acquisition in the financial statement as provided U/s. 186(4)
> In case of Specified IFSC Public Company: if a company passes a resolution either at meeting of the Board of Directors or by circulation. [Notification Date 4th January, 2017.]
> In case of Specified IFSC Private Company: if a company passes a resolution either at meeting of the Board of Directors or by circulation. [Notification Date 4th January, 2017.]
Sec-186(4): Disclosure requirement:
The Company shall disclose:
Sec-186(5): Prior Approval of Board and Public Financial Institution (PFI) needs to be obtained:
No investment shall be made or loan or guarantee or security given by the company:
√ Exception of the provision:
> 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 :
> in case of a Specified IFSC public company, the Board can exercise powers under this sub-section by means of resolutions passed at meetings of the Board of Directors or through resolutions passed by circulation.”.[Notification Date 4th January, 2017.]
Sec-186(6): Companies Registered U/s. 12 of SEBI Act, 1992:
No company, which is:
Sec-186(7): Rate of Interest as per Government Security:
No loan shall be given under this section:
√ Exception of the provision:
> In case of Section 8 Company: a company in which 26% or more of the paid-up share capital is held by the Central Government or one or more State Governments or both, in respect of loans provided by such company for funding Industrial Research and Development projects in furtherance objects as stated in its memorandum of association.”. [Notification Dated 13th June, 2017.]
Sec-186(8): No Loan by Defaulter Company:
No company which is in default:
Sec-186(9) & (10): Maintain Register of Loan:
Every company giving loan or giving a guarantee or providing security or making an acquisition under this section:
Sec-186(11): Non-Applicability of Provisions of Sec-186:
Except sec – 186(1), provision of sec – 186 shall not apply:
(a) to any loan made, any guarantee given or any security provided or any investment made by:
(b) to any investment:
(i) made by an investment company;
(ii) made in shares allotted in pursuance of sec – 62(1)(a) 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
Note:
(a) a Government company engaged in defence production;
(b) a Government company, other than a listed company, in case such company obtains approval of the Ministry or Department of the Central Government which is administratively in charge of the company, or, as the case may be, the State Government before making any loan or giving any guarantee or providing any security or making any investment under the section. [Notification dated 5th June, 2015.]
Sec-186(12): The Central Government may make rules for the purposes of this section.
Sec-186(13): Penal provision in case of default:
and
√ Maximum – Imprisonment up to 2 years and
√ Fine – Minimum Rs. 25,000 and Maximum Rs.1,00,000
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