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Section 186 Loan & Investment By Company

ACS Divesh Goyal

Section 186 – Loan and investment by company under the Companies Act,2013

APPLICABILITY:

This is applicable for Private Company and Public Company.

APPROVAL:No Company Shall Directly or Indirectly without Board Resolution-

 

Board Approval: Company can give loan or guarantee or providing any security or the acquisitionby Passing of Unanimous Board Resolutionat the meeting of Board of Directors, when limit does not exceed:

  • 60% of Paid up share capital + Free Reserve + Security Premium Account

                                OR

  • 100% of Free Reserve + Security Premium Account

Whichever is more.

General Meeting Approval: Where any Loan & Guarantee or providing any security or the acquisition exceeds the limit mention above then prior approval of Shareholder by passing of Special Resolution  requires.

Public Financial Institution Approval: Prior Approval of Concerned Public Financial Institution is Require if term loans subsisting is(Aggregate of L, I, G & S already made along with L, I, G & S proposed to be made)exceed the limit mention above.

Provided that, No approval of PFI is required if there is no default made by company on repayment of loan installment or payment of interest there on as per T&C of such loan to the Public Financial Institution.

CONDITIONS: NO COMPANY

a)    Which is Registered under section 12 of the SEBI 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 furnish in financial statement the details of the loan and deposits.

b)    which is in default in the repayment of any deposits accepted before or after the commencement of this Act or in payment of interest thereon,shall give any L, G, S & I till such default is subsisting.

c)    No loan shall be given under this section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

Note:The Company shall disclose to the member in the financial statement the full particular of  L, G, S & I made and purpose for which L, I, G & S Proposed to be utilized.

REGISTER OF LOAN, GUARANTEE, SECURITY AND ACQUISITION:

  • Every company giving loan or giving guarantee or providing security or making an acquisition of securities shall, from the date of its incorporation, maintain a register in Form MBP 2.
  • Enter therein separately, the particulars of L, G, S & I made as aforesaid.
  • Entries in the register shall be made chronologically in respect of each such transaction.
  • Entries in the register shall be made within seven days of making L, G, S & I.
  • Register shall be kept at the Registered Office of the company.
  • Register can be maintained either manually or in electronic mode.
  • The Extracts from the register may be furnished to any member of the company on payment of such fee as may be prescribed in the Articles of the company which shall not exceed 10 rupees for each page.

Punishment for violation:  If a company contravenes the provisions of this section,

  • The Company shall be punishable with fine which shallnot be less than twenty-five thousand rupees but which may extend to five lakh rupees AND
  • Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to two yearsand with fine which shallnot be less than twenty-five thousand rupees but which may extend to one lakh rupees.

EXEMPTION: The Provision of This Section Not Apply:

INVESTMENT IN SUBSIDIARY:

(Author can be reached at csdiveshgoyal@gmail.com )

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