LOAN AND INVESTMENT BY COMPANY
LOAN AND INVESTMENT MADE BY COMPANY as per section 186(1) of Companies Act, 2013– A company shall not make investment through more than two layer of investment company.
Exemption-
1. A company acquiring any other company which incorporated outside India and such company has investment subsidiary more than two layer as per law of that country.
2. A subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law.
LIMIT ON LOAN AND INVESTMENT MADE BY COMPANY as per section- 186(2)- Company shall not directly or indirectly
1. Give any loan to any body corporate or any person
2. Give any guarantee or provide any security in connection with a loan to any body corporate or any person.
3. Acquire by way of subscription, purchase or otherwise securities of any body corporate.
More than 60% of Paid up share capital + Free Reserves + Security Premium account
Or
100% of Free Reserves + Security Premium Account
Whichever is more
The Board of Director of the company shall make investment or give loan, give guarantee or provide security in connection to loan within the limit prescribed under section- 186(2) by passing Board Resolution.
ACCORDING to section-186(3)- A Company can give loan, guarantee or provide any security or make any investment beyond the limits specified u/s 186(2), by passing Special Resolution in General Meeting.
Note- Section- 186(3) does not apply on investment or loan made by company to its wholly owned subsidiary company.
DISCLOUSRE REQUIREMENT as per section-186(4)- The company shall disclose to the members in the financial statement the full particulars of the loans given, investment made or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security.
As per section 186(5)- Prior approval from Public Financial Institution is required
1. The aggregate amount of loan or guarantee given, security provided or investment made exceed the limit as specified in section 186 (2)
2. Default is made in repayment of loan instalments or payment of interest thereon as per the terms and conditions of such loan to the public financial institution.
As per section-186(6)- No company registered under section 12 of the Securities and Exchange Board of India Act, 1992 and also covered under such class or classes of companies which may be notified by the Central Government in consultation with the Securities and Exchange Board, shall take any inter-corporate loan or 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 Securities and Exchange Board of India.
As per section-186(8)– Company who make default in the repayment of any deposits 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.
MAINTAIN REGISTER FOR LOAN AND INVESTMENT MADE BY COMPANY- Every company giving loan or giving a guarantee or providing security or making an acquisition under this section shall keep a register which shall contain such particulars and shall be maintained in such manner in MBP-2
NON APPLICABILITY OF THIS SECTION 186 EXCEPT SUB-SECTION- 186(1)-
1. Does not applicable on companies give any loan or give any guarantee or provide any security in the ordinary course of its business or a company.
2. Banking Company
3. Insurance Company
4. Housing Finance Company
5. Company engaged in the business of financing of companies or of providing infrastructural facilities;
To any investment—
(i) made by an investment company;
(ii) made in shares allotted in pursuance of section 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
PENAL PROVISIONS AS PER SECTION- 186(13)-
| Particulars | Imprisonment | Fine |
| Company | N.A | Minimum 25000 or may extend 5,00,000 |
| Officer of Company | May Extend to 2year | Minimum 25000 or may extend to 1,00,000 |
Author Bio
