Section 186 of Companies Act 2013 | Loans and Investments by Company

      LOANS AND INVESTMENTS BY COMPANIES               (SECTION 186)

Section 186(1)

A company shall unless otherwise prescribed, make investment through not more than two layers of investment

companies.

Provided that the aforesaid provisions shall not affect, —

(i) 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;

(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.

As stated above, for the purpose of Section 186 of the Act, Investment Company means a company whose

principal business is the acquisition of shares, debentures or other securities.

Therefore, investment through any company other than the Investment Company is not covered under sub- section

(1) of Section 186 of the Act.

LIMITS FOR LOANS, GUARANTEES, SECURITY AND INVESTMENT - SECTION 186(2)

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 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free

reserves and securities premium account, whichever is more.

Explanation —For the purposes of this sub-section, the word “person” does not include any individual who is in the

employment of the company.

NON-APPLICABILITY OF SECTION 186

Sub-section (11) of section 186 provides that nothing contained in this section, except sub-section (1), shall

apply—

(a) to any loan made, any guarantee given or any security provided or any investment made by a banking

company, or an insurance company, or a housing finance company in the ordinary course of its business,

or a company established with the object of and engaged in the business of financing industrial

enterprises, or of providing infrastructural facilities;

(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