Treatment of different parties in accordance with Sec.

186 of CA
2013
Financial Instruments that come under Section 186 0f CA 2013:
1. Fixed Deposits : They do not come within the scope of Section 186
2. Inter Corporate Deposits : They do not come within the scope of Section 186
3. Investments : They do not come within the scope of Section 186

These instruments must not exceed 60% of sum of the Paid up Share
capital, Securities Premium and Free Reserves or 100% of sum of Free
Reserves and Securities Premium.

4. Non-Convertible Debentures : They come within the scope of Section 186

5. Mutual Funds : They come within the scope of Section 186
6. Convertible Debentures : They come within the scope of Section 186

I. Subsidiary Companies

Section 186 (3) “Where the aggregate of the loans and investment so far made,
the amount for which guarantee or security so far provided to or in all other
bodies corporate along with the investment, loan, guarantee or security proposed to
be made or given by the Board, exceed the limits specified under sub-section (2),
no investment or loan shall be made or guarantee shall be given or security shall
be provided unless previously authorised by a special resolution passed in a
general meeting:
Provided that where a loan or guarantee is given or where a security has been
provided by a company to its wholly owned subsidiary company or a joint venture
company, or acquisition is made by a holding company, by way of subscription,
purchase or otherwise of, the securities of its wholly owned subsidiary company,
the requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or
guarantee or security or acquisition in the financial statement as provided under
sub-section (4)”

Subsidiary companies are not subject to the provisions of sub clause 3 in

which it is stated that unless a special resolution has been passed by the Board
of Directors previously authorizing the company to exceed the limit as
mentioned in sub clause 2 they are not allowed to contravene the limitation of
sub clause 2.
At the same time the company has been instructed to publish the above
mentioned loans or securities or guarantees in its financial statements

II. Joint Venture Company

Joint Venture Companies are treated the same way subsidiary companies
are treated under section 186(3) of the Companies Act 2013

Section 186 (3) “Where the aggregate of the loans and investment so far made,
the amount for which guarantee or security so far provided to or in all other
bodies corporate along with the investment, loan, guarantee or security proposed to
be made or given by the Board, exceed the limits specified under sub-section (2),
no investment or loan shall be made or guarantee shall be given or security shall
be provided unless previously authorised by a special resolution passed in a
general meeting:
Provided that where a loan or guarantee is given or where a security has been
provided by a company to its wholly owned subsidiary company or a joint venture
company, or acquisition is made by a holding company, by way of subscription,
purchase or otherwise of, the securities of its wholly owned subsidiary company,
the requirement of this sub-section shall not apply:
Provided further that the company shall disclose the details of such loans or
guarantee or security or acquisition in the financial statement as provided under
sub-section (4)”
 Business Associate or Third Party (Person* or Business Corporate)
(*Person does not include employees of the company)

The elements that are required for instruments to fall under Section 186 of
Companies Act 2013 it must either be

i. Loan
ii. Guarantee in nature of a Loan
iii. Security in nature of a Loan
iv. Acquisition of securities of any Corporate body by Purchase,
Subscription or otherwise

Treatment of the instruments listed below under Section 186

1. Convertible Debentures : They come within the scope Security in nature

of a Loan

2. Non-Convertible Debentures : They come within the scope of security in

nature of a Loan

3. Mutual Funds : They come within the scope being acquisition of

Securities of any Corporate Body through Purchase Subscription or
otherwise