Loans & Investments by a

Company
Company Law Assignment

TERMINOLOGIES
USED UNDER :
S.186
RET
P S EC THE COMPANIES ACT, 2013
TO
Free Reserves :
S.2(43)
“Free Reserves” means such reserves which, as
per the latest audited balance sheet of a
company, are available for distribution as
dividend.
Excludes :
(i) unrealized gains, notional gains or revaluation of assets, shown as a reserve.
(ii) any change in carrying amount of an asset or of a liability recognized in equity, including
surplus in profit and loss account on measurement of the asset or the liability at fair value.
S.2(11)

“Body Corporate” or
“Corporation” :
“It includes a company incorporated
outside India, but does not include :

(i) a co-operative society registered under any law relating to

co-operative societies
(ii) any other body corporate (not being a company as defined
in this Act), which the Central Government may, by
notification, specify
 S.186

Investment Company :
“Investment company” means a company
whose principal business is the acquisition of
shares, debentures or other securities.
Company Law Assignment

S.186
TERMINOLOGIES
Investment Company :
USED UNDER :
“Investment company” means a company
S.186 of
whose principal business is the acquisition
shares, debentures or other securities.

RET THE COMPANIES ACT, 2013

P S EC
TO
Company Law Assignment

Loans & Investments

UNDER :
S.186
RET
P S EC THE COMPANIES ACT, 2013
TO
Loan & Investment by company : S.186

Section 186 (1) restricts a company from making investment

through more than 2 layers of investment companies.

A/C to Section 186 (1),

“A company shall unless otherwise prescribed, make
investment through not more than two layers of investment
companies.”
Exceptions to S.186(1) :
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.
 S.186
HOLDING
COMPANY
X

INVESTMENT

LAYER - 1
C D
A B
SUBSIDIARY COMPANIES

LAYER - 2
C 1 D1
A
1 B1

D2
LAYER - 3
B2 C 2

A 2
REGISTER OF LOANS OR INVESTMENTS MADE,
S.186(9)
GUARANTEES GIVEN OR SECURITIES PROVIDED :

Sub-section (9) of section 186 provides that every company giving loan or giving
a guarantee or providing security or making an acquisition under this section
shall keep a register which shall contain such particulars and shall be maintained
in such manner as may be prescribed.

Rule 12 of “Companies (Meetings of Board & its Powers) Rules, 2014

1. From the date of incorporation, maintain a register in Form MBP – 2.
2. Entries to be made chronologically, within 7 days of making such transaction.
3. Shall be kept at the registered office, preserved permanently, shall be kept in the custody of Company Secretary of
the company or any other authorized person by the Board.
4. The entries in the register shall be authenticated by the company secretary of the company or by any other person
authorised by the Board.
5. The register can be maintained either manually or in electronic mode.
6. 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 ten rupees for each page.
 S.185
Loans to Directors :
No company shall, directly or indirectly, advance any loan, including any loan
represented by a book debt, to any of its directors or to any other person in whom
No company shall, directly or indirectly, advance any loan, including any
the director is interested or give any guarantee or provide any security in
loan represented by a book debt, to any of its directors or to any other
connection with any loan taken by him or such other person.
person in whom the director is interested or give any guarantee or provide
any security in connection with any loan taken by him or such other
person.
 However these provisions shall not apply to—

a) The giving of any loan by the company to a managing or whole-time director

(i) As a part of the conditions of service extended by the company to all its
employees; or
(ii) Pursuant to any scheme approved by the members by a special resolution; or
b) A company which in the ordinary course of its business provides loans or gives
guarantees or securities for the due repayment of any loan and in respect of such loans
No company shall, directly or indirectly, advance any loan, including any loan
an interest is charged at a rate not less than the bank rate declared by the RBI.
represented by a book debt, to any of its directors or to any other person in
c) Any loan made by holding company to its wholly owned subsidiary company or any
whom the director is interested or give any guarantee or provide any security in
guarantee given or security provided by a holding company in respect of any loan made
connection with any loan taken by him or such other person.
to its wholly owned subsidiary company; or
d) Any guarantee given or security provided by holding company in respect of loan made
by any bank or financial institution to its subsidiary company.
 INVESTMENTS TO BE HELD IN
COMPANY'S OWN NAME :
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.
No company shall, directly or indirectly, advance any loan,
There are certain Exemptions from applicability of Section 187(1) and
including any loan represented by a book debt, to any of its
certain related cases where the provisions of S.187(1) do not apply given
directors or to any other person in whom the director is interested
in S.187(2).
or give any guarantee or provide any security in connection with
any loan taken by him or such other person.
S.187
Punishment :
S.187(4), the company shall be punishable with fine which shall not be
less than 25,000 rupees but which may extend to 25,00,000 rupees and
every officer of the company who is in default shall be punishable with
imprisonment for a term which may extend to 6 months or with fine
which shall not be less than 25,000 rupees but which may extend to
1,00,000 rupees, or with both.
Company Law Assignment

INVESTMENTS TO BE HELD IN COMPANY'S OWN

NAME :
According to Sub-section (1) of Section 187, all investments made or held by a

own name. Loans & Investments

company in any property, security or other asset shall be made and held by it in its
No company shall, directly or indirectly, advance any loan,
including
Thereanyare loan
certain represented
Exemptions from by a bookofdebt,
applicability Sectionto187(1)
any and
of its
certain
directors orcases
related to any
whereother person
the provisions in whom
of S.187(1) do not the
applydirector is interested
given in S.187(2).
or give any guaranteeUNDER or provide: any security in connection with
any loan taken by
Punishment : him or such other person.
S.186
S.187(4), the company shall be punishable with fine which shall not be less than
25,000 rupees but which may extend to 25,00,000 rupees and every officer of the
company who is in default shall be punishable with imprisonment for a term which

CRET may extend to 6 months or with fine which shall not be less than 25,000 rupees but
THE COMPANIES ACT, 2013
P S E which may extend to 1,00,000 rupees, or with both.
TO