Section 187 of Companies Act 2013 | Investment by Companies

INVESTMENTS TO BE HELD IN COMPANY’S OWN NAME – Section 187

According to Sub-section (1) of Section 187, all investments made or held by a company in any property, security

or other asset shall be made and held by it in its own name.

•>> As per proviso to section 187(1), the company may hold any shares in its subsidiary company in the name of any nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of

the subsidiary company is not reduced below the statutory limit.

•>> Where the shares of a company were registered in the joint names of the company and one of its directors, it

was held that the director was a nominee of the company for that purpose and could only act jointly as he had no

rights of his own. [Exchange Travel (Holdings) Ltd. Re].

    Exemptions from applicability of Section 187(1)

Nothing in this section shall be deemed to prevent a company:

(a) from depositing with the bank, being the bankers of the company, any shares or securities for the

collection of any dividend or interest payable thereon; or

(b) from depositing with or transferring to, or holding in the name of, the State Bank of India or a

scheduled bank, being the bankers of the company, shares or securities, in order to facilitate the

transfer thereof.

Provided that if within a period of 6 months from the date on which the shares or securities are

transferred by the company to, or are first held by the company in the name of, the State Bank of India

or a scheduled bank as aforesaid, no transfer of such shares or securities takes place, the company

shall, as soon as practicable, after the expiry of that period, have the shares or securities re-

transferred to it from the State Bank of India or the scheduled bank or, as the case may be, again

hold the shares or securities in its own name; or

(c) from depositing with, or transferring to, any person any shares or securities, by way of security for

the repayment of any loan advanced to the company or the performance of any obligation undertaken by

it.

(d) from holding investments in the name of a depository when such investments are in the form of

securities held by the company as a beneficial owner.

PUNISHMENT

According to section 187(4), if a company contravenes the provisions of section 187, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to twenty- 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 six months or with a fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.