Intercorporate

Loans
By – Leela Tarang Krishna
 • A Company shall make investments
through not more than two layers of
investment companies.

• Vertical layers v. Horizontal Layers.

• Section 186(1) & Section 2(87).

• Investee company seeks a declaration

stating that the investment is not coming
from beyond two layers.

Who can invest?

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 No Company shall
• Give a loan (to a person/body corporate)
• Give guarantee / provide security against a loan
• Acquire by way of subscription, purchase /
otherwise the securities of other company
Exceeding 60% of it’s paid up capital + Free reserves
+ Securities premium account / 100% of it’s free
reserves, whichever is lower.
If a loan is being made by a holding company into its
subsidiary company, then the restriction will not apply.
If a company is registered with SEBI, the limits are
specified there.
How much can they
invest?

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 Section 186(4)

What needs to be
disclosed?

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 • Unless the resolution sanctioning it is passed at a
meeting of the Board with the consent of all the directors
present at the meeting &
• The prior approval of the Public financial
institution concerned where any term loan is subsisting,
is required in case:
a) The investment is supposed to cross the limits
as specified.
b) There is a default in repayment of loan
instalments or payment of interest thereon as
per the terms and conditions of such loan to the
public financial institution.
• Prior approval of PFI is not required if the investment is
within the limits of Section 186(2).
When can the IC
Loans be given?

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 • The rate of interest shouldn’t be lower
than the prevailing yield of one year, three-
year, five-year or ten years Government
Security closest to the tenor of the loan.

• Clear the dues owed to depositors before

giving out an IC Loan.

Miscellaneous:

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 The Section 186 (except Sub-Section 1) of the Companies Act, 2013, does not
apply to the following:

a) to a loan made, guarantee given or security provided by a banking company

or an insurance company or a housing finance company in the ordinary
course of its business or a company engaged in the business of financing of
companies or of providing infrastructural facilities;

b) to any acquisition –

i. made by a non-banking financial company registered under

Chapter IIIB of the Reserve Bank of India Act, 1934 and whose
principal business is acquisition of securities: Provided that
exemption to non-banking financial company shall be in respect of
its investment and lending activities;

ii. made by a company whose principal business is the acquisition of

securities;

iii. of shares allotted in pursuance of section 62(1)(a).

iv. made by a banking company or an insurance company or a housing

finance company, making acquisition of securities in the ordinary

186 is not applicable

course of its business.

to:

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